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Nigeria's President confirms removal of gasoline subsidies - S&P Global

JUNE 05, 2020

by  Eklavya Gupte with Staff Reports; Daniel Lalor  



London — After several attempts to reform Nigeria's downstream oil sector, Africa's largest producer has finally got rid of costly fuel subsidies and moved to a market-based pricing regime for gasoline, in the wake of the oil price crash. 

The government said late June 4 that President Muhammadu Buhari had granted approval to the Petroleum Products Pricing Regulatory Agency to remove the price cap that was in place for gasoline, or premium motor spirit as it is known in the country.

For its part, the PPPRA said: "From the commencement of these regulations, a market-based pricing regime for Premium Motor Saint (PMS) shall take effect...The agency shall monitor market trends and advise the Nigerian National Petroleum Corporation and oil marketing companies on the monthly guiding market-based price."

Price cap removal

The crash in global oil prices earlier this year provided Nigeria an opportunity to liberalize the sector and end its subsidy regime.

Nigeria had capped the pump price of gasoline -- which is bought on the wholesale market on a dollar-denominated basis -- at Naira 145/liter (40 cents/liter) since 2016. The government's subsidy was the difference between the landing cost and the regulated pump price.

In March, the government cut the gasoline pump price 10% to Naira 130/liter and again to Naira 108/liter in May.

The PPPRA said at the time it had begun fuel price modulation in accordance with prevailing market dynamics and would respond appropriately to any further oil market development.

Nigeria, which typically consumes 1 million mt-1.25 million mt of gasoline per month, saw demand slump with the bulk of the country, including capital Lagos and the federal capital Abuja, in lockdown as a health measure since the end of March. Some restriction have been lifted pushing demand up marginally, though it remains low.

Nigeria imports almost all the gasoline it consumes due to low throughput rates at four state-owned refineries.

Clarity needed on deregulation

The government had been under pressure to carry out the reform.

Major Oil Marketers Association of Nigeria (MOMAN), an industry umbrella body, said the development was a turning point for the downstream oil sector.

MOMAN president Adetunji Oyebanji said it was hoping to get more granular details from the PPPRA and the government on how the deregulation will work once prices rise further.

"There should be a proper legislative framework to guide the deregulation of the downstream sector and protect the interest of private investors," Oyebanji said.

Nigeria also recently granted approval to private marketers to import gasoline for domestic consumption at market prices in the country's latest push to liberalize the sector and end subsidies.

NNPC has been Nigeria's sole gasoline importer since private marketers stopped importing gasoline in the third quarter of 2017, in protest at the government's refusal to settle about $2 billion in subsidy arrears related to gasoline imports and the continued regulation of domestic pump prices.


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