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You are here:Home>>Strategic Research & Analysis>>Fuel Subsidy Ends and the Pricing Confusing Starts
Monday, 02 January 2012 15:07

Fuel Subsidy Ends and the Pricing Confusing Starts

Written by Alike Ejiofor in Lagos and Chineme Okafor
confusion at petrol stations confusion at petrol stations thisday

Federal Government of Nigeria takes Nigerians by Surprise as Pump Price Hits N143

Subsidy on premium motor spirit (PMS) – or petrol, as it is known in the streets – is finally gone. Nigerians got an unusual New Year present yesterday as the price of petrol went from N65 to N143.56, with the Federal Government claiming it could no longer be Father Christmas. After decades of heated debates, the Petroleum Products Pricing Regulatory Agency (PPPRA) finally announced the formal commencement of full deregulation of the downstream oil and gas sector effective from Sunday.

With a total of 6,000 petrochemical items in the various by-products of refining crude oil, deregulation is expected to drive up investment in local refineries to launch Nigeria into an industrial revolution.Although PPPRA did not disclose the actual price at which PMS would be sold in the wake of the deregulation policy, the fundamental data on daily spot markets obtained from its website suggest that with the summation of petroleum landing cost of N128.07 and N13.20 margins in addition to other charges, the expected price of petrol would be in the region of N143.56 per litre.

B071102-Dizeani-Allison-Mad.jpg-B071102-Dizeani-Allison-Mad.jpgMinister of Petroleum, Mrs Dizeani Allison Madueke

But the mega stations operated by the Nigerian National Petroleum Corporation (NNPC) were selling at N138 yesterday, while prices varied from city to city. PPPRA, the agency saddled with the responsibility of ensuring petroleum products availability, moderate price volatility and regulates activities of operators in the downstream petroleum sector by establishing parameters and codes of conduct for all operators in the downstream petroleum sector, announced the subsidy removal in a statement that was signed by its Executive Secretary, Mr. Reginald Stanley.


Stanley said the agency was acting in accordance with its statutory mandate as enshrined in Section 7 of the PPPRA Act, 2004. He called on petroleum marketers to take note of the fact that no subsidy would be paid on PMS discharges after January 1, 2012.

“Following extensive consultation with stakeholders across the nation, the Petroleum Products Pricing Regulatory Agency (PPPRA) wishes to inform all stakeholders of the commencement of formal removal of subsidy on Premium Motor Spirit (PMS), in accordance with the powers conferred on the agency by the law establishing it, in compliance with Section 7 of PPPRA Act, 2004. By this announcement, the downstream sub-sector of the petroleum industry is hereby deregulated for PMS. Service providers in the sector are now to procure products and sell same in accordance with the indicative benchmark price to be published fortnightly and posted on the PPPRA website,” Stanley said.


While declaring that service providers were henceforth expected to procure petroleum products and sell same in accordance with the indicative benchmark price which would be published every fortnight in the website of PPPRA, Stanley assured consumers of adequate supply of products at prices that are competitive and non-exploitative.

“Petroleum products marketers are to note that no one will be paid subsidy on PMS discharges after 1st of January 2012. Consumers are assured of adequate supply of quality products at prices that are competitive and non-exploitative and so there is no need for anyone to engage in panic buying or product hoarding,” he said. He noted that there was no need for Nigerians to engage in panic buying or hoarding of petroleum products as a result of this development. According to him, the Department of Petroleum Resources (DPR) is mandated to protect the interests of consumers in terms of availability of quality of product in the country.


“The PPPRA in conjunction with the Department of Petroleum Resources (DPR) will ensure that consumers are not taken advantage of in any form or in any way. The DPR will ensure that the interest of the consumer in terms of quality of products is guaranteed at all times and in line with international best practice,” he added.


But the Chairman and Chief Executive Officer of Capital Oil and Gas Limited, Mr. Ifeanyi Ubah, said PPPRA should stop publishing the benchmark price and allow the market forces to drive the price of fuel. Ubah stated that the publication of price by the PPPRA shows that the sector is not yet fully deregulated and urged the agency to allow competition to drive the price. Welcoming the removal yesterday, the Executive Secretary of Major Oil Marketers Association of Nigeria (MOMAN), Mr. Obafemi Olawore, urged all stakeholders to support the action.

B22102-Goodluck-Jonathan(1).jpg-B22102-Goodluck-Jonathan(1).jpg President Jonathan

“We should no longer debate whether the removal is good or not. It is good for Nigerians and we will do our best to support it. What we should be concerned with is to task government for judicious utilisation of the proceeds. The press should hold government responsible and monitor how the money that will be saved will be utilised,” he said.


Meanwhile, the cost of locally refined petrol has been put at N61.18k per litre, excluding profit, distribution and marketing margins. This is contrary to the claims on social media that it costs N35 per litre. In a cost/pricing analysis of refining Bonny Light volunteered by Mr. Paul Obanua, a Director of Earthnergy Petroleum and Gas Limited, a prospective investor in a refinery in Delta State, the cost of the PMS component in one litre of crude oil is N44.28k.


Quoting Energy Information Administration (EIA), Obanua also stated that the cost of refining one litre of PMS is N16.90k, bringing the total cost of one litre refined locally to N61.18k. “However, when the refiner adds a profit margin of 30 cents, translating to N48, the refiner’s cost will come up to N109.18k. This is what a refinery will sell one litre of locally refined PMS in Nigeria,” he said.

He noted that after buying from the local refineries, the fuel marketers could add the market/distribution margin of 20 cents or N32, quoted internationally by EIA or N15.49k recommended by the PPPRA, bringing the retail price to N141 or N124.67k. Enumerating the benefits of local refining, Obanua, who is also the National Coordinator of Mass Interest Project, stated that power, petrochemical and steel are the three industries that lead to industrial revolution since the 20th century.

credit : ThisDay


Last modified on Monday, 02 January 2012 15:17

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