How we arrived at N87 per litre petrol price – Govt

…Still to pay N163bn subsidy annually

Oscarline Onwuemenyi 21 January 2015, Sweetcrude, Abuja – The Federal Government has explained how the new price of N87 per litre of petrol was arrived at, saying it was based on the components of the prevailing petroleum products pricing template.

Fuel-pump-360x270The Petroleum Products Pricing Regulatory Agency, PPPRA, pricing template shows the landing cost, the ex-depot price, which is the price that products marketers are to pay for products they lift, and the expected open market price of petroleum products.
The Executive Secretary of PPPRA, Farouk Ahmed, further explained that based on the landing cost of N74.35 per litre of PMS as at the close of business on Friday, January 16, 2014, the addition of distribution margin of N15.49 per litre would translate to an open market price, or pump price of N89.84 per litre.
The price, according to Mr. Ahmed, is more by N2.84 than the N87 per litre approved by the Federal Government and announced by the Minister of Petroleum Resources, Diezani Alison-Madueke, on Sunday.
By implication, he said the Federal Government would still be subsidizing the new petrol price by N2.84 per litre.
Mr. Ahmed urged marketers to adhere strictly to the new price regime, the PPPRA said it would work with the Department of Petroleum Resources, DPR to enforce compliance to ensure that consumers benefited fully from the new review.
“Any violation of the prevailing price regime, shall attract appropriate sanctions,” the agency warned.
It asked Nigerians to avoid all forms of panic-buying, as there are enough products in all depots across the country.
A close review of the latest pricing template of the petroleum products regulatory agency based on average Platts’ data for December 29, 2014 showed the landing cost of $644.92 per metric ton of PMS or N82.41 per litre.
The landing cost per litre consists cost and freight (N72.40K), traders’ margin (N1.28K), lightering expenses (N3.91K), Nigerian Ports Authority, NPA charge (N0.67K), financing (N0.35K), jetty/depot thru’ put charge (N0.80K) and storage charge (N3.00K).
An addition of $121.22 per ton, or N15.49 per litre as distribution margins, would bring the total cost to about $766.14 per ton, or N97.90, which was above the former retail price of N97 per litre by 90 kobo.
A breakdown of the distribution margins include retailers (N4.60K), transporters (N2.99K), dealers (N1.75K), bridging fund (N5.85K), marine transport average (N0.15) and administrative charge (N0.15K).
But, the new petrol price on Monday drew mixed reactions from Nigerians, including a civil society group and the Nigeria Labour Congress, NLC.
The lead director, Centre for Social Justice, CENSOJ, Eze Onyekpere, said though the price reduction was not far reaching enough, to reflect the extent of the drop in crude oil price since July, Nigerians should accept it for what it is.
“Whether it was N1 reduction or N10, we should accept it, so far as it is a reduction. Is N10 not better than nothing?” he said.
For former Coordinator, Presidential Committee on the reform of the downstream sector, Jide Olateju, “any reduction in the price of a product as important as petrol is a welcome development, as it would leave more money in the pockets of Nigerians.”
Mr. Olateju, however, faulted the price reduction announced on Sunday, saying at the current global crude oil prices, which stood at $42.65 per barrel on Monday, petrol should sell for between N71 and N75 per litre, excluding taxes.
He said with PPPRA’s current pricing template having a landing cost of N82.41 and an open market price of N97.90, government would be saddled with a subsidy of about N10.90 per litre of petrol at the new prices.
“Based on the reported national daily consumption of 41 million litres of petrol per day, the implied PPPRA calculated subsidy of N10.90 on the N87 price means that the country will pay N447 million per day, or N163 billion per year in unnecessary subsidies derived through disputed calculations,” Mr. Olateju said.
“While this is only a tiny fraction of what was paid in recent years, it is simply crazy to bear this burden given the diminished revenue situation and the struggles the government is currently facing in meeting its obligations,” he added.
Criticising PPPRA’s pricing template for promoting inefficiency among importers of petroleum product and guaranteeing risk-free profit margins marketers, Mr. Olateju said while profit is a major objective in all businesses, operators should be ready to also bear risks, called arbitrage.
He said the NNPC, as the largest importer of PMS into the country, has been the largest recipient of government subsidy payments, while attention has been on Major Oil Marketers Association of Nigeria, MOMAN and the Independent Petroleum Marketers Association of Nigeria, IPMAN for alleged abuse of the subsidy scheme.
The NNPC, he said, must be stopped from further involvement in the importation of refined petroleum products, as its continued participation in schemes like the crude oil swaps have discouraged transparency, allowing it to used as a basis for all sorts of actions, including the withholding of revenue from the federation account.
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