A Review of the Nigerian Energy Industry

N1.29tn spent on fuel subsidy in two years

22 January 2015, Abuja – Between 2013 and 2014, a total amount of N1.29tn was recorded as petrol subsidy claims from oil marketers.

Fuel tankers.jpg1Figures from the Petroleum Products Pricing Regulatory Agency show that about N832.06bn was paid as subsidy claim by the Federal Government to oil marketers in 2013 alone.

For July and December 2014, the government paid N45bn and N166bn respectively.

Aside these payments, oil marketers under the aegis of Major Oil Marketers Association of Nigeria and Depot and Petroleum Products Marketers Association, also alleged that the Federal Government owed them another N250bn in unpaid subsidies for 2014.

With the realities on the ground, the government may not be able to offset this debt in 2015 considering the fact that it only made a provision for N200bn subsidy in the 2015 budget proposal, our correspondent learnt.

Before November 2011, the business of fuel importation into the country was an all-comers’ affair, resulting in manipulations and malpractices that swelled subsidy claims to about N2tn.

Petrol subsidy, in this context, is a form of financial support extended to Nigerians by the Federal Government with the aim of keeping the price of petroleum products low compared to what it would have been in a perfect market situation. Government had claimed to be subsidising the pump prices of petrol, kerosene and LPG. Diesel prices, however, had been deregulated.

A total of 128 companies were engaged in fuel importation in the old regime thus providing an opportunity for the abuse of the system.

The PPPRA later reduced the number of participating companies to 42 in the first quarter of 2012, before it was further reduced to 39 in the third quarter of 2012, terming the development a reformatory move.

The volume of imported products also dropped from 5.036 billion litres in the first quarter of 2012 to 4.20 billion litres in the third quarter of 2012.

But due to growing concerns that the inability of these accredited importers to access credits from the banks could fuel another crisis in the system, the PPPRA later expanded the list to over 40 participating companies since 2013.

The case of kerosene, however, is different because oil marketers have refused to sell the product for the N50 regulated price per litre. The product, however, is currently sold for prices between N100 and N150 per litre in filling stations across the country.

Between January and September 2014, oil marketers in Nigeria were said to have made not less than N148.5bn as illegitimate profit from DPK sold to Nigerians.

The Managing Director, PPMC, Mr. Haruna Momoh, however ties the price anomaly in the kerosene market to sharp practices of some middlemen in the industry.

He said, “It is the wish of the government to make kerosene available, but our research since we came gives a totally different picture from the good intention of the government. It is diverted to neighbouring countries and also used for production and construction.”

The pump-price of petrol has just been reduced to N87 from N97 by the Federal Government, meaning that the subsidy on petrol has been eroded by market fundamental – which in this case are falling oil prices.

Also, the Executive Secretary, MOMAN, on Tuesday, stressed that now was the right time for the government to totally deregulate the downstream business of the petroleum industry, saying that such a move would make it incumbent on the marketers to either raise or reduce product prices, given market realities.

To this end, a former Group Managing Director of the NNPC, Mr. Chamberlain Oyibo, last week, said that depleting crude oil prices in recent times had finally eroded subsidy placed on petrol by the government.

He added, “Now, it is expected of this government to announce to Nigerians that the subsidy era is over.”


– The Punch

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