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Nigeria finally ends fuel subsidy without pains in 2016

91

petrol pump price

Effective January 1, 2016, Premium Motor Spirit, otherwise known as petrol, would be sold at N86 per litre by the Nigerian National Petroleum Corporation, NNPC Retail stations, while other oil marketers would sell at N86.50 per litre. Petrol used to sell for N87 per litre.

The downward review of the price of petrol was due to an implementation of the revised components of the Petroleum Products Pricing Template for PMS and household kerosene.

The newly-approved pricing template for PMS (petrol) effective today January 1,  till March 31, 2016, as provided by PPPRA is presented below.

However, due to a lower cost + freight C+F (N65.50 per liter) of the imported product, there is actually a reduced Expected Open Market price of N85.10 per liter (rather than N86.29 previously predicted).  

Hence, with a fixed retail price of N86.50, an over-recovery of N1.40 per liter is obtained, with no subsidy necessary.

By keeping the band of intervention to N87-97 per liter, if all other costs are kept constant, then the C+F component would have to rise by N11.90 per liter (or by almost 18%) for any other intervention to be contemplated before March 31.  Even at that, some other negotiable or fixed costs can still be adjusted.

Be that as it may, the federal government approved revised template, which would be reviewed on quarterly basis and which has been presented to oil marketers, is geared towards ensuring an efficient and market-driven price that would reflect current realities.

Pricing Template – PMS (OMC)

 PPPRA PRODUCT PRICING TEMPLATE – PMS
       Based on Average Platts’ Prices for 31st December, 2015
Average Exchange Rate of the NGN =N= to US$ for 31st December, 2015
          PMS  
  Cost Elements:     $/MT Naira/Litre  
1 C + F         445.87 65.50  
2 Trader’s Margin     0.00 0.00  
3 Lightering Expenses (SVH)   13.78 2.02  
4 NPA         2.45 0.36  
5 Financing (SVH)     2.12 0.31  
6 Jetty Depot Thru’ Put Charge    4.08 0.60  
7 Storage Charge     13.61 2.00  
8 Landing Cost       481.91 70.80  
9 Distribution Margins:          
10 Retailers       38.13 5.00  
11 Transporters       20.36 3.05  
12 Dealers       15.32 1.95  
13 Bridging Fund        27.23 4.00  
14 Marine Transport Average (MTA)   1.02 0.15  
15 Admin Charge       1.02 0.15  
16  Subtotal Margins     97.34 14.30  
17 Highway Maintenance     0.00 0.00  
18 Government Tax                –     0.00 0.00  
19 Import Tax                –     0.00 0.00  
20 Fuel Tax                –     0.00 0.00  
21 Subtotal Taxes       0.00 0.00  
22 Total Cost       579.25 85.10  
23 **  Ex-Depot (for collection)   524.15 77.00  
24 **  Under/Over Recovery    -9.56 -1.40  
25 Retail Price   588.81 86.50  
Expected Open Market Price (OMP) (Naira/litre) is Landing cost +Margins  85.10
Conversion Rate (MT to Litres): 1341        
Exchange Rate (N to $):   197.00        
*  Official Ex Depot is exclusive of Bridging Fund, Marine Transport Average (MTA),Tax & Admin. Charge 
* *Ex Depot includes Bridging Fund, Marine Transport Average (MTA), Tax & Admin. Charge   
*** Effective Date of New Approved Pricing Template is 1st January, 2016  
Data is as at 31/12/15

To achieve the desired goal of selling petrol at the government approved price across the country, vice-chancellor of a Nigerian university, Mr Bolaji Aluko suggests that in 2016, the government will concentrate on:

   (1) monitoring the 124 fuel depots rather than hounding the thousands of petrol stations nationwide;

   (2) monitoring the NNPC petrol stations, since these are government entities

   (3) not instituting the announced retail price differential between the NNPC stations (N86 per liter) and non-NNPC stations (N86.50 per liter) to eliminate ANY potential tendency for arbitrage – ie buying at an NNPC station and selling at some other stations.

   (4)  getting our four refineries to work either under private or public steam, so as to pump as much as 32 millions per liter on a daily basis into our PMS stream.  Even a ramping up from current 20% (?) to 50% to 90% will make a big difference.

   (5) fast-tracking the on-streaming of other private refineries – both large (eg Dangotes) and small (eg the many mini-refineries long in the cards.)

   (6)  improving the fuel (oil and gas) delivery network – from crude field to refinery, from refinery to depots, from depot to depot, from depots to petrol stations,etc.   These must be integrated via enhancedly-secured pipelines, increased-path rail and less trucking (which clogs our roadways.)

With a focused and disciplined leadership, these can be achieved.

Since 2007, while crude oil price had been moving up and down, the template remained the same. This had made it necessary for NNPPC under the leadership of the new Minister of State for Petroleum Resources, Mr Kachikwu to introduce a mechanism whereby the template would be sensitive to the price of crude oil.

However, the template is not static, as there would be a quarterly review and if there is any major shift, the Minister of State would be expected to call for a review, either upward or downward, depending on the market condition.

“If there is no major shift, that is, if there is a marginal change, the price would continue from January to March, 2016. In addition, there would be a Product Pricing Advisory Committee that would be set up to advise the PPPRA concerning movements in the price of crude oil.”

Speaking to newsmen in Abuja two days ago, Executive Secretary of the Petroleum Products Pricing Regulatory Agency, PPPRA, Mr. Farouk Ahmed, had announced the first quarter 2016 PMS import allocation of three million metric tonnes to the NNPC and other oil marketers.

On the review of the price of petrol, Ahmed said the NNPC would sell lower than other oil marketers, due to the fact that it is cheaper for it to import, compared to the independent and major oil marketers.

He listed the major components affected by the review in the pricing template to include : Traders Margin, Lightering Expenses, Nigerian Ports Authority (NPA) Charges, Jetty Throughput and Storage Charges, as well as Bridging Fund. Other components include : Retailers, Transports and Dealer margins.

Giving a breakdown of the revised template, Ahmed disclosed that Trader’s margin, which is the amount paid to traders for bringing the commodity into Nigeria, has been eliminated, from N1.47 per litre previously; Lightering Expenses reduced from N4.07 per litre to N2 per litre; NPA, reduced from N0.77 to N0.36 per litre; while Jetty Throughput and Storage charges were reduced from N0.80 and N3, to N0.40 and N1.50 per litre respectively.

On the other hand, Retailers margin was increased to N5 per litre from N4.60; Transporters rose to N3.05 from N2.99; dealers margin was reviewed upward to N1.95 from N1.75, while bridging fund dropped to N4 per litre from N5.85.

To this end, Ahmed put the Ex-depot price of PMS at N77 per litre, compared to N77.66 per litre; open market price would be N86.29 for oil marketers and N85.93 per litre for the NNPC, while he stated that pump price for oil marketers would be N86.50 per litre and NNPC, N86 per litre.

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