A Review of the Nigerian Energy Industry

Oil slump cuts subsidy to 90 kobo per litre

05 January 2015, Lagos – With the price of the global benchmark Brent crude closing at $57.94 per barrel last Monday, Nigerian government is now paying just 90 kobo as subsidy for a litre of petrol.

The Petroleum Products Pricing Regulatory Agency, which last updated the approved prices of the product on December 29, 2014, is expected to update the pricing template on Monday (today). But the last update put the Expected Open Market Price of petrol at N97.90.

IPMAN-fuel pumpBrent crude, which peaked at $115 per barrel in June 2014, stood at $56.42 on Sunday.

The Minister of Finance, Dr. Ngozi Okonjo-Iweala, had in December said that preliminary estimates showed that the break-even crude oil price at which the landed cost of petrol would equal the current price of N97 per litre so that there would no longer be subsidy was about $60 per barrel.

Against the backdrop of the fall in global oil prices, the landing cost of petrol dropped to N82.41 per litre as of Monday, December 29, from N127.57 on November 3, the PPPRA data showed.

Subsidy refers to the money paid, usually by the government, to keep prices below what they will otherwise be in a free market system.

With the reduction in the retail price of petrol to N97.90 on December 29, the Federal Government’s spending on petrol subsidy has, therefore, fallen to a five-year low of N0.90 per litre as of that date, compared to N44.94 on November 3, 2014. The regulated pump price of petrol is N97.

As of November 3, the retail price of petrol was N141.94 per litre, the PPPRA stated.

Nigeria, Africa’s top oil producer, relies on importation for most of its fuel needs as the country’s refineries are in a poor state. The fall in oil price has triggered the decline in the landing cost of petrol.

There have been calls in some quarters on the government to reduce the pump price of petroleum products as the price of crude oil, which constitutes a major component in the pricing template, have plunged by more than 50 per cent.

Okonjo-Iweala had in the overview of the 2015 budget proposal dated December 17, 2014, said, “Many Nigerians have rightly asked when the pump price of Premium Motor Spirit will be reduced, given the declining price of oil. As you know, the relevant agency of government responsible for petroleum product pricing matters is the PPPRA.

“The information we have is that they are now updating their template based on recent developments and we hope they can address this issue soon. However, preliminary estimates show that the break-even crude oil price at which the landed cost of PMS will equal our current price of N97 per litre so that there will no longer be subsidy is about $60 per barrel.”

She further said, “It is only when the crude oil price (Bonny Light) falls below this level that the pump price of PMS (which includes N15.49 per litre distribution and Petroleum Equalisation Fund cost) can begin to come down. The break-even price of crude oil would have been higher were it not for the N15.49 per litre distribution margin.”

Okonjo-Iweala said the oil price was extremely volatile and “we need to see the price settle at a particular level for sometime before taking a decision on what to do with the pump price.”

Provision for fuel subsidy as contained in the 2015 budget proposal is N291bn, down by N680bn from the N971bn approved for 2014.

The Lagos Chamber of Commerce and Industry had in its 2014 Economic Review and Outlook for 2015, said, “With the current level of global oil price, it will be difficult to justify budget provisioning for fuel subsidy.”


– The Punch

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