June 19, 2024

INVESTIGATIONS: FG subsidize petrol with N458.71 per litre as landing cost now N1,026.71


Loses N19 billion

Ilenre Irele,Lagos, (Adewale Akintaro, Abuja)

There are fresh indications that the Federal Government may have been subsidizing the sale of Premium Motor Spirit, PMS, otherwise known as petrol as landing cost jumped by 44.7 percent to N1,026.71 per litre as against its pegged price of between N568 and N640 per liter across the country, according to Energy Day Investigations.

The landing cost excludes other additional costs which include deport related charges, transportation logistics and marketers’ margin, which would combine to bring delivery at filling stations at nearly N1,052.39/litre, at an Exchange rate of N1,510 to a dollar on Tuesday (a differential of N458.71 per liter).

This is contrary to claims by the federal government who has maintained that the Bola Tinubu administration has scrapped subsidy on petrol.

On Thursday, the Minister of State, Petroleum (Oil), Senator Heineken Lokpobiri, attempted to dispel doubts expressed by oil and gas operators, economists, as well as officials of global organisations that Nigeria has continued to subsidise petrol, despite President Bola Tinubu’s declaration to the contrary on May 29, 2023.

Among those that insisted that the federal government was still paying subsidy in recent times were former Bauchi State Governor, Ịsa Yuguda; former Kaduna State Governor, Nasir el-Rufai; and President, Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Festus Osifo.

Others were Chief Executive, Pinnacle Oil, Robert Dickerman; International Monetary Fund (IMF), among others.

But speaking in an interview on the back of the 25th anniversary of Nigeria’s democracy, Lokpobiri stated that the Nigerian National Petroleum Company Limited (NNPC) had the statutory responsibility to step in anytime things were going out of hand.

The minister also said he had been told by the national oil company that Nigeria’s total daily petrol consumption now hovered between 50 million litres and 60 million litres.

However, the figure contradicted the one given by the regulator, Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), in October last year.

Chief Executive of NMDPRA, Farouk Ahmed, had told a gathering in Lagos that the country’s domestic consumption of petrol had significantly dropped from 66.7 million litres daily, before the deregulation, to 44.3 million litres per day after. Ahmed said the figure represented about 33.58 per cent daily reduction.

He stated, “Let me say categorically that the president had rightly said, on the day he was sworn in, he said subsidy is gone. The president was misunderstood, clearly. The last government did not make any provision for subsidy in the 2023 budget.

“And I can confirm to you that subsidy is gone. But there could be strategic interventions from time to time. But officially, subsidy is gone. If you look at the Petroleum Industry Act (PIA), the NNPC, as a national oil company, also has a legal obligation to also intervene from time to time.”

He argued that without subsidy being removed, Nigeria by now would have been like Venezuela, stressing that the president is not appreciated well enough for the decision to remove fuel subsidy.

Lokpobiri stated on the television programme that from what he was told by NNPC, the Port Harcourt refinery will start working before the end of the third quarter of the year. The company had scheduled December 2023 for the commencement of operations.

He stated, “I’m not there. I’m not there in Port Harcourt refinery. These were projects that I met on ground. When I came, I visited all the refineries. It is what they briefed me. The brief they gave to me, I told Nigeria that these refineries will be ready some time.

“I also do know that I went to Port Harcourt in December, when it first came on. I’ve also gone to Warri, and advanced work has been done. Port Harcourt, from reports available to me, shows that hydrocarbon has been introduced.

“But the point is that we are doing whatever we can to ensure that we complete the rehabilitation of these three refineries. The report available to me shows that within the next quarter…within means that it could be next week, it could be within the next quarter that hydrocarbon will be refined and be sold to the public.”

Asked why Nigeria was still importing fuel massively when consumption was said to have dwindled, Lokpobiri said it was better to invite NNPCL to defend whatever statements that they had made in public.

He said, “It’s not good, for me, sitting here to speculate whether whatever NNPC has said is right or wrong, but the point must be made that at the time NNPC made initial statements, I was not the minister.

“Now, I am the minister and I can assure you that look, we do an average of about 50 million litres to 60 million litres per day. That is the report they gave to me.”

Sources around oil marketers told EnergyDay that the landing cost for June is expected to rise further as the factors that propelled the rise in May figures have worsened as at last week.

Giving further insight, they said foreign exchange has been a major concern where scarcity has persisted while exchange rate has also continued to deteriorate.

The marketers also noted that cost of fuel import is rising in response to the recent rises in price of crude oil in the international market.

A transactional analysis of a major operator, sighted by EnergyDay yesterday showed that marketers were paying N1,052.39 per litre as total direct cost.

A breakdown shows product cost per liter at N1,026.71, freight (Lome-Lagos) at N10.37, port charges at N7.37, NMDPRA levy of N4.47, storage cost at N2.58, Marine insurance cost at N0.47, fendering cost at N0.36 and ”others” at N0.06 as well as a finance cost amounting to N28.04.

Specifically, the transactional analysis put the landing cost of 28,000 metric tons of imported petrol at over $25 million, including total product cost, total direct cost, total finance cost, capable of generating more than N39 billion as sales revenue, indicating a loss of over N19 billion.

As a result of this development, the marketers said it would be unprofitable to import at current pump price, while the government has not guaranteed a free float of pump prices.

Consequently, the Nigerian National Petroleum Company Limited, NNPCL, has remained the only importer of the product.

The situation appears worsening as Nigerian are forced to struggle with the cost of living as hike in transportation results to increase in goods and services across the country.

Fuel price rises by 176.02% to N701.24 per litre – NBS

Latest report on the national average retail price of petrol saw an increase year-on-year, YoY, by 176.02 percent to N701.24 per litre in April 2024 from N254.06 per litre recorded in the corresponding period of 2023.

On a month-on-month, MoM, basis, an increase of 0.64 percent was recorded from N696.79 per litre in March 2024.

The National Bureau of Statistics, NBS, report on Premium Motor Spirit (Petrol) Price Watch for April 2024 showed that Kogi State topped the price chart at N797.78, followed by Nasarawa and Zamfara States with N778.89 and N754.29, respectively.

Experts give insight

Commenting on the oil price situation, Managing Director/CEO of the company, Mr. Robert Dickerman, has disclosed that Nigeria is currently paying about N1 trillion monthly as petrol subsidy.

He said there is still a massive subsidy, which explains why the product remains cheap, thus encouraging smuggling to neighbouring countries.

He, however, added: “The consequences of this subsidy are: The cost of gasoline in Nigeria is the lowest in Africa by far, which encourages smuggling out, further depriving Nigeria of value. Smuggling causes Nigeria to subsidize neighboring countries even while our economy struggles. The cost is hurting the entire budget, Federal and State, as critical programs cannot be funded to pay this subsidy. It is currently calculated to be about 1 trillion Naira/month.”

Market volatility discourages importation, investment – IMF

The International Monetary Fund (IMF) has said the Nigerian government has, through the backdoor, resumed the payment of subsidies on the premium motor spirit (PMS), otherwise known as petrol.

the IMF issued a statement on the conclusion of its Executive Board’s Post Financing Assessment with Nigeria, and it expressed concerns that the government had capped the prices of fuel at retail stations.

The global lender advised the administration of President Tinubu to completely stop the payment of subsidies on petrol to free funds to run the government, adding that the subsidy regime was robbing the poor for the rich.

The IMF, in its statement, said the Tinubu administration has “capped retail fuel and electricity prices” ostensibly to “ease the impact of rapidly rising inflation on living conditions, thus partially reversing the fuel subsidy removal.

The Director of the African Department of the Fund, Mr. Abebe Selassie, said, “Subsidies are about resource allocation internally within Nigeria. So Nigerians, the people of Nigeria pay for these subsidies.

“And what’s the reason why we counsel against such generalised subsidies is very simple. It tends to be highly regressive, meaning the benefits of such you know, fuel subsidies tend to accrue to the rich and segments to reach out to people and the poor people.

“So it’s people that are driving these large cars, with big houses are wanting to see subsidised fuel. They’re the ones benefiting relative to the poor and vulnerable in Nigeria.

“So you know, not only people paying for the subsidies Nigeria, it’s the poorest segments of society that actually are losing out and resources could instead, of course, be used to improve conditions for poorer people instead of accruing to rich people.

“That’s why subsidy reform is important. We applaud the government for the steps government took to reduce the extent of subsidies. I think as oil prices have become volatile, the level of subsidy has also moved up and down. “But I think you know, the direction of travel, I think, to remove the subsidies and use the resources to provide social protection for the most vulnerable households.”

Dr. Olufemi Omoyele of Osun State University told EnergyDay that ” government does not want to look as if it’s going back on its word on subsidy but statistics show that government still intervenes from time to time on that issue, the Tinubu administration still pays subsidy given the statistics.”
Efforts to get the NNPCL’s angle failed as message sent to Femi Soneye was not acknowledged, and call made to his mobile was not answered.

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