The Trade Union Congress (TUC) has urged the Central Bank of Nigeria (CBN) and the Nigeria Customs Service (NCS) to grant the Nigerian National Petroleum Company Limited (NNPCL) a special foreign exchange (FX) rate of N1,000/$1, a move it believes will significantly lower petrol prices.
According to TUC President Festus Osifo, securing this favorable exchange rate will reduce the cost of importing fuel, which could bring the price of petrol down from the current N900+ per liter to N600 per liter, depending on the region.
Osifo, who also leads the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), told ChannelsTV that the primary issue causing high fuel prices isn’t the subsidy removal implemented by President Bola Tinubu in May 2023, but rather the drastic devaluation of the naira that followed. He explained that without this devaluation, petrol prices would likely be around N350 per liter, as opposed to the current high rates.
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Despite the removal of fuel subsidies, the TUC president revealed that the NNPCL is still indirectly subsidizing petrol prices, which is why the TUC is advocating for this special FX rate. Osifo argued that by giving the NNPCL the same preferential treatment reportedly given to the Dangote Refinery, where crude is sold in naira, the cost of fuel could be stabilized, and subsidy payments would no longer be necessary.
Osifo said, “If you give a special rate to NNPC, you don’t need to pay for subsidy anymore. The same special rate that was given to Dangote (Refinery) to sell, a special rate was given.
“Before now, we have had our Customs giving special rates. So, that special rate should be given in that sector.
“With the sale of crude to Dangote in naira, and you decide that that crude you are selling to Dangote in naira, the exchange rate will be N1,000 to a dollar. If you do that, all marketers can go to Dangote and sell at a reduced rate compared to what is practicable today.
“It is about the exchange rate and that is what we have propounded over time.”
Economic Realities Stark Against a Special FX Rate
While the TUC’s proposal aims to alleviate the burden of high fuel costs on Nigerians, experts say fixing a special FX rate for fuel imports would come at a heavy price. This means that the government must intervene to defend the naira once again.
Defending the naira at such a rate would require the government to pump significant amounts of foreign reserves into the economy, as was the case before Tinubu’s unification of the exchange rate. That could set the stage for another challenging economic scenario, given that Nigeria’s current financial situation leaves the government with limited funds to maintain such a policy effectively.
Experts warn that to implement a special FX rate, the government would have to supply significant amounts of foreign exchange at the special rate, essentially pegging a large amount of the naira artificially at a lower value for fuel imports. In the past, pegging the naira came at great expense to the Nigerian economy. For instance, prior to President Tinubu’s decision to unify the exchange rate in June 2023, Nigeria was spending around $1.5 billion monthly to maintain a fixed exchange rate, according to Presidential Spokesman, Bayo Onanuga.
This approach drained the nation’s foreign reserves, which were already stretched thin due to economic pressures. The CBN, for instance, injected $11.24 billion into the economy between January 2022 and July 2022 to stabilize the naira.
Given the current economic realities, it is unlikely that Nigeria has the reserves or financial muscle to sustain such an intervention without severely impacting other areas of the economy.
However, analysts have noted that if the government does not intervene by creating a special FX rate or securing cheaper alternatives for fuel importation, Nigerians should brace for higher fuel prices.
Dangote Refinery, which was expected to significantly reduce the cost of petrol, is now likely going to sell at over N1,000 per liter. This is because the refinery is expected to operate with a market-driven approach, meaning it will base its pricing on current international exchange rates and fuel market conditions.
Analysts have noted that the TUC’s argument that a special FX rate will reduce fuel prices overlooks the larger financial burden of defending such a policy. However, they admitted that the TUC’s warning about the broader implications of rising fuel prices cannot be ignored. With petrol prices expected to rise further without government intervention, the cost of production and transportation across industries will increase.
The ripple effect will be felt across businesses, many of which are already operating under strained financial conditions due to the high cost of fuel, inflation, and reduced consumer spending power, they warned.
Industry groups such as the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) and the Lagos Chamber of Commerce and Industry (LCCI) have cautioned that continued fuel price hikes will lead to job losses and business closures, further worsening Nigeria’s economic situation.
This prediction aligns with broader concerns raised by economic experts, who warn that without strategic intervention, fuel costs will compound the country’s inflationary crisis and contribute to greater economic instability.