Subsidy removal: What Nigerians should expect soon - Dayo Adetoye

Mr Dayo Adetoye

Financial & Management Consultant, Mr Dayo Adetoye

By Isa Isawade

Mr Dayo Adetoye, a Financial and Management consultant with expertise in project management, financial analysis and investment advisory, has said the current prices of Premium Motor Spirit (PMS) in Nigeria, precipitated by fuel subsidy removal will soon nosedive.

Adetoye said this at a social medial forum in Lagos on Wednesday.

According to him, “Price is a major accelerator or decelerator of demand in Economics. Removal of fuel subsidy means that importers of PMS must have to sell at market price which includes costs plus profit margin.

“This may initially seem like a cartel is created where marketers are united to fix and sell at a uniform pump price across board. But consumers are finding ways to cope with the new high pump price by reducing their consumption of fuel.

“Households have cut their fuel consumption for home generators by as much as 20%, 40%, and 50%. People don’t switch on their generators anyhow as they used to do before. Small businesses like barbers and hairdressers only switch on their generators when there is a customer. In the past, they can switch on their generators even when there are no customers in their shops.

“This can be a good thing because it will eventually put filling stations under pressure to encourage customers to always buy from them, and this will eventually force them to start adjusting down their pump prices bit by bit to attract customers.

“This is what happened in the telecom sector. Initially, the prices of sim cards were expensive and call billing was per minute. As competition set in, telecom companies initiated strategies to keep customers loyal to them, and the prices of sim cards went down and per-second call billing was introduced.”

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Therefore, he is optimistic that the fuel pump price of N500 per litre “will not stay for too long, especially here in Lagos. The forces of Economics will eventually bring it down, even where there is no direct government intervention.”

When a member of the forum, Austin Yalla, demanded to know the reason prices of diesel and kerosene were yet to be affected by market forces “over a decade after deregulation”, Adetoye responded that “there is a conscious policy to create a cheaper substitute which is clean energy via cooking gas.”

Nigeria, he said, is part of a global movement to encourage the use of cooking gas instead of kerosene.

“The high price of kerosene therefore cannot be influenced downward by low demand because a low price of kerosene is not a motivator to shift from clean energy like cooking gas.

“Most people have permanently embraced cooking gas for its many advantages, and reduction in price of kerosene won’t change their minds. Marketers know this.

“So who are the people still buying kerosene? Of course, businesses buy and use kerosene as either part of the raw material mix or as the main material for their operations. So the cost of kerosene is added up to their overall cost of operations which is shifted to their product/service users.

“The same can be said of diesel. The demand for diesel is mostly for industrial usage. Households barely use diesel. So marketers know companies will always buy diesel. If the price goes up, the companies simply pass the cost to the end users of their products or services.

“Households spendings are the most important and can be rational. The demand curve in this regard shifts up or down as price levels shift. Households’ demand for fuel is important for marketers, and to encourage that type of demand to increase, the filling stations over time will have to joggle prices downward,” Adetoye explained.

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