New Pump Prices: 48 hours after take-off, compliance still arbitrary

03 January 2016, Abuja –  The Nigerian National Petroleum Corporation (NNPC) and most of the oil marketing companies at the weekend ignored the implementation of the approved new pump and ex-depot prices of petrol, which took effect on January 1, 2016.

Fuel-pump-360x270This is coming as the marketers have argued that all the basic assumptions, permutations and projections by the government in the new pricing model are unrealistic in view of the high cost of foreign exchange.

Under the revised pricing template by the Petroleum Products Pricing Regulatory Agency (PPPRA), the government had approved two pump prices – one for the retail outlets of the NNPC, which would sell at N86 per litre, and another for the retail outlets operated by the private oil trading companies, which would sell at N86.50 per litre.

With the new pricing, the ex-depot price of petrol has also potentially dropped to N77 per litre, against the previous official price of N77.66 per litre, with effect from January 1.

But THISDAY’s investigation revealed that both the NNPC and the private marketers did not adjust to the new prices at the weekend, due to concern on the economics of the new pricing model in the face of myriad of challenges facing the downstream operators in the areas of sourcing products and foreign exchange.

While the NNPC were still selling at the old ex-depot price of N77.66k per litre at the weekend, other marketers sold between N90 and N100 per litre at the gates of the depots, thus making it unrealistic for the product to be sold at N86 per litre at the pumps in most filling stations.
The government’s decision to reduce the official prices of petrol stemmed from the slump in the international market price of crude.

It was gathered that with the drop in the price of crude, the Expected Open Market Price (EOMP) of imported petrol has also slumped to about N86.29K per litre for the private marketers and N85.93K for the NNPC.

This implies that the product could be sold at these prices without the marketers and the NNPC being paid subsidy or incurring losses.

With the approval of the pump prices of N86.50k for the marketers and N86 per litre for the NNPC, it is expected that both the marketers and the corporation will refund part of the money as “over-recovery” to the government, since the new pump prices exceed the market prices in a deregulated regime.

But THISDAY gathered that the operators were not in a hurry to implement the new prices due to the other challenges, which have made the assumptions in the new pricing template unrealistic.

The marketers, who spoke on condition of anonymity, argued that government’s position on the new pricing did not reflect the actual market realities.

“All the government’s permutations, assumptions and projections in the new template are unrealistic in view of the crisis we are facing in sourcing foreign exchange. We can’t find foreign exchange. So, the margins in PPPRA template do not reflect the actual market margins,” said one of the marketers.

Another marketer stressed that government’s assumptions were all based on the exchange rate of N197 per dollar, which is not obtainable in the market.

“Yes, the open market price of petrol, assuming it is deregulated, is around N86.29, but that is at exchange rate of N197 per dollar.

The question is: do we have unhindered access to dollar at N197 to flood the market with imported products and enjoy economics of scale that will make all the assumptions in the new pricing model realistic? The answer is No. We source dollar at much more higher rates and that means the market price should be much higher than the N86.29 per litre projection. So, if we sell at N86.50, we are going to incur huge losses because that is less than the market price. And remember, we are still required to pay back 21 kobo per litre as over-recovery”, one of the marketers explained.

He further explained that even if NNPC as a government entity implemented the new N86 per litre pump price, under the assumption that its open market price is N85.93, the assumption is still a false one, which will lead to losses on the part of the corporation.

Meanwhile, compliance with the new petrol pricing regime, which kicked off on January 1, by petroleum marketers appears to have remained arbitrary, 48 hours after its takeoff.

THISDAY checks in Abuja showed that while compliance in the retail petrol service stations owned by the Nigerian National Petroleum Corporation (NNPC) and that of major marketers mostly situated in the city centre of the federal capital city Abuja was almost total, others that operate on the outskirt of the city were yet to comply with the new pricing framework.

Similarly, it was discovered that the stations that were yet to fully comply and adjust their pump prices to the regulated N86 and N86.50k per litre which the government approved in its new modulated pricing regime for the NNPC retail outlets and other marketers, were mostly owned by independent marketers.

Some of the stations owned and operated by the independents in the centre of the city, and which had stocks of petrol were however found to be selling at their price class of N86.50 per litre even though their signboard were left empty and still do not reflect the new prices. Others visited were however closed as they claimed to have run out of stock.

There was also suspicion amongst customers that the adjustments in the pumps may not have been accurately done by the stations especially the independents. THISDAY could not get any official response on the new price from any of the stations’ head of operation. They said they had no approval from their head offices to talk to the press.

The retail outlets of the NNPC at Olu Obasanjo Way in Wuse Zone 1; NNPC affiliate station in Wuse 2; Oando along Olu Obasanjo Way Wuse Zone 1; Total along Herbert Macaulay Way Wuse Zone 4 and Forte Oil in Maitama District of the city were all found to be selling at their respective price bands.

However, stations along the Abuja-Airport-Lokoja Expressway, as well as independent stations in other cities such as Enugu were still found to either be selling above the official rates or rather left their prices unchanged. Some of them were found empty as though they had no stock to sell.
The federal government through the Petroleum Products Pricing Regulatory Agency (PPPRA) last Tuesday disclosed the new pump prices, which will guide the sale of petrol in the country under a revised pricing template.

Within the new pricing template, the government approved for use, two different pump prices-one for the retail outlets of the NNPC and another for retail outlets operated by private business concerns in the downstream petroleum sector.

PPPRA noted that both open market prices respectively indicated a N1 and 50k drop from the former official pump price of N87 per litre, which became obsolete on December 31, 2015.
The Executive Secretary of the PPPRA, Farouk Ahmed stated that the NNPC is expected to sell petrol at N86 per litres to customers at its retail outlets, while other operators would sell at N86.50 to their customers.

He added that the announcement follows the approval of the Minister of Petroleum Resources, Dr. Ibe Kachikwu, for the implementation of the revised template.

Also, the PPPRA at a monitoring exercise it conducted on Friday stated that any fuel stations found ‎to be selling above the new regulated pump price would  face various sanctions including withdrawal of licenses and all the benefits of participation in the Petroleum Support Fund Scheme (PSF).

The Assistant General Manager and Head of Operations of the PPPRA, Mr. Victor Shidok, who led the PPPRA to monitor the level of compliance in conjunction with the Department of Petroleum Resources (DPR), noted that there was 100 per cent compliance in the central part of Abuja, he however stated that the team was yet to reach the outskirts of the city where he feared there might be challenges with regards to total compliance.

 

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