The Nigerian government after a cabinet meeting on Wednesday announced a cut in its capped gasoline pump prices to allow the cost of fuel in the country reflect the recent fall in global oil prices.
President Muhammadu Buhari approved the fall in gasoline pump price from 145 Naira to 125 Naira and also introduced a “modulation mechanism” that will allow a reduction in petrol costs if there is a decline in crude prices
Timipre Sylva, minister of state for petroleum, issued a statement saying Nigerians should benefit from falling fuel costs, which were a direct effect of the crash in global crude oil prices. “This action is being taken to cushion the economic impact of COVID-19 on our people,” he said.
Nigeria’s major source of revenue and foreign currency has been shaken by the global effect of the coronavirus. Up to 90 percent of the country’s foreign exchange earnings are generated from sales of oil. However, it has taken a back bench due to the low demand and price war between Saudi Arabia and Russia.
Fuel prices are contentious in Nigeria, where riots can break out with rumours of increases. Prices had been kept artificially low at 145 Naira ($0.48) per litre.
Over the years, Nigeria has faced international pressure to deregulate its fuel price and to let its naira float due to the cost and the distortions it creates in the economy.
Price cap costs the government millions due to the unsteady price of crude oil in the international market and rarely stays at the capped level. In the first half of 2019, price caps according to the World Bank estimate cost the government 294 billion naira ($960.8 million), or nearly 0.2 percent of annual GDP.
With the newly introduced modulation mechanism, citizens can benefit from the deep slide in international crude markets, but at the risk of adding to the country’s budget worries. More so, Nigerians will have to bear the effect of a drop or rise in fuel prices. If prices go up, there will see an increase and if prices go down, a reduction in prices.