A Review of the Nigerian Energy Industry

Why govt still subsidises petrol at N87 per litre – PPPRA

Oscarline Onwuemenyi 24 January 2015, Sweetcrude, Abuja – The Petroleum Products Pricing Regulatory Agency, PPPRA, has sought to explain the reason behind the Federal Government’s decision to continue the subsidy scheme even with the current pump price of petrol at N87 per litre.
Fuel-pump-360x270Executive Secretary of the PPPRA, Mr. Farouk Ahmed, who gave the clarification at a press briefing in Abuja, stated that although the price of crude oil dropped to a point in the open market, the Government considered it appropriate to relieve some of the burden imposed on Nigerians by the knock-on effect of the dwindling price of crude oil on the economy.
The agency had revealed earlier this week that the Federal Government would still be subsidizing the new petrol price by about N2.84 per litre.
According to him, “The price of crude oil averaged $62 in December, 2014 and dropped to an average of $50 per barrel for the first half of January, 2015.
“It was after a consistent and diligent monitoring of the trend, since the beginning of the current drop in crude oil price that Government was able to confirm its ability to reduce the pump price of gasoline, commensurate with the amount announced.”
He explained that even at the lowest crude oil price of $47.23 recorded on January 16, 2015, the open market price of petrol was about the same as the erstwhile price of N97/litre.
“What this means is that at the new price of N87 per liter, government is still subsidizing the pump price of petrol,” Ahmed explained.
On the argument that the price of crude oil has reduced by about 50% and so the pump price of petrol must reduce in the same ratio, he explained that crude oil price is only one of the several components in deriving the pump price of petrol. “Therefore, there is no linear relationship between the price of crude oil and the pump price of petrol,” he noted.
In addition, he explained that when the price of crude oil reached its peak of $114.26 per barrel on 18 June, 2014, the open market price of petrol was N157, but government still maintained the regulated price of N97 per litre and subsidized the difference of N59.51 per litre.
The PPPRA boss noted that in determining the amount of reduction in the pump price of petrol, government is mindful of the impact that an upward swing in the price of crude oil would mean in the amount of subsidy exposure.


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