Exclusive: Experts Predict Petrol Price Hike Due to Exchange Rate Policy
The recent decision by the Central Bank of Nigeria (CBN) to float the naira and unify the exchange rate has raised concerns about its impact on the price of petrol in the country.
The Nigerian National Petroleum Company Limited (NNPCL) currently sells petrol at N488 per litre for its retail outlets in Lagos, while other marketers follow suit. Outside Lagos, where imported petroleum products are received, petrol could sell for N650 per litre
However, analysts predict that as the naira converges with the parallel market rate, which currently trades above N700 per dollar, petrol prices could go up as importers source for foreign exchange from the banks.
This is because Nigeria lacks refining capacity and depends on imports to meet its local demand for petroleum products. The exchange rate is a major factor that determines the landing cost and pump price of petrol.
According to a BusinessDay report, at the current petrol pricing template, the pump price of petrol will be above N590 in Lagos. If the rate converges at N750 per dollar, as some bankers told BusinessDay, petrol prices will surge, leaving the most efficient operator with relatively cheaper prices.
Some experts, however, believe that the floating of the naira will not affect the petrol price negatively but rather encourage competition and efficiency in the market.
Adeola Yusuf, an energy policy analyst, told Legit.ng that the policy will enable oil marketers to access foreign exchange from any bank at the official rate and import petrol without relying on NNPC.
He said: “The cardinal of that policy is that all commercial banks will start transactions in dollars, unlike before when every dollar transaction is domiciled with the CBN. The unavailability of the dollar had made the demand for it rise.
“Now that they want to balance the supply, you can enter any bank and buy at the official rate. It will crash the dollar value eventually, leading to the harmonization of the black market rate and the official rate.
“After the fuel subsidy removal, what is expected is to have a free market where it will not be only NNPC that will be importing petroleum products. The excuse major oil marketers had in the past is that they find it difficult to access dollars and that only NNPC has access to dollars at the official exchange rate. So, there is nowhere they can compete with NNPC.”
He said that the policy might affect the price initially, but eventually, it will stabilise and could even drive down the price.
He said: “It may affect it initially but eventually it will stabilise because there will be competition. If I can get dollars at N410 or N420 from any bank and import products at a cheaper rate than NNPC, then I can sell at a lower price than NNPC.”
He also said that the initial crash of the naira was caused by market shock but noted that the market would adapt and stabilise the naira.
Taiwo Oyedele, Fiscal Policy Partner and Africa Tax Leader at PwC Nigeria, said in a Twitter post that the new policy would affect the price of petrol.
He said: “Possible impact on pump price of petrol which could inch closer to current pump price of diesel.”
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