Increasing price of petrol through the back door

Increasing price of petrol through the back door

After the cacophony of angry voices that followed the proposed fuel tax bill, the Senate recently stepped it down ‘for further legislative action’. The road taxes bill, which was to finance the development of road infrastructure in the country, required Nigerian road users to pay at least seven new taxes, most controversial of all being a N5 fuel levy.

The bill was shot down on the ground that the proposed N5 fuel levy is not captured in the industry template and that its introduction would put more pressure on an already stressed petroleum downstream sector and cause hardship for the people.

Prior to the removal of fuel subsidy last year, the Nigerian Extractive Transparency Initiative (NEITI) released its audit report indicating that the Federal Government spent about N4.5 trillion between 2006 and 2012, a period of seven years, as subsidy on petroleum products imported into the country.

According to the then Executive Secretary of NEITI, Zainab Ahmed; the Audit Report of 2012 showed that a total of N1.355 trillion was processed for payment as subsidy. Out of this amount, N690 billion was actually paid, putting a debt burden of N665 billion on the government.

“From our reports, the amount of money that Nigeria has paid so far on subsidy in the last seven years stands at N4.5 trillion. The breakdown shows that N816.554 billion was paid between 2006 and 2008, N3 trillion between 2009 and 2011 and N690 billion in 2012,” she disclosed.

The auditing agency, however, lamented the gross misappropriation of funds, adding that such amount is more than enough to repair the country’s refineries or build new ones, while insisting on the removal of oil subsidy.

Similarly, the Minister of State for Petroleum, Dr. IbeKachikwu while speaking on how much the country had spent in subsidising fuel in recent time, said an average of N1 trillion per year is paid as fuel subsidy in the last five years despite mounting debts and infrastructure deficit.

This, by implication, meant that within a period of nine years, which is between 2006 and 2015, the country spent close to N10 trillion on fuel subsidies.

As noted by the Minister of State, the country spent the huge amount on fuel subsidy in the face of mounting local and foreign debt as well as infrastructural deficit. But as highlighted by Zainab, the amount spent on subsidy in seven years, is good enough to repair the country’s faulty refineries and build new ones. She emphasized that it was time for the Federal Government removed oil subsidy, noting that the financial commitment to subsidy has grossly impacted on the national purse.

Based on the above analysis the President Buhari government took a bold step by removing the fuel price on May 11, 2016. It was a part that no previous government had the courage to thread.

The Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN)) and the National Union of Petroleum and Natural Gas Workers (NUPENG) said that due to foreign exchange crisis in the country, further upward adjustment in the price of petroleum products particularly of Premium Motor Spirit (PMS) may be imminent. The government had however denied this for the umpteenth time.

In a recent position paper on the upward review of PMS, the unions said the review of petroleum pricing template for Premium Motor Spirit (PMS) has become a recurring decimal.

“In retrospect from October, 1, 1978 to January 1, 2012, the Federal Government increased the price of PMS 22 times. From 2012 till date, we have had the price also increased 8 times, which has put it at N145 per litre.  Again there is the hue and cry that the current N145 per litre is no longer realistic in view of the landing costs and forex challenges, amongst others, confronting the importation of the product,” they argued.

Barring their minds on the challenges confronting petroleum pricing template for Premium Motor Spirit (PMS), PENGASSAN and NUPENG said the Petroleum Products Pricing Regulatory Agency (PPPRA) pegged the ex-depot price of a litre of petrol at N131 – N133.28 price band but that the depots have abandoned the PPPRA template and some of them are selling at N136, which is non-compliant to the authorized PPPRA template.

“Report has it that the Federal Government has resumed the subsidy regime as a result of the increase in landing cost of Premium Motor Spirit (PMS), which had earlier been stopped about nine months ago.

“The report also stated that the cost stood at $560 metric tons or N127.36 per litre plus N7 per litre for freight,” the groups said.

It stated that “Some time ago, some former Group Managing Directors of the Nigeria National Petroleum Corporation (NNPC) at a forum had called for an upward review of the pump price of the PMS.

Their argument was that “the PMS Price cap of N145 per litre was not congruent with the liberalization policy, especially with the foreign exchange rate and other sundries determining components such as crude cost, Nigeria Ports Authority (NPA) charges among others, which have remained uncapped.” The unions noted.

The independent marketers on their own stated that the approved N145 per litre for PMS cannot stand due to the following factors ranging from Forex challenges, to the global crude oil price.

However, the PPPRA keeps assuring the public that the existing price band of N135 – 145 per litre was still realistic and therefore no basis for increase in the pump price of Premium Motor Spirit.

The NNPC equally assured there is no immediate plan to increase the pump of price of petrol.

Reviewing various positions, the two groups said that this is not the right time to review the Pricing Template of PMS due to the current economic situation in the country.

The Independent marketers of petroleum products and depot owners recently revealed that the landing cost of imported petrol is now N145 per litre and above.

The marketers said the development was responsible for their inability to import petrol with the foreign exchange provided by the international oil companies (IOCs) at N305 per dollar.

They also gave reasons why it is no longer possible for depots to sell petrol at the federal government’s approved price of N123.28 –N133.28 per litre ex-depot price band.

Some of the marketers and depot owners said it was no longer possible to sell the product they imported or the ones allocated to them by the NNPC at official ex-depot price due to the high cost of foreign exchange.

According to one of the marketers, the high cost of Forex was a serious challenge in the business, adding that 90 per cent of the product being distributed in Nigeria is imported by the NNPC because the Forex intervention by the corporation was no longer working.

“It is no longer sustainable; it is no longer feasible because we land it at even more than N145 per litre.  If you are unlucky and you accumulate demurrage, you might land it at N148. That is why no marketer is importing now. We are dependent on product imported by the NNPC, which I said is not sustainable,” he added.

Meanwhile one year after the partial liberalisation of the nation’s fuel market, Kachikwu said at an event recently that the NNPC was forced to take up the obligation of providing more than 90 per cent of the domestic requirement to cover the demand for petroleum products.

“The NNPC was not designed to provide this kind of service. Historically, the NNPC had done an average of 48 per cent of Nigeria’s fuel requirement. What eventually happened was that the NNPC was stretched, and to complicate the situation, there was no provision for fuel subsidy in the 2016 Appropriation,” he said.

The Minister said, “Again, we are back to the situation that we were last year. Today, the NNPC has gone back to importing about 95 per cent of products to ensure stability. In fact, through the months of December, January, February and most of March, we did a 100 per cent for the market. We have seen two windows for private importation in the last four weeks.

“The NNPC is absorbing some of the cost implications resulting from the increase in crude oil prices and the current price ceiling of N145 at the pump for the PMS,” he disclosed.

The Managing Director, Heyden Petroleum Limited and Chairman, Depot and Petroleum Products Marketers Association, DapoAbiodun, said when the price band of N135 to N145 was introduced last year, crude oil price was around $35 per barrel and the exchange rate pegged at N285 to a dollar.

He said, “The plan last year was that as crude prices changed, hopefully, we would be able to keep exchange rate constant, we would continue to modulate the selling price maybe every quarter. The price of crude has moved up; the exchange rate has increased to N305/$; however, the petrol price band remains unchanged.”

Analysts said that bearing of the landing costs by NNPC shows that federal government is indirectly bearing the subsidy indirectly. A close source to the PPPRA confirmed that government is taking care of the differential which runs into billions of Naira.

Analysts have argued that this is a prelude to fuel price increase.

“The NNPC is definitely subsidising the product; it is a loss to them also because they get the money from somewhere,” they highlighted.

The Head of Energy, Ecobank Capital, 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.

“But it is not sustainable because oil price could keep on going higher and the cost to the NNPC will increase. So, potentially, we expect a fuel price increase at some point. But to what extent, we don’t know. The ideal thing will be to raise the price,” he posited.