Issues in Petroleum Product Pricing in Nigeria

Abstract

The controversy surrounding the adoption of an appropriate petroleum product pricing regime in Nigeria reached a head in the past few years against a background of poor public finances, endemic cross-border product smuggling resulting in domestic shortages, the fact that the state oil corporation is perpetually behind in its cash-call obligation to joint venture partners and the necessity to modernise the oil sector's infrastructure. This paper looks at different approaches to petroleum product pricing, including exhaustible resource, market-based and capital-replacement methods, as well as international price comparisons, with the conclusion that while the case for a subsidy phase-out is overwhelming, the issue was unnecessarily politicised by past governments, thus arousing great suspicion among the public. Surprisingly, the public is aware of the need for appropriate pricing but their historic mistrust of government, arising from a poor record of financial accountability, is a major source of the general resistance to the removal of subsidies. For the policy to succeed, the government needs to address these concerns, in addition to investing the proceeds of increased petroleum prices judiciously in sectors that will directly benefit the bulk of the citizenry.