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Nigeria, Kenya hike fuel prices

Both countries are responding to rising crude oil prices, but their decisions have different policy implications

WHAT: Nigeria’s PPPRA and Kenya’s EPRA have hiked fuel prices.

WHY: The Nigerian agency’s decision has been rolled back by NNPC, while EPRA’s decision is likely to stand.

WHAT NEXT: The passage of Nigeria’s new oil law could make the dispute between PPPRA and NNPC irrelevant.

 

The fact that petroleum product prices are rising in many countries is not surprising, given the state of world crude oil markets.

After all, oil prices have risen significantly since the start of the year, with West Texas Intermediate (WTI), the main US benchmark, having climbed from $48.25 per barrel as of January 1 to just under $65.00 as of earlier this week. Brent crude, the main European benchmark, has also gained momentum, climbing from $51.80 per barrel as of January 1 to more than $68.00 per barrel as of earlier this week.

Not surprisingly, higher oil prices have driven up the cost of the fuels made from crude. This may have been a logical development, but it has garnered a number of visceral responses. In Nigeria and Kenya, for example, government agencies’ announcements of fuel price hikes have drawn harsh criticism. This article will examine recent developments in these two countries.

PPPRA proclamation

In Nigeria, the trouble began late on March 11, when the Petroleum Products Pricing Regulatory Agency (PPPRA) revealed that it was raising the pump price of gasoline to NGN209.61-212.61 ($0.55-56) per litre for the next month. The agency also said at the same time that it was setting ex-depot prices for gasoline at NGN206.42 ($0.54) per litre and landing costs at NGN189.61 ($0.50) per litre.

At the time of this announcement, most of Nigeria’s filling stations were selling gasoline for about NGN162-165 ($0.426-0.434) per litre. As such, PPPRA’s move seemed to herald an upswing of around 27-31% in retail gasoline prices.

This may not seem like an unreasonably large price increase, given that world crude oil prices have also been rising, as noted above. (WTI prices have climbed by more than 34% since January 1 and Brent prices by around 31% during the same period.) Nevertheless, many Nigerian observers have reacted with anger to the news. For example, a new activist group known as the National Consultative Front of National Leaders of Conscience (NC Front) has accused the federal government of colluding with fuel marketers to change policy in a way that was sure to impoverish ordinary consumers.

Criticism and confusion

Some of this frustration stems from consumers’ mounting concerns about the possibility of supply shortages. Nigerian drivers have been experiencing more difficulty in finding fuel in recent weeks, and queues at filling stations have been growing increasingly long. At the same time, local press sources have been reporting that wholesalers and depot owners in Lagos, Abuja and other cities were stockpiling fuel in the expectation that the government would raise prices.

Even so, most Nigerian filling station operators were not anticipating any major changes to the official pricing regime in the near future. After all, state-owned Nigerian National Petroleum Corp. (NNPC) pledged publicly on March 1 that it would not push costs above NGN200 per litre ($0.52) in the month of March.

On that date, NNPC, which regulates the country’s fuel markets and also has a monopoly on petroleum product imports, said in a statement that it “was not contemplating any raise in the price of petrol [gasoline] in March in order not to jeopardise ongoing engagements with organised labour and other stakeholders on an acceptable framework that will not expose the ordinary Nigerian to any hardship.” The statement quoted Kennie Obateru, the group general manager of NNPC’s public affairs division, as saying specifically that there would be no increases in ex-depot prices for gasoline.

Nevertheless, the price hike was rolled out on March 11. The very next day, NNPC published a statement reiterating its pledge not to raise fuel costs in March. And later on March 12, the Major Oil Marketers Association of Nigeria (MOMAN) and the Independent Petroleum Marketers Association of Nigeria (IPMAN) said they had received confirmation from NNPC that prices were not slated to go up.

Clement Isong, MOMAN’s executive secretary, told the Nigerian press that he expected the state-owned company’s reassurances to settle concerns about possible supply shortages. “What NNPC did was to take out the speculation by giving assurance that [the gasoline] price will not go up in March, and that killed the queue and demand went down,” he was quoted as saying by NAN. “What they have done again this morning is to take out the speculation out of the market. They always have enough products.”

As of press time, it was not clear whether Nigeria’s federal government had weighed in on the matter. Even so, NNPC seems to have won the day. It responded swiftly and harshly to reports that some filling stations had raised their retail prices into the new range announced by PPPRA, conducting a round of inspections to ensure that gasoline was still being sold at NGN162-165 ($0.426-0.434) per litre.

EPRA announcement

In Kenya, meanwhile, the Energy and Petroleum Regulatory Authority (EPRA) issued a statement on March 14 announcing its plan to push prices for gasoline, diesel and kerosene up by KES7.63 ($0.07), KES5.75 ($0.052) and KES5.41 ($0.049) per litre respectively.

EPRA justified its decision, which took effect on March 15, by pointing to the rising cost of imported petroleum products. In its statement, it quoted the agency’s acting director-general Daniel Kiptoo Bargoria as saying: “The changes in this month’s prices are as a consequence of the average landed cost of imported super petrol [gasoline] increasing by 14.97% from $391.24 per cubic metre in January 2021 to $449.82 per cubic metre in February 2021, diesel increasing by 21% and kerosene increasing by 13.26%.”

Despite Bargoria’s explanation, the price hike has sparked the ire of some observers in Kenya. One newspaper, The Nation, published an article predicting that the new pricing schedule was likely to be particularly burdensome for Kenyan consumers because of previous government decisions raising the rate of taxes that account for a portion of fuel costs.

“[The] biggest beneficiary of any fuel price increases is the taxman, given that higher pump prices result in higher taxes,” it wrote. “This makes the government, which is running on empty, the ultimate beneficiary of the fuel price hike.”

Meanwhile, one Kenyan political party – the centre-left Orange Democratic Movement (ODM) – has described the rate hike as punitive and unsupportable. Edwin Sifuna, the faction’s secretary general, described EPRA’s decision as “shocking.” Costly fuel will be a burden for Kenyan consumers, who are already in a tough economic position because the global coronavirus (COVID-19) pandemic is ongoing and because fuel prices have already gone up repeatedly since the beginning of the year, he declared.

“The pandemic has been a tragedy for the already heavily taxed population. Central to this tragedy has been the cost of energy, which has an impact on every facet of our lives ... [We] can’t see the moral ground on which to levy more taxes on a population itself on its knees from the same,” Sifuna commented.

Different implications

These complaints do not seem to have had much impact in Kenya. As of press time, EPRA had not walked back its statement, and no other government body had gainsaid its decision to raise petroleum product prices. It seems reasonable to assume, then, that there are no major changes in store for fuel pricing policy and procedures in Kenya.

Nigeria, by contrast, may be heading for a bureaucratic clash between PPPRA and NNPC. These two entities are both controlled by the federal government, and they seem to disagree on the question of which has the final word on pricing changes.

As noted above, NNPC appears to have come out ahead of PPPRA for the time being. In the long run, though, the outcome of the dispute may be irrelevant. Nigeria’s government is hoping to secure passage for a new oil and gas law, known as the Petroleum Industry Bill (PIB) next month, and this legislation is designed to strip NNPC of its regulatory function and eliminate PPPRA. It would fold the latter into a new agency – the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) – which will monitor commercial, operational and technical operations in the downstream sector and the midstream sector.