Business in Nigeria (September Edition): Fuel price spikes raise spectre of resurgence in inflation

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The retail price of petrol touched a new peak in early September over a supply shortfall created by NNPC Limited’s inability to import fuel after a revelation its subsidy debt to suppliers had climbed past $6 billion.

According to a forecast by the International Monetary Fund, Nigeria’s subsidy spending for 2024 could rise to 3 per cent of gross domestic product.

The shortage sparked long queues across Nigeria, disrupting commercial activities in cities and towns and driving transportation costs sharply higher.

“This financial strain has placed considerable pressure on the Company and poses a threat to the sustainability of fuel supply,” Olufemi Soneye, the chief spokesperson of the state-owned energy company, said in a statement.

“We are actively collaborating with relevant government agencies and other stakeholders to maintain a consistent supply of petroleum products nationwide,” the NNPCL said.

By 3 September, the pump price at most of the NNPCL’s outlets retailing petrol had climbed 45.4 per cent to N897 per litre. It would hit as high as N1200 in some parts of the country later in the month.

NNPC petrol station

In the middle of the month, the crisis had deteriorated further, with fuel costs accelerating this time around by 11 per cent, marking the second increase within a fortnight.

Shortly after it started being the sole buyer of petrol from the 650,000 barrel-per-day Dangote Refinery, the NNPCL disclosed it had hiked the pump price to N950 in Lagos and as high as N1,019 in some parts of northern Nigeria.

It added that it procured petrol in dollars from the refinery at a naira equivalent of 898 per litre, noting that, onwards from October, its transactions with the refining complex in respect of crude supply and purchase of fuel would be executed in naira.

In a rebuttal, Dangote Refinery said NNPCL’s claim to have bought petrol from it at N898 was “misleading and mischievous.” It remarked the statement was “deliberately aimed at undermining the milestone achievement recorded today, September 15, 2024, towards addressing energy insufficiency and insecurity, which has bedevilled the economy in the past 50 years.”

The Dangote Refinery.

The energy crisis could hurt the fragile recovery of the Nigerian economy from inflation, which slowed for the first time in nearly two years in July and further in August after fanning a sticky cost-of-living crisis in Africa’s most populous nation.

Throughout that span of time when annual consumer price growth jumped to its peak in almost three decades, energy featured prominently in the basket of goods used for gauging the consumer price index.

Analysts’ expectation was that the upward adjustment of the benchmark interest rate in July, the fourth this year, would signal an end to Nigeria’s longest cycle of tightening on record after official data showed successive decelerations in price levels within those months.

The Central Bank of Nigeria, CBN. [PHOTO CREDIT: Ehud Kaduna]

The Central Bank of Nigeria, unwavering in its push to curb inflationary pressures, unexpectedly hiked the reference lending rate by 50 basis points to 27.3 per cent, contrary to the wide expectation for a rate pause.

“Following a review of the upside risk to price development and the down road risk to the recovery of output growth, the committee opted to tighten policy further to safeguard the gains already accrued in moderating inflationary pressures,” Yemi Cardoso, the apex bank’s chief, said at the end of a meeting of the Monetary Policy Committee in Abuja.

CBN Governor, Olayemi Cardoso (PHOTO CREDIT: x @cenbank]

“The MPC noted that even though headline inflation trended downwards due to a moderation in food inflation, core inflation has remained elevated, driven primarily by rising energy prices. The uptrend poses severe concerns to members, as it clearly indicates the persistence of inflationary pressures,” he added.

In the spirit of deregulation, NNPCL in early October gave up its middleman role in the supply of petrol from Dangote Refinery to fuel marketers, marking an end to the brief off-taking functions it undertook when the refining complex started supplying petrol to the Nigerian market in September.

That also signalled an end to the fuel subsidies President Bola Tinubu reinstated months ago, which the NNPCL said had strained its finances tremendously.

The shift allows fuel marketers to purchase petrol directly from the refinery without the government’s mediation. But the march towards a free market would come at a cost.

NNPC trucks at Dangote refinery awaiting petrol loading (PHOTOS CREDIT: NNPC Ltd)

Within days, the retail price of petrol spiked to N1,030 from N998 in some NNPCL service outlets in Lagos. In Abuja, it ranged between N1,030 and N1,065.

Adding to the prospects of a resurgence of inflation is the return of flash floods to some parts of northern Nigeria during September, which has triggered great damage to crops and driven many away from their homes. It could set food prices on the rise and, combined with higher energy prices, could weaken disposable income further.

Meanwhile, the Nigerian government announced towards the end of the month the proposal by oil supermajor ExxonMobil to invest $10 billion in offshore Nigeria.

Seplat Nigeria

The plan was unveiled on the sidelines of the United Nations General Assembly in New York. ExxonMobil is on course to offload its onshore assets to Seplat Energy, a deal that has been in the works since 2022, as IOCs continue to divest stakes in such assets as a means of averting operational risks such as costly lawsuits by host communities and oil theft.

“The potential ExxonMobil investment is a clear indication that we are moving in the right direction. As we welcome ExxonMobil’s renewed commitment, we see this as just the beginning,” said Vice President Kashim Shettima.

ExxonMobil

Yet, it calls for caution. A report by S&P Global Commodity Insights on greenhouse gas emission intensity of offshore Nigeria production in 2023, issued in September, showed IOCs contributed 82 per cent of total oil & gas production, with emissions intensity close to the region’s average. The biggest 20 assets by production accounted for 90 per cent of production and 80 per cent of emissions. IOCs operated 18 of the top 20 producing assets.

“The emissions intensity of assets operated by IOCs is not better than the average, suggesting a huge opportunity for improvement by implementing certain operational procedures as well as detection and measurement technologies to abate emissions,” the report said.

A lack of proper emissions intensity management mechanism could dent Nigeria’s plan to cut methane emissions from flaring by 100 per cent by 2030 and fugitive methane from leaks by 95 per cent by 2050, in line with its vow to the Global Methane Pledge.

Read these and other business and economy stories on the Business page of PREMIUM TIMES.