Why petrol should sell above N750 per litre in Nigeria – World Bank

World Bank has suggested that a litre of Premium Motor Spirit (PMS), popularly known as petrol, should sell above N750 per litre in Nigeria to be cost-reflective.

TheNewsGuru.com (TNG) reports World Bank’s Lead Economist, Alex Sienaert made the suggestion on Wednesday at the release of the latest “World Bank Nigeria Development Update” in Abuja.

According to Sienaert, the N650 per litre cost of petrol does not reflect the actual cost, adding that it was unsustainable. Sienaert stressed a litre of petrol should cost above N650.

The World Bank report called for transparency in NNPCL’s operations, urging the corporation to publicly disclose its financial statements and revenue flows.

It emphasized the necessity for comprehensive information dissemination regarding pump prices and fiscal savings stemming from subsidy reforms.

“The removal of the subsidy was announced on May 29 and pump prices were adjusted on June 1. This results in fiscal savings of around N2 trillion or 0.9 per cent of the Gross Domestic Product (GDP).

“Between 2023 and 2025, the expected gains are over N11 trillion, against a scenario in which the subsidy had continued. Regularly publish information that explains prices at the pump.

“Publish detailed financial statements and revenue flows of NPPCL to safeguard the fiscal savings from the subsidy reform and ensure that oil revenues flow to the Federation Account,” the report reads in part.

Meanwhile, Shubham Chaudhuri, World Bank Country Director for Nigeria highlighted the substantial monthly expenditure on fuel subsidies and stressed the urgency of petrol subsidy and FX management reforms as crucial steps toward improving Nigeria’s economic outlook.

Chaudhuri urged coordinated fiscal and monetary policy actions in the short to medium term to solidify the nation’s economic trajectory.

He said that between N300 billion  and N400 billion was expended on fuel subsidy monthly, before the subsidy removal and that the expectation was that the NNPCL should have been paying such amount to the Federation Account, but which has not been the case.

“The petrol subsidy and FX management reforms are critical steps in the right direction towards improving Nigeria’s economic outlook. Now is the time to truly turn the corner by ensuring coordinated fiscal and monetary policy actions in the short to medium term,” he said.

Reacting to the N750/litre pump price proposal by the World Bank, Dr. Wahab Balogun of Ambosit Capital Managers, told The Nation: “The World Bank’s observation that the current fuel price in Nigeria is not reflective of the actual cost suggests that the government might be subsidizing fuel to some extent.

“They estimate that Nigerians should be paying around N750 per litre, which is higher than the current N650 per litre.

“There are a few factors to consider when analyzing this situation. Firstly, the actual cost of petrol is influenced by various factors such as crude oil prices, refining costs, transportation expenses, taxes, and distribution margins. These factors can fluctuate over time, affecting the final price paid by consumers.

“Secondly, government subsidies are often implemented to cushion the impact of rising fuel prices on the general population, particularly those in lower-income brackets.

“The removal of subsidies may lead to higher prices initially, but it also aims to encourage market efficiency and reduce fiscal strain on the government in the long run.

However, it is important to assess the impact of petrol subsidy removal on the overall economy and the welfare of the Nigerian people. While subsidy removal might have positive effects in the long term, it can also place a heavier burden on citizens already struggling with various economic challenges, including inflation and unemployment.

”I would look at the broader picture and consider the effectiveness of subsidy removal in achieving the desired goals of economic efficiency and fiscal sustainability.”