A Review of the Nigerian Energy Industry

Petrol subsidy hits record high amid controversy

05 May 2015, Abuja – The subsidy to be paid by the Federal Government on every litre of petrol being consumed in the country has increased to N45.21, the highest level this year, up from N43.25 last Tuesday, according to data obtained from the Petroleum Products Pricing Regulatory Agency on Monday.

The daily subsidy on petrol had on December 29, 2014 plunged to 90 kobo per litre following the steep decline in the global prices of crude oil, from which petrol is derived.

The Federal Government had on January 18, 2015, after calls from many quarters, announced the reduction in the pump price of petrol from N97 to N87 per litre, attributing this to the decline in the global crude oil prices.

Three days after the announcement of the price reduction, the subsidy on the product stood at N2.84 per litre.

According to the PPPRA, the Expected Open Market Price of petrol was N132.21 as of May 1, 2015, up from N130.25 on April 28.

Based on daily consumption figure of 40 million litres as supplied by the Pipelines and Products Marketing Company, the total subsidy cost on the product last Friday amounted to N1.81bn at N45.21 per litre.

The EOMP of petrol was N128.96 per litre on April 24, while the subsidy was N41.96, according to the PPPRA.

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

With the price of Brent crude, against which Nigeria’s oil is priced, rising to $65.55 on April 24, the amount payable by the Federal Government to oil marketers went above the N40 per litre mark. Brent crude traded around $66 and $67 per barrel on Monday.

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 bulk of the petrol consumed in the country is imported by marketers who are paid subsidy by the government.

Last week, the country experienced a severe petrol scarcity triggered by the delay in the payment of subsidy arrears to the marketers.

The Executive Secretary, Major Oil Marketers Association of Nigeria, Mr. Thomas Olawore, had on Sunday said that the government had paid N154.2bn out of the N354.4bn it owed the independent and major marketers as well as the depot owners, leaving a balance of N200.2bn.

But Okonjo-Iweala said this figure could not be correct, noting that the balance that was left based on the PPPRA’s template was about N131bn.

She said, “As you know, we paid N156bn recently, N100bn of the principal payment that we owe them; and then, we paid N56bn interest rate and some remaining exchange rate differentials. Prior to that, we just paid N31bn exchange rate differentials. So, at the time we paid that last week, what we had outstanding was N98bn.”

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