A financial analyst, Mr. Johnson Chukwu has disagreed with some Nigerians who see increase in pump price of petroleum products as solution to the frequent scarcity of the products saying that deregulation of petroleum industry remained the only workable solution to the crisis.
Chukwu who made this position known in a chat with Primetime Reporters in Lagos insisted that deregulation would allow importers to bring in the products to the extent that it was demanded which he said would engender competition adding that competition would encourage local and other investors to build refineries within Nigeria as it was almost inconsequential for anybody to come and build refinery in an environment where the price of the products was regulated by the government.
“So, if there is deregulation, there will eventually be price competition, there will be need to optimize cost”, he added.
On reasons for current scarcity, Chukwu who is also the Managing Director of Cowry Asset Management Limited said,” The price at which petroleum products are sold locally are different from its foreign counterparts, one, the price of the Platt, that is the international price of refined products, two, the exchange rate at which you convert that import to naira, three, the cost of logistics; storage, shipping, insurance, transportation from the ships to the tank farms to the hinterlands or the fuel stations where they are pumped into their tanks, so, any of these factors that increase materially will impact on the prices of refined petroleum products”.
He pointed out that because the products were regulated and therefore were not reflective of market conditions, if prices go beyond certain level; it becomes a constraint or a burden on whoever was bringing it in to continue to bring in the same volume even as he believed that was what was happening to NNPC.
“It has to do with one, high Platt as a result of high crude prices and very severe winter in the northern hemisphere or western hemisphere that led to the shutting down a number of refineries. So, that means that supply sources were very expensive and some of them were not producing and then when the goods even come here, you need to convert to naira which is at N360 or thereabout and these things will reflect on the landing costs of the products. At least, the Minister said it the other day that the landing cost is about N171 per litre.
“So, if you have such a high landing cost and depot price is about N132/N133 or thereabout, then, you can now see why it is difficult for NNPC to feed the market. The NNPC also has logistics challenges of being almost the sole importer”.
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