Modupe Gbadeyanka
By Dipo Olowookere
Following an increase in the landing cost of Premium Motor Spirit, also known as petrol, to N145 per litre, Federal Government has resorted to the subsidy regime to ensure consumers in the country get the commodity at the official N145 per litre.
This is coming about eight months after the President Muhammadu Buhari-led regime stopped the fuel subsidy, which was costing the government millions of Naira being paid monthly to oil marketers importing the product then.
Investigations by Punch on Friday showed that the Nigerian National Petroleum Corporation (NNPC), now responsible for about 90 percent of the importation of the product, is currently bearing the latest subsidy cost on behalf of the government.
The Federal Government had on May 11, 2016 announced a new petrol price band of N135 to N145 per litre, a move that signalled the end of fuel subsidy.
The Head of Energy, Ecobank Capital, Mr Dolapo Oni, said, “I believe there is a subsidy, but it is not the subsidy being paid to marketers. It is the NNPC taking a loss so that marketers can sell at N145. That’s a fair system right now because it is better than paying marketers at the same time.”
It would be recalled that the Petroleum Products Pricing Regulatory Agency (PPPRA) had then explained that the rise in crude oil price and prevailing high cost of importation had brought back subsidy.
The PPPRA, in its pricing template released following the introduction of a new price band, put the landing cost and total cost of petrol at N122.03 and N140.40 per litre, respectively.
The cost of the product and the freight rate, which are the elements mostly affected by crude oil price and exchange rate, were put at $534 per metric tonne of petrol or N111.30 per litre, using an exchange rate of N280/dollar.
Global oil benchmark, Brent crude, which was trading around $41 per barrel when the petrol price was increased, stood at $55.64 per barrel as of 5.15pm on Friday.
Crude oil price accounts for about 80 per cent of the final cost of fuel, the PPPRA said, in its framework for petroleum products supply, distribution and pricing.
Punch gathered that the cost of petrol stood at $560 per metric tonne or N127.36 per litre plus N7 per litre for freight as of Friday.
The addition of the cost of product with freight charge and other cost elements in the PPPRA template result in a landing cost of N145.09 per litre (using the official exchange rate of N305/dollar) or N222.33 per litre (using the parallel market rate of N490/dollar).
The NNPC, in its latest monthly report, said it remained the major importer of petroleum products, especially the PMS, in spite of liberalisation of petroleum products and government’s intervention meant to ease marketers’ access to foreign exchange.
In the past, marketers were importing 70 percent of the products while the NNPC was importing 30 per cent, being the supplier of last resort.
Most of the marketers have yet to resume importation of petrol and continued to rely on supply from the NNPC, which sells to them at N131 per litre.
An ex-top executive of the PPPRA, who spoke with Punch on condition of anonymity, said, “If the landing cost is more and somebody is bringing the product in and others are not, it means definitely that person, who is bringing it, is running at a loss somehow. So, if you now call that subsidy, it is okay.
“The NNPC is definitely subsidising the product; it is a loss to them also because they get the money from somewhere.”
