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Marketers shun PPPRA, sell diesel above recommended market price

By BusinessNews Staff on March 4, 2015

Despite the over 50 per cent drop in the price of crude oil in the international market, which effectively forced a decline in the prices of petroleum products, oil marketers have continued to sell Automotive Gas Oil (AGO) or diesel at exorbitant prices, taking advantage of the deregulation of the product to defy the Petroleum Products Pricing Regulatory Agency (PPPRA).

With the drop in the international crude oil price from $115 per barrel in June 2014 to less than $60 per barrel, the expected market price of Premium Motor Spirit (PMS) or petrol also dropped from N141 per litre to N97.90, prompting the federal government to reduce the official pump price from N97 per litre to N87.

As diesel is a deregulated product, whose price is dictated by market dynamics, the PPPRA also recommended the expected open market price to reflect the slump in the price of crude oil but the marketers have consistently ignored the PPPRA’s directive and have continued to sell diesel at high costs.

For instance, the PPPRA recommended N129.08 as the expected open market price in its latest pricing template released shortly before the weekend.

But THISDAY gathered that since the slump in the price of crude, the price of diesel has never dropped as it is still being sold between N156 and N145 per litre by the marketers.

The marketers, it was gathered, took advantage of the fact that since diesel is a deregulated product, the government cannot control the price.

The government had in January 2009 deregulated the prices of diesel and Low Pour Fuel Oil (LPFO), thus leaving the prices to the dictates of the forces of demand and supply.

Exactly two days after the deregulation, the ex-depot price of diesel rose from N60.16 per litre to N73.50 per litre while LPFO, otherwise called black oil, used by industries to generate steam for their boilers, also rose from N25.40 per litre to N44.70 per litre.

Since diesel was deregulated, the pump price has been going up, despite the volatility of crude oil prices.

But the Executive Secretary of the Major Oil Marketers Association of Nigeria (MOMAN), Mr. Obafemi Olawore, who rose in defence of the marketers, argued that the price of diesel did not go down because of the devaluation of the Naira.

“The unfortunate situation in which we find ourselves is that as the price of crude oil was dropping – as the international price of diesel was dropping, we devalued the Naira,” he said.

“In the case of diesel, when the exchange rate was N171.36 per Dollar, the landing cost for diesel was N89.77 per litre. When the rate went to N188 to a Dollar, the landing cost went to N96. 86. At an exchange rate of N199, the landing cost is about N101 per litre. This is the landing cost. You have not added distribution margins; you have not added transportation; you have not even added some costs and taxes we incur on the roads. If you add all these costs, there is no way you can sell the product at that price recommended by the PPPRA. In all the cases, it is the exchange rate that is the major culprit. Once the exchange rate starts moving, especially the way it moved by N10, N20, N30, it will erode all the advantages we would have derived from the fall in the international price of petroleum products if we had retained the exchange at N171. So, that is the main reason. If you look at the current PPPRA template, applying N199, you will not get them recommending N110 for diesel. Exchange rate plays a very important part in the whole calculations,” Olawore explained.

[ThisDay]

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