New Fuel Price: Source of Forex for Oil Marketers Worries Analysts

Obinna Chima
Financial market analysts have expressed concern over the directive that oil marketers should source United States dollars for the importation of refined petroleum products from either the interbank or parallel markets of the foreign exchange market.

The federal government last week introduced a new fuel price regime stating that the product would now sell for not more than N145 a litre.
To this end, the Petroleum Products Pricing Regulatory Agency (PPPRA) released a revised pricing template for petrol and pegged the rate at N298 to the dollar to limit the challenges associated with sourcing and accessing forex for the importation of petrol by oil marketers.

But analysts at CSL Stockbrokers Limited stated that they struggle to see how the new forex rate will work for petrol importers, given the widening margin between parallel market rates and N285/US$. Allowing the oil marketers to source forex independently has led to surge in demand on the parallel market as rates, which hovered around N320/US$ prior to the new pump price have gone up by about 10 per cent to between N350-N360 to a dollar.

"We do not know the depth of the parallel market (which petrol importers will be forced to access), but we do not believe it is large enough to meet the daily forex demand fuel imports. What we do believe, however, is that this development will continue to put depreciatory pressure on parallel market rates, barring a devaluation of the official exchange rate or some sort of relaxation of the tight forex situation," they added.

On their part, analysts at Afrinvest West Africa Limited noted that are limitations to the policy shifts. According to them, introduction of a price cap implies PPPRA still regulates pricing, thus speculative practices cannot be avoided close to seasonal adjustment dates of the pricing template.

Also, they stated that since domestic prices reflect impacts of exchange rate and crude oil price movements, fixed landing cost and distribution margin set in the current pricing template may be inadequate to ensure stable margin for industry players, thus constituting a business risk for marketers.
"The Minister of Petroleum did mention that the pricing guideline is at initial stage of the deregulation process and ultimately allow market dynamics to set in. We believe that the ultimate conclusion of the reform and pricing dynamics (exchange rate and crude oil prices) ought to be left for market forces to determine.

"More importantly, policy inflexibility of forex market still constitutes a burden to importers and tacit approval granted to marketers to source FX at secondary markets could pressure exchange rate further at the parallel market. We think that the recent effort should be complimented with an exchange rate liberalisation policy," they added.

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu has said that the federal government would have had to cough up N16.4 billion every month to offset the subsidy claims of oil marketers had it not taken the decision to remove the subsidy on petrol.
Kachikwu, in a series of tweets Sunday had explained that at the time the government made the decision, it was incurring about N13.7 kobo as subsidy on each litre of petrol bought by Nigerians.

Kachikwu said at the rate of N13.7 kobo per litre as subsidy claims, the government would have paid out N16.4 billion to marketers monthly, adding that the government does not have such funds in its 2016 budget, more so now that the country's earnings from crude oil have dropped.


SourceListen MP3 Music


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