Inflation: FG must restore global confidence in economy, Naira __Dickerman
- Dangote Refinery can’t tame fuel prices
Sopuruchi Onwuka
The activation of the highly anticipated Dangote Refinery will not bring any significant price relief to consumers of petroleum products in the country because of the overall inflationary trends that trigger price jumps on imported goods in the market.
And the only path to recovery is for the government to map out its strategies to address inflation by increasing local production to displace the bulk of imported goods, pull in more foreign investments and create more jobs through enhanced domestic productivity.
Chief Executive Officer of Pinnacle Oil and Gas Limited, Robert Dickerman, who delivered a presentation on the developments in the Nigerian fuel market at the Annual Strategic International Conference hosted by the Association of Energy Correspondents of Nigeria (NAEC) in Lagos stated that government must address the root problem of the crisis in the market.
He added that Nigeria has to restore global confidence on its economy and the Naira by enhancing its tax revenue, maintain high level of fiscal prudence and flaunt congenial operating environment for global investors.
In pointing at Dangote Refinery as a private business playing in a dollar denominated global industry, Dickerman noted that petroleum products are priced in dollars or its Naira equivalent. And either way, fuel prices are directly affected by the devaluation of the Naira.
He said devaluation of the Naira is a path taken by the government after the country’s crude oil production declines were exacerbated by the actions taken by the Buhari administration of the government to raise short term cash such as crude forward sales and crude collateralized on international loans.
The mindless borrowing by the Buhari government had plunged the country into fiscal constraints that are worsened by increasing debt amid rising need to mitigate jumps in fuel and electricity prices.
Dickerman declared that the key factor in the pricing petroleum products in the country is the value of the Naira.
He stated that the devaluation of the Naira by the incumbent administration of the federal government sparked off inflationary trends that that affected products that are traded in foreign exchange, including petroleum commodity and derived products.
Dickerman stated that every drop in the value of the Naira raises the cost of anything imported or indexed on the international market prices, including gasoline, manufactured goods and food. He made it clear that the rising prices of fuel in the country ar a function of inflation associated with drop in the value of the Naira at the foreign exchange market.
He noted that trade in crude oil and petroleum products are priced in dollars all over the world since oil was first drilled in Pennsylvania in 1859.
“When we import products, whether the buyer is NNPCL or a private marketer, we must pay the global market price, adjusted for quality and location. That price is in dollars and must be paid in dollars. When it is re-sold in Naira by vessel, in bulk in a terminal, by truck at a gantry, or by pump at retail, the market price is the USD price, converted to Naira at the current foreign exchange rate, which is currently about N1700.
“Any price below that is the result of Nigerian subsidy. The subsidy represents the difference between the market price and the selling price,” he explained.
“We must address the root problem, which is how to restore global confidence in Nigeria’s economy and currency, create foreign investment in jobs and local production, increase tax revenue and achieve fiscal prudence! That is the only way to lower petroleum products prices in naira.”
On the import price disparity between Nigerian National Petroleum Company (NNPC) Limited and other marketers, Dickerman explained that petrol is still subsidized by the government though discounted foreign exchange rate for the national oil company.
The concession, according to him, explains the import monopoly of NNPC Limited in the domestic fuel market.
“Prices at wholesale and retail are still considerably below market rate. That is why only NNPCL has been able to import and why only NNPCL can buy Dangote’s gasoline and pay market price, while reselling at a subsidized price. No marketer would stay in business trying to copy this model.
“Available crude for sale by NNPC has been steadily declining due to production challenges and actions taken to raise short term cash such as crude forward sales and crude collateralized on international loans, but also because of the fiscal constraints of the government, its increasing debt and the need to fund large subsidies such as for PMS and electricity,” he proffered.
