Fix fuel pricing system, not just pump price, don urges FG

Professor Emeritus of Petroleum Economics, Wumi Iledare, is calling on Nigeria's Federal Government to shift the national discourse on petrol pricing. Instead of focusing solely on the cost of Premium Motor Spirit (PMS) at the pump, he advocates for a concentration on establishing a competitive, transparent, and efficient downstream petroleum market.

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The issue is no longer whether prices should be regulated. The issue is whether markets are functioning competitively, transparently, and efficiently. The pump price is merely the visible outcome; the pricing mechanism is what policymakers and regulators must continually improve.

In a television interview, Iledare explained that the debate over fuel prices has become overly emotional since the removal of subsidies. He stressed that the critical issue is not price regulation but ensuring market institutions function effectively and competitively. "The pump price is merely the visible outcome; the pricing mechanism is what policymakers and regulators must continually improve," he stated.

Iledare pointed out that while the removal of fuel subsidies fundamentally altered the pricing mechanism, it did not eliminate the economic variables influencing retail prices. He identified exchange rate volatility, international crude oil and refined product prices, logistics costs, limited market competition, and macroeconomic uncertainty as key drivers of pump prices across Nigeria.

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Domestic refining, while strategically important, cannot completely insulate Nigeria from international market realities because crude oil is priced globally and many production inputs, including equipment, financing, chemicals, and replacement costs, remain linked to the United States dollar.

Furthermore, the professor addressed the common misconception that domestic refining will automatically lead to cheaper petrol. He emphasized that while local refining is crucial for energy security, it cannot entirely insulate Nigeria from global market forces. This is because crude oil is priced internationally, and many refining inputs remain dollar-denominated. He also introduced the concept of "asymmetric pricing," where prices rise quickly with costs but fall slowly, a behavior typical in imperfect markets.

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High prices do not necessarily indicate market failure. However, when prices fail to respond appropriately to improvements in underlying costs, the critical question becomes whether competition is sufficiently robust.