PENGASSAN: Naira Devaluation Core Component of Spiralling Fuel Prices, FG Should Take Action

Festus Osifo provided a detailed analysis of how naira devaluation has driven up the cost of petrol.

At a press conference in Lagos on Tuesday, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) addressed the pressing challenges facing the oil and gas industry, with a focus on the devaluation of the naira and its impact on fuel pricing.

PENGASSAN president, Festus Osifo, provided a detailed analysis of how devaluation has driven up the cost of petrol, despite government measures, and reiterated the Association’s call for strategic management of the country’s exchange rate.

“The real problem is devaluation,” Osifo stated, explaining that the devaluation of the naira has had far-reaching effects across multiple sectors, including fuel pricing. He argued that, contrary to the popular narrative, the removal of fuel subsidies is not the primary cause of Nigeria’s skyrocketing petrol prices. “If naira was pegged at 450 to a dollar, PMS could have been less than 400 naira.”

He went on to clarify the impact of devaluation on government revenues and fuel prices. Using examples from both the oil sector and import taxes, Osifo highlighted how the exchange rate has inflated costs. “In May last year, the official exchange rate was 450 naira. If Total Energies made a profit of 200 million dollars, you would multiply that by 450 to get the naira equivalent. Today, that same 200 million dollars would be multiplied by 1600 naira, so you can see how much more naira the government is collecting,” he said, explained how devaluation has significantly increased the cost of doing business in the country.

This, according to Osifo, is why agencies like the Federal Inland Revenue Service (FIRS) and the Nigeria Customs Service are declaring higher revenues. “That’s why you hear Customs and FIRS saying they’ve made trillions of naira. It’s not from subsidy removal; it’s the result of devaluation and exchange rate fluctuations,” he emphasised.

PENGASSAN has been advocating for the government to manage the exchange rate more effectively, especially in sectors like oil and gas, where fluctuations have a direct impact on the price of fuel.

“If the exchange rate was frozen at 700 naira for distributors in the oil sector, the price of petrol wouldn’t have risen so sharply,” Osifo noted. He added that the Association had presented this suggestion to stakeholders as early as last year, but little progress was made.

Osifo also took aim at the floating exchange rate policy. He argued that no country fully floats its currency without some level of management. “No government in the world floats its currency 100%. Maybe the U.S., because they are a standard reference. Every other country manages their currency in one way or another,” he stated, referencing economic models from China, Japan, and Russia. He said Nigeria’s full currency float, in the absence of strong supply controls, has contributed to the current crisis.

The issue of devaluation extends beyond petrol, affecting various aspects of the economy. “Devaluation does not just affect petroleum products,” Osifo remarked. “If our exchange rate was still 450 naira to a dollar, PMS would be selling for around 320 to 350 naira today. The main issue is not subsidy removal; it is devaluation.”

Addressing the ongoing debate around the Dangote Refinery and its role in the local fuel supply, Osifo acknowledged the challenges in securing crude oil for local refining. He explained that international oil companies (IOCs) like Shell, Chevron, and Total have locked in long-term contracts for their crude production, often years in advance. “Government cannot simply take crude and give it to Dangote. These companies have invested billions of dollars, and they’re at liberty to sell their crude to the highest bidder,” he said.

Osifo pointed out that the issue of premium payments for crude is also contributing to the pricing challenges between the Dangote Refinery and the Nigerian National Petroleum Corporation (NNPC). “Dangote is asking for the same price NNPC pays to import PMS from abroad, but NNPC says, ‘You’re a Nigerian company; we can’t pay you the same amount we’re paying foreign suppliers,’” Osifo explained. However, both parties have reportedly reached a compromise, with Dangote now supplying petrol at a premium of 42 naira above the international price, known as the Platts rate.

The PENGASSAN President stressed that the current price of petrol, estimated at 950 naira per litre when all costs are included, is largely due to the cumulative effect of devaluation and the international cost of crude. “NNPC takes it at 950 naira per litre and sells to marketers at around 700 naira. If NNPC sold it at the full cost, we’d be buying PMS at 1100 or 1200 naira per litre,” he explained, highlighting the government’s continued role in subsidising fuel to some extent.

Osifo concluded by reiterating the importance of proper exchange rate management as a means of stabilising fuel prices and mitigating the effects of devaluation. “We believe the government cannot float its currency 100%, especially in a country like Nigeria where supply is not fully controlled. The solution lies in strategic management of the naira, not just the removal of subsidies.”

PENGASSAN made these remarks during the presentation of its communique at the 3rd Edition of the PENGASSAN Energy and Labour Summit, themed “The Future of Nigeria’s Oil and Gas Industry: Energy Mix, Energy Security, Artificial Intelligence, Divestment and Crude Oil Theft.” The Association continues to advocate for a more comprehensive approach to addressing the economic challenges facing the oil and gas sector, particularly in light of the country’s volatile exchange rate.