A Review of the Nigerian Energy Industry

Fuel subsidy: PPPRA removes pricing template from website

23 January 2015, Abuja – The Petroleum Products Pricing Regulatory Pricing, PPPRA, on Thursday removed the pricing templates of all refined petroleum products from its website.

fuel pumpThe decision was an apparent reaction to the publication of a story by The PUNCHthat the Federal Government was still paying a subsidy of N2.84 for every litre of petrol despite the reduction of the pump price of the product to N87 on Sunday.

Efforts made by our correspondents to get explanations from the agency as to why the templates were removed were not successful as calls to its spokesperson, Mr. Lanre Oladele, were not answered. A text message sent to his mobile telephone number was not also answered.

The PUNCH had on Thursday exclusively reported that despite the recent reduction in the pump price of petrol from N97 to N87 per litre, the government claimed it was still paying N2.84 as subsidy on every litre of the product consumed.

According to the petrol pricing template published on the PPPRA website on Wednesday, the Expected Open Market Price of Premium Motor Spirit, otherwise called petrol, is N89.84 per litre, while the regulated price is N87 per litre.

The PPPRA said the approved prices of petroleum products as reflected in the templates were from January 16, 2015.

According to the agency, the landing cost of petrol is now N74.35 per litre, while the ex-depot price is N77.66 per litre.

On January 5, The PUNCH had reported that with the price of the global benchmark Brent crude closing at $57.94, the Federal Government was paying 90 kobo as subsidy for a litre of petrol because the PPPRA pricing template had put the EOMP at N97.90.

The Federal Government on Sunday night announced the reduction in the pump price of petrol by N10 per litre, attributing this to the decline in global crude oil prices.

The Minister of Petroleum Resources, Diezani Alison-Madueke, while explaining the reason for the reduction in fuel price, said, “There has been a lot of volatility in the oil market in the past few months and due to this, the importation prices of our petroleum products have been impacted.

“Therefore, with the approval and directive of Mr. President, and by virtue of Section 6 clause 1 of the Nigerian Petroleum Act, it is my responsibility as the Minister of Petroleum Resources to hereby announce a reduction in the pump price of Petroleum Motor Spirit from the current N97 per litre to N87 per litre, effective from midnight of Sunday, January 18, 2015.”

Industry analysts have, however, faulted the pricing template released on Wednesday by the PPPRA, especially the decision to retain subsidy following the decline in global oil prices.

They said the plunge in oil prices, which necessitated the reduction in the pump price of petrol, was an opportunity for the country to end subsidy on the product.

Two days after the reduction in the pump price of petrol from N97 to N87 per litre, the PPPRA released its template showing that the landing cost of PMS as of January 16 was N74.35 per litre. With the addition of the distribution margin of N15.49 to the landing cost, the total cost stood at N89.84 per litre that day.

Analyst also faulted the fact the agency used the new regulated price of N87 for the January 16, 2015 template when the pump price of the product was reduced on Sunday, January 18, 2015.

An energy analyst, who pleaded anonymity, said, “With the low oil price, we have an opportunity to end PMS subsidy by setting the PMS price at a level where there will be no more subsidy required. However, the decision to set prices at levels increasing subsidy from a mere 90 kobo per litre to almost N3 is not the best for the government’s declining revenue situation.

“I would have asked why we are increasing subsidy from just N0.90k, while the price was N97 per litre; we now pay N2.84 at N87. This was an opportunity to avoid subsidy. We could have set the pump price at N90 per litre instead of N87 and claiming that there is subsidy of N2.84.”

The Director, Centre for Petroleum, Energy Economics and Law, Prof. Adeola Adenikinju, said, “In my view, this is the time to let the market be largely driven by market forces.”

A former Group Managing Director, Nigerian National Petroleum Corporation, Mr. Chamberlain Oyibo, told one of our correspondents on the telephone on Thursday that the best time to completely remove subsidy on petrol was now given the prevailing market realities.

He said crude oil prices and petrol prices had fallen significantly in recent times, making it natural for subsidies on petroleum products to be eroded.

“The government can deregulate the sector now and allow the private sector to take charge. This is the best time to do it,” Oyibo said.

He added that when crude oil prices start rising again, it would be difficult to remove subsidy on refined products without resistance by the populace.

A former Chairman, Independent Petroleum Marketers Association of Nigeria, Mr. Ogunmade Olumide, also said that now was the right time for the government to fully deregulate the downstream sector of the petroleum industry, so that Nigerians could pay competitive prices for refined petroleum products.

He said the reduction in pump price of petrol was long overdue and that considering the level at which global oil prices had fallen, the price should have been lower than N87 per litre.

Olumide said the government needed to address the profit margin of oil marketers now because they were still borrowing money at 30 to 35 per cent from the banks to import refined products.

“Government needs to address our margin so that our profit is not seriously eroded. We need to remain in business and we need reasonable profit to achieve this,” he said.



– The Punch

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