12 January 2016•Update: 17 January 2016
LAGOS, Nigeria
The government's cap on gasoline prices is not expected to provoke fuel scarcity, experts told Anadolu Agency on Monday.
The government ruled on Jan. 1 to push down the price of gasoline -- from N87 ($0.44) to N86.50 ($0.43) per liter. At the same time, the government ceased subsidizing petrol prices, after making a $2 billion payment in overdue subsidies to gasoline marketers.
But the determination of the price of gas at the pump will, in the future, be subject to what Petroleum Minister Ibe Kachikwu called a "price modulation calculation" which means that the price will be reviewed according to global market conditions.
In the past, controlled oil prices have caused distributors to hoard gasoline which they claimed they were unable to sell at a profit at the price fixed by the government.
Experts, however, said that distributors can make a profit under the new cap so long as the price of oil remains low.
"Any adjustment which brings Nigerian pump prices into line with global market realities is to be welcomed; now that prices are at historic lows, phasing out the subsidy should not cause the level of hardship to ordinary people which it has in the past. It will free up money for other development spending," Olly Owen, an expert on political economy and international development, told Anadolu Agency on Monday.
But Owen noted that regulators should warn that the price of petrol could go up if the price of oil rises.
Owen, however, called on the government to address the issue of different prices in different areas of the country; the price differences are caused by distribution and foreign exchange availability issues.
Economist Tunji Andrews agreed that distributors can make money with the capped oil price for now.
Local refineries are currently able to produce seven million liters of gas per day, Andrew noted, and that accounts for about 17 percent of Nigeria’s demand -- and locally produced gas costs less.
"Thus, with the refinery portions cheaper than the imported fuel, marketers are able to make more money when they use the refinery output. The government has reduced charges and other costs for marketers, raising their margin on a liter of gas to N5 ($0.03) from N4.60 ($0.02)."
Samuel Atiku, an economist with the public accountability organization BudgITng, pointed out that imported gas would also offer a profit to marketers at the capped price.
"The primary cost of bringing imported gasoline to Nigeria is N67.50 ($0.34). Even with distribution costs added, marketers can make a profit at that price," Atiku said.
Marketers will also have to adjust to the variable price regime, pointed out Wale Olusi, investment research analyst at Afrinvest. They are likely to avoid hoarding, because the price could always be reduced further, he argued.
