Govt subsidises petrol by N10.31 per litre

17 April 2016, Abuja – The marginal rise in the price of crude oil in the international market has led to an increase in the actual cost or Expected Open Market Price of the Premium Motor Spirit, popularly called petrol, in Nigeria.

IPMAN-fuel pumpSpecifically, the EOMP or true cost of petrol as of Thursday, according to figures from the official pricing template of the Petroleum Products Pricing Regulatory Agency, was N96.31 per litre.

But the official retail price of the product at filling stations is N86.5 per litre, leaving out an under-recovery or difference of N10.31, which is being catered for by the government through its previous savings or over-recovery made on the product.

Should the government exhaust its savings (over-recovery) to offset the difference in the petrol price as currently being experienced, it was gathered that the PPPRA would have to adjust the template to reflect the actual market cost of the product. And by implications, consumers may have to pay more for petrol.

Various pricing templates of the PPPRA, before last Thursday’s, had shown the government’s over-recovery on the PMS during periods of low crude oil price.

However, as the international price of crude begins to appreciate, the government is already experiencing under-recovery on the PMS, as shown by the PPPRA templates.

The PPPRA is the agency of the Federal Government that regulates the prices of white products – petrol and kerosene, across the country.

Earlier in the year, the crude oil price hovered around $40 per barrel. But recently, it started to appreciate as data from the Nigerian National Petroleum Corporation showed that as of April 8, 2016, the price of Brent Crude was $44.69 per barrel.

The marginal rise in price of Nigeria’s Brent Crude resulted in a commensurate increase in the EOMP or actual cost of petrol.

As of April 14, the PPPRA, in its template, put the landing cost of petrol at N82.51 per litre, while the sub-total margins such as the retailers charge, transporters cost, dealers fee and admin charge were pegged at N14.30 per litre.

The summation of the landing cost and the sub-total margins refer to the EOMP, which was N96.31, at the period under review.

But the Federal Government, through its modulation mechanism, is subsidising the commodity by N10.31, which is why consumers pay N86.5 per litre for petrol at filling stations, particularly those run by major and independent oil marketers.

As stakeholders in the sector wondered if the subsidy regime had been returned, the government specifically stated that it had not re-introduced the era of petrol subsidy payment to oil marketers.

It had argued that it was effecting a price modulation mechanism operating based on the fluctuation in the crude oil prices globally.

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, the PPPRA as well as the NNPC, at separate occasions, had come out to state that the extra amount, which Nigerians were supposed to pay on petrol was catered for by the government from the savings made during the period when the retail price of petrol was higher than the EOMP.

Kachikwu had specifically explained that based on the price modulation technology adopted by the PPPRA and the trend in the prices of crude oil globally, a new pump price for PMS might be announced in May.

He had also ruled out the return of the petrol subsidy regime when the government paid subsidy claims to oil marketers.

Speaking at a recent town hall meeting with employees of the PPPRA in Abuja, Kachikwu said, “The price modulation that we’ve put in place will enable us to check prices. The government has not returned petrol subsidy.

“The real truth is that in the first three months of doing the price modulation, our over-recovery enabled us to save quite a lot of money and that is going to fund the gap that we see in April but for May, we will have to adjust the prices to match the current trend.”

Similarly, the PPPRA recently announced that the Federal Government had not reversed its decision to end petrol subsidy payment, arguing that there was no appropriation for subsidy in the 2016 budget.

The Acting Executive Secretary of the agency, Mrs. Sotonye Iyoyo, had said, “The PPPRA wishes to state categorically that what still exists is price modulation policy, through which it considers and reviews pump price of the PMS quarterly.

“The agency also wishes to assure Nigerians that the funds from over-recovery in the first quarter shall be duly utilised for whatever noticeable imbalance in April 2016 in line with the price modulation principle.”

 

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