*Reveals ‘true’ cost of PMS as N243.05 per litre
*Says Nigeria to become net exporter of petroleum products by 2019
16 May 2016, Sweetcrude, Abuja – The Federal Government has stated that at the new pump price of N145 per litre, Nigeria remains one of the cheapest fuel markets in the world, even as it sought to explain some of the reasons behind the recent increase in the pump price for premium motor spirit, PMS, also known as fuel.
In a document obtained by our correspondent last night, the government explained that before arriving at the new price regime, a comprehensive study of the costs of importation was undertaken.
It noted that “Even with the new price regime, Nigeria would remain one of the cheapest fuel markets in Africa and this could even be lower once competition takes eﬀect. Likelihood of smuggling to neighbouring countries will also be signiﬁcantly reduced with the new price regime.
“Nigeria will only stop products importation when it attains local production suﬃciency. The present administration is working assiduously on key initiatives towards boosting our local reﬁning capacity.
“The overarching objective is to create a competitive downstream petroleum market in Nigeria and be a net exporter of petroleum products by 2019,” the document added.
It further noted that “All stakeholders including marketing companies and independent experts were consulted in arriving at the appropriate cost reﬂective regime. This is in furtherance of the price modulation framework rolled out in January 2016 which entails modulating prices down or up on a periodic basis to reﬂect actual prevailing costs.”
It added that while the Federal Government is not deregulating the downstream sector, the government through this new price regime will ensure that the price of products is monitored and modulated to ensure that citizens get a fair value for products they purchase.
According to the document, “The estimated ‘true’ cost of PMS was valued to be N243.05 per litre. This is factoring the estimated average time spent to obtain PMS at the oﬃcial
price (86.50NGN), the estimated hourly wage of the average Nigerian, the average price of PMS on the black market and the estimated average volume bought per visit to the ﬁlling stations and also factoring in the frequency Nigerians source PMS from the diﬀerent markets.”
The government noted that unavailability of forex and inability to open letter of credit has forced marketers to stop product importation and imposed over 90% supply on Nigerian National Petroleum Corporation, NNPC, since October 2015 in contrast to the past where NNPC supplies less than 48% of the national requirement.
“The NNPC does not have the resources for and is not designed to meet this increase in supply resulted in the current fuel situation across the country. NNPC has continued to utilise crude oil volumes outside the 445,000 barrels/day thereby creating major funding and remittance gaps into the Federation account,” it stated.
It added that “There is no provision for subsidy in 2016 Appropriation. As at today, the current PMS price of N86.50 gives an estimated subsidy claim of N13.7 per litre which translates to ~N16.4 billion monthly. There is no funding nor appropriation to cover this.”
The document noted that, “Renewed insurgency and pipeline vandalism in the Niger Delta has drastically reduced national crude oil production to 1.65 million barrels per day as at today against 2.2 million barrels per day planned in the 2016 budget, further reducing income to Federation account and also affecting crude volumes for PMS conversion and impacting FG forex earnings resulting in Nigerians paying more for the product.
“The resultant fuel scarcity has created an abnormal increase in price averages of N150 – N300 per litre as prevalent hoarding, smuggling and diversion of products has reduced volumes made available to citizens.
It said that “In the absence of available forex lines or crude volumes to continue massive importation of PMS, it is clear that unless immediate action is taken to liberalise the petroleum supply and distribution, the queues will persist, diversion will worsen and the current prices will spiral out of control
Meanwhile, the document stressed that the new price regime “Permanently eliminates subsidy payments (~N1trillion in 2015, ~16.5billion April – to date). It will ensure 100% FAAC payment on allocated 445,000 b/d and potential additional revenue stream which can be tailored towards palliatives.”
It added that “The new price regime will effectively solve fuel scarcity crisis by ensuring availability of products at all locations in the country; ensure market stability and improves fuel supply situation through private sector participation. It will reduce hoarding, smuggling and diversion substantially and stabilise price at the actual product price.
“It encourages investments in both refineries and retails (potential $2 -3 Bn in 2016); Stabilises economic fundamentals and allows access to Development loans etc; creates labour market stability (will potentially create additional 200,000 jobs through new investments and prevent potential loss of nearly 400,000 jobs in existing investments).
“Furthermore, it provides government more revenue to address social and infrastructural needs of the country.”
The document revealed that reason scarcity abounds in the country was the unavailability of foreign exchange and Inability to open letter of credit has forced marketers to stop product importation and this imposed over 90% supply on NNPC since October 2015 in contrast to the past where NNPC supplies ~48% of the national requirement. “NNPC does not have the resources for and is not designed to meet this increase in supply, this has resulted in the current fuel situation across the country.
It noted that the new price regime will allow marketers source their foreign exchange
independently of CBN and ensure adequate product supply in all locations
of the country whilst catering for full cost recovery and averaging of prices
across the nation.
“Clearly the continuation of subsidies in any form for PMS limits the ability of Government to deliver its statutory functions such as power generation, security, education, health etc. The new price regime will enable government focus on these critical sectors and free up our scarce foreign exchange via CBN to be used in other sectors.”
“Crude oil price is an internationally traded commodity, the prices are not set by the countries that produce it. Neither do oil producing countries get a discount in the international market for producing this product.
“Furthermore, crude oil price accounts for about 80% of the ﬁnal cost of fuel. Other costs include depot charges, transportation costs, chemicals, spare parts, raw materials etc. is related to a host of economic factors.
“Therefore, at the current crude oil price of $40 per barrel, the ﬁnished domestic reﬁned fuel sold to Nigerians cannot be priced lower than the cost of the crude plus the other associated costs incurred in converting the crude into PMS and supplying the product to the consumer.”
Meanwhile, the Federal government has stated that the relevant regulatory institutions (DPR, PPPRA) will be further empowered to ensure level playing ground, strict compliance with market rules by all stakeholders and consumer protection.