25 February 2015, Abuja – The Federal Government, Monday, scheduled to pay off about N264 billion between now and end of March, as subsidy reimbursement applications submitted to marketers as at end of January 2015.
Already, the amount has exceeded the budgetary proposal of N200 billion in the 2015 Appropriation Bill, which makes analysts suspect that government did not wish to continue with the subsidy system in the 2015 financial year.
The decision was arrived at a crucial meeting with the Ministries of Finance, Petroleum Resources, the Central Bank of Nigeria, CBN, and oil marketers in Abuja on Monday at the instance of the Minister of Finance, Dr. Ngozi Okonjo-Iweala.
The decision to pay off the marketers’ outstanding subsidies plus forex differentials and interest rates became necessary to douse supply pressure on premium motor spirit, PMS, popularly called petrol, which had already started leading to a buildup of queues in some areas around the country, as exclusively reported by Vanguard last week.
Fallout of meeting
Confirming the development in Lagos, yesterday, Executive Secretary, Major Marketers Association of Nigeria, MOMAN, Mr. Obafemi Olawore, told journalists: “The Minister (Okonjo-Iweala) met with marketers and gave a schedule of payment for outstanding subsidy invoices from now till the end of March.”
He said the payment schedule got the nod of principals across the majors, independents and depot market operators, adding that as a result, “product supply that should have gone down will now pick up again. Also, any current tightness noticeable in the market is only temporary.”
Olawore also admitted that supply was tightened because marketers had reached and exceeded their loan limits with the banks, and as such, are unable to access any more bank facilities.
Already, the CBN had warned banks to be wary of their exposures to the energy industry, particularly, petroleum and power, in order not to plunge the banking industry into another round of distress.
Besides, with the devaluation of the Naira, it became even more difficult to raise loans from the banks.
Olawore said: “Before devaluation, the exchange rate was N171.36 -$1, while landing cost for PMS was N90.67/litre. As inter-bank rate went up to N188-$1, landing cost also rose to N98.36/l . As at today (yesterday), with exchange rate now N199-$1, landing cost rose to N103.45/l, and if it now moves to N215-$1, landing cost will move to N110.84/l.”
Consequently, he argued that the successive devaluation of the Naira had eaten up any benefit that would have been derived from the falling price of oil at the international market, a development that has seen the rise of the pump prices of other fuel products such as kerosene, diesel and aviation fuel.
Impact of devaluation
The free fall in the value of the Naira has started to take its toll on the price of petrol, as the amount the Federal Government is paying as subsidy on PMS, yesterday, rose to N31.08 per litre.
What this means is that Nigerians, as it stands, would be expected to pay about N118.08 per litre of PMS if the product is deregulated and if subsidy on the product is removed.
The Petroleum Products Pricing Regulatory Agency, PPPRA, in its Pricing Template for PMS, for February 23, 2015, released yesterday, increased the exchange rate used in computing PMS price to N199 to a dollar compared to about N172 to a dollar a couple of days ago.
The review in the exchange rate is coming days after the CBN unofficially devalued the Naira through the closure of the Retail and Wholesale Dutch Auction System (RDAS/WDAS) foreign exchange window, channelling all demands to the interbank foreign exchange window.
As at yesterday, the naira was trading at the interbank market at about N199 to a dollar. The rise in the amount to be paid as subsidy was in spite of the fact that oil prices have remained below $60 barrel in the international market over the last couple of weeks.
Specifically, on February 10, 2015, when the price of crude was $57.90 per barrel, the amount paid as subsidy by the Federal Government was N14.79 per litre, but as at yesterday, the price of crude was a little above $58 per barrel.