How petrol landing cost impacts retail pricing

Oil marketers in Nigeria have begun receiving fresh supplies of petrol amid a shortage in some parts of the country due to supply shortfalls. Temitope Kolade, Senior Manager for Oil, Gas, and Power at Andersen Nigeria, recently appeared on CNBC Africa to discuss the current situation and its implications. The conversation revolved around the rising landing cost of petrol, which has now soared to 720 Naira in some regions, such as Lagos. This increase has put pressure on retail pricing, with pump prices reaching close to 600 Naira, up from 651 Naira in August according to marketers. Kolade highlighted the challenges faced by the industry, especially with the recent passage of the Petroleum Industry Act (PIA) signaling a move towards deregulation. The dilemma lies in whether Nigeria is fully transitioning to deregulation or maintaining a price management system amidst significant fiscal responsibilities. The escalation of landing costs, including expenses like truck drivers' diesel costs and various port charges denominated in foreign currencies, poses a considerable burden. As a result, the market is likely to see an inevitable rise in petrol prices to reflect current realities and reduce government expenditure. The absence of a clear subsidy policy adjustment complicates the situation further. Marketers are struggling to sustain operations as they grapple with loan accessibility due to high interest rates and currency fluctuations. Some smaller stations are facing closure, while larger entities are also encountering challenges in obtaining the necessary funding and foreign exchange for product imports. The recent declaration by the NNPC Group Managing Director that the corporation is reinstating its role as the primary petrol importer underscores the urgency of the matter. In examining potential solutions, Kolade emphasized the need for short-term, mid-term, and long-term strategies. Despite the promise of refinery operations as a mid-term fix, existing refineries like the Port Harcourt Refinery are grappling with operational hurdles, hindering their contribution to the supply chain. The delays in refinery revamps, like the Port Harcourt and Dangote refineries, further exacerbate the supply crunch, with Dangote reportedly prioritizing diesel production due to uncertainties surrounding petrol pricing. The overarching challenge remains the intersection of political considerations and economic imperatives. The government faces a delicate balancing act between social welfare concerns, fiscal prudence, and industry sustainability. Addressing the energy sector's woes, including power generation limitations, is vital for reducing petrol dependency and supporting business viability. As the industry navigates these complex issues, a cohesive leadership approach that aligns political strategies with economic necessities will be crucial. There are no quick fixes to the petrol pricing conundrum, but concerted efforts backed by sincere intentions and political will can pave the way for sustainable solutions in Nigeria's oil market.