Festus Osifo, the national president of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), announced over the weekend that the federal government, led by President Bola Tinubu, has reinstated the petrol subsidy.
He claimed that the action ran counter to the official government position, which has been to abandon the subsidies system since May.
Osifo, who is also the TUC’s president, revealed this while participating in a live television programme.
“The government must be transparent. Since the price of petroleum was less than $80 per barrel on the international market when the earlier price was set, there is actually a subsidy today. But as of right now, Brent crude is trading at roughly $93/94 per barrel. Osifo explained that since it had changed, the price of gas also needed to change.
In his inaugural speech on May 29, President Bola Tinubu had proclaimed the elimination of fuel subsidies.However, Osifo said that the government still provides fuel subsidies because of the price of crude oil on the world market and the exchange rate.
The exchange rate and the cost of crude on the global market are two fundamental factors that influence today’s pricing, therefore speculation has always existed when considering the fundamentals.
“You know, the price of crude has been rising recently and is getting closer to $95 a barrel. There have been rumours that the price of Premium Motor Spirit (PMS) may rise as a result, but we have been working behind the scenes to convince the government that there is no basis for that.”Because for us, you know when they floated the exchange rate, you would recall that the exchange rate was moving at a very fast speed before some interventions came,” said Osifo.
Additionally, he stated: “Right now, the official exchange rate is about N770 to $1. We have thus informed them that all foreign organisations, including JP Morgan, Bank of America, and others, have stated that the current value of the naira is low. That indicates that we should exchange our naira for a dollar at a rate of roughly N600 to N630.
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And if the government can lower it to that level, we would be able to purchase PMS (petrol) at a slightly lower cost than it is at the moment.We have thus informed the government that there is no justification for us to purchase petrol at a price higher than what it is at this time. But it ought to fall instead. However, the currency rate is the deciding element, therefore if they could influence the exchange rate. Today, the exchange rate is at about N770 to $1. We will even purchase PMS at a lower price if the genuine value materialised at about N600 to a dollar, he continued.
Since the fuel subsidy was eliminated, does the government still subsidise petrol? Osifo responded, “We have to be honest with Nigerians. I can tell you that as of right now, if you look at the price of crude oil, there is something known as Platts; as a result, if you google it, you will find the Platts index, and if you check the Platts index, it will give you the ex-depot price from Rotterdam.
“So, if you look at it and convert it using our current exchange rate, you know that the landing cost in Nigeria today ought to be more than what we are dispensing at the pump,” he stated.He explained that this indicates the government is covering the extra expense.
“But our appeal is that we need to manage our foreign exchange better than we are doing now. The government should find a mechanism to control it if the genuine value of our exchange FX is approximately N600 to a dollar. Subsidies are not required to be paid.Our exchange rate has gotten out of control, which is why we are paying subsidies today. If we keep allowing it to do so, everyone will live in misery.”They (the government) are paying subsidies today,” he continued. When the subsidy was eliminated a few months ago, you could see what happened. The difficulties that a typical Nigerian has faced were evident. It has therefore been really tough, but the government has the means to better manage the currency rate so that the subsidies will end, but they are not employing them.
“Osifo outlined two requirements for the government to discontinue subsidising petroleum goods.”The only time the price won’t change is if you can efficiently control your exchange rate, increase supply, and lower the exchange rate.Therefore, we won’t be paying a subsidy if the exchange rate declines today. However, we have implemented a subsidy due to the value of the exchange rate and the price of crude oil on the global market, he said.
