Oil marketers express worry over fuel price link with forex fluctuations

…experts says it is going to encourage round-tripping

BY DANLADI BATURE

THE decision by the Federal Government not to use official exchange rates to install a price cap for petrol in the recent hike in the price of petrol pump price has heightens confusion on naira devaluation as experts argue that the decision will encourage arbitrage and round-tripping.

With the official exchange at N199/$ and government’s adoption of N285/$ exchange for the importation of fuel by oil marketers from the secondary market, without explaining how the Central Bank of Nigeria (CBN) would fund the market, according to analysts, amounts to currency misalignment .

Experts say the decision is confusing, and an evidence of an unclear policy by the Federal Government. “When you link the price of petrol to the exchange rate, it creates more confusion. How can a government insist that the exchange rate is N200/1$ but that you are pricing petrol at N285/1$. Have you devalued the naira, if you have let’s know that,” said Atedo Peterside, Chairman of Stanbic IBTC Plc.

Also, oil marketers said that the decision by the Federal Government to tie the prices of oil to foreign exchange fluctuations may derail the deregulation efforts. “So what happens when forex goes up, as at yesterday it was N350, are you telling me that any marketer can bring in product at N350 and still sell at N145? The easily assessable secondary source is the black market,” an oil marketers explained.

However another independent marketer said that the decision by the federal government to have marketers source their own forex will help to separate genuine marketers from portfolio companies. “What stops a marketer from seeking forex outside Nigeria, the government did not ban anybody from getting your forex from banks abroad or other financial or lending institutions, it’s time to get creative and show entrepreneurship by solving the problem rather than being the problem.”

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Experts warn of dire implications for the economy if the government insists on hanging to a policy that clearly torpedoes all the gains its reforms could bring. “People are finding it difficult to pay their suppliers, financial houses are finding it difficult to remit funds, these are evidences of a foreign exchange market that is not liquid,” laments MudaYusuff, director general of the Lagos Chamber of Commerce.

He states further, “It is not liquid because the exchange rate has been fixed at a level that the supply cannot support. So we have to have a misalignment between the rates and the fundamentals. If we don’t have an alignment, we will continue to have distortions in the economy and that is the major crises we are facing now.”

The impact of the government’s policy on the foreign exchange is seeing flight cancellations, industries laying off workers due to inability to import raw materials, companies failing to meet obligations relating to international trade transactions and scaring off investors who can’t see the logic of bringing their funds into an economy where the bank insists they exchange at a rate far lower than the open market.

Analysts expect the Central Bank at next week’s monetary policy committee meeting to make a pronouncement on the matter.

“We have two major policy issues in this economy, we have the issue with the fuel regulation that has been dealt with partially the second major issue we have in the economy is the exchange rate policy and I hope their next MPC will address this,” said Yusuf Long years of operating with a control price for petrol has distorted the economy, limiting the capacity of entrepreneurs in the downstream sector to solve practical problems and fuelling corruption where billions of naira are wasted in phantom subsidy payments.