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Explainer: Price adjustment on petrol pump price to N125 is not subsidy removal
THE Federal Government’s decision to initiate a 13.8 per cent decrease on the retail pump price of petrol nationwide from N145 to N125, was based on drop in Nigeria’s Expected Open Market Price, EOMP, rather than subsidy removal, an official of the the Petroleum Products Pricing Regulatory Agency, PPPRA, has explained.
Abdulkadir Saidu, Executive Secretary of the PPPRA, said the global demand for crude oil which dropped by $25 per barrel on Wednesday resulted in a 30 per cent drop in the EOMP of petrol below the initially approved retail pump price cap of N145 per litre.
“The directive of Government to the NNPC to reduce the Ex-Coastal price of PMS, despite the fact that the current stock of product was imported during the months of January and February, 2020 is highly commendable, although this action is not without costs to the Corporation,” he said.
The new price template of N125 was based on the approved distribution margins of petrol of which the breakdown is as follows, Ex-Coastal price (consisting cost and freight charges) set at N99.44 per litre and the new EOMP pegged at N118.81.
The average EOMP for the months of January and February 2020 was N175.52 per litre and N156.02 per litre respectively shows that subsidy paid on petrol by the Federal Government was N30.52 and N11.02 per litre respectively for two months.
Mele Kyari, NNPC GMD, in a statement said the decision to review the ex-coastal, ex-depot and NNPC retail pump price was in compliance with the directives by the Minister of State for Petroleum Resources, Timipreye Sylva, on PMS pricing.
“Effective March 19, 2020, NNPC Ex-Coastal price for PMS has been reviewed downwards from N117.6 per litre to N99.44 per litre, while Ex-Depot price is reduced from N133.28 per litre to N113.28 per litre,” Kyari said.
PPPRA template shows that with the review of the ex-depot price of the commodity, which is the price at which the NNPC sells to oil marketers, the subsidy payments were not scrapped.
The landing cost of petrol, the amount it costs to import petrol into the country also declined from N162.68 per litre on December 31, 2019 to N123.88 per litre on February 27, 2020, a PPPRA data shows is a major determinant that led to the N125 per litre retail pump price.
This implies that as the landing cost of petrol continues to fall then Federal Government’s expenditure on petrol subsidy is also expected to drop.
Nigeria spent N40.42 billion on petrol subsidy in January, indicating a 22.47 per cent decline when compared with the N55.58 billion paid to subsidise petrol in December 2019.
Nigeria spent approximately $28 billion on subsidies between 2006 and 2018 alone, a financial obligation that hinders development in other crucial sectors.
It’s the fourth time the price of petrol has been modulated since 2015, it was first adjusted from N87 to N86.50 per litre then the price leaped to N141 before settling for N145 per litre in 2016.
President Muhammadu Buhari had announced in May, 2015, the removal of 90 per cent fuel subsidy to allow market forces determine retail fuel prices in the country but it was restored in the pricing template of petrol without any public announcement.
However, Saidu said the new price is temporary until the end of March based on the indicators observed in the market.
“Going forward, PPPRA will continue to monitor trends in market fundamentals and announce a monthly Guiding/Expected Open Market price at the beginning of every month, effective 1st April, 2020,” he said.
Alex Akande, an official with the Nigeria Union of Petroleum and Natural Gas Workers, NUPENG, Abuja liaison office said:
“If you look at it now there are several oil buyers who have crude oil stock at the old rate of N145 and you are asking them to sell at the government’s new rate, so who is going to pay the difference between the rate of the accumulated stocks and the new rate.
“At what point will the directive take effect or are we just responding on the basis that other countries are giving relief to their citizens? I don’t know how this will work,” he said.
Crude oil prices dropped further on Thursday, with United States’ West Texas Intermediate, WTI, prices falling to an 18-year low of $22 as the global market expects an extra stock of about 3 million barrels per day in April, with even more pending in May.
WTI plunged by 15.3 percent to $22.90 a barrel on March 18, the lowest level since 2002, while Brent crude was down by 8.9 percent, at $26.17 a barrel, after falling earlier to $28.40, the lowest since early 2016.