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Petrol subsidy rises to N1.43tn in 26 months

By BusinessNews Staff on March 6, 2015

For the whole of 2013, 2014 and the first two months this year, a total amount of N1.43tn was recorded as the total petrol subsidy claims from oil marketers.

Out of this amount, the Federal Government is said to be owing marketers a total of N264bn. N164bn of this amount is the actual subsidy covering part of 2014 and the first two months of 2015.

The remaining N100bn, according to the Major Oil Marketers Association of Nigeria, comprised accumulated interest on loans obtained by marketers from banks for petrol imports, and foreign exchange differentials occasioned by the devaluated naira.

Agitations by marketers last month had made the Federal Government agree to pay marketers a total of N264bn as subsidy arrears for the periods under review in March (this month).

Figures from the Petroleum Products Pricing Regulatory Agency show that about N832.06bn was paid as subsidy claim by the Federal Government to oil marketers in 2013 alone.

For July and December 2014, the government paid N45bn and N166bn respectively.

The unpaid subsidy arrears coupled with rising interests and foreign exchange differential had made marketers suspend importation of petrol in February. This move resulted in the scarcity of petrol all over the country, and the scarcity, according to market sources, will persist till next week.

However, the Federal Government on Tuesday expressed concern about the long queues of motorists at petrol filling stations in Lagos, Abuja and other parts of the country, and announced that a Sovereign Debt Note of N100bn had been issued by the Debt Management Office to settle part of the subsidy arrears owed oil marketers.

The Minister of Finance, Dr. Ngozi Okonjo-Iweala, confirmed the issuance of the SDN through a statement issued by her Special Adviser on Communications, Mr. Paul Nwabuikwu.

The budget proposal of the Federal Government for 2015 made provision of N200bn for petrol subsidy, and with the realities on the ground, the amount has been eroded before the passage of the budget.

With oil marketers already claiming N264bn as subsidy arrears in February, it is glaring that the remaining N64bn might be taken care of in a supplementary 2015 budget or a substantive 2016 budget.

Before November 2011, the business of fuel importation into the country was an all-comers’ affair, resulting in manipulations and malpractices that swelled subsidy claims to about N2tn.

Petrol subsidy, in this context, is a form of financial support extended to Nigerians by the Federal Government with the aim of keeping the price of petroleum products low compared to what it would have been in a perfect market situation. Currently, the government claims to be subsidising the pump prices of petrol, kerosene and LPG. Diesel prices, however, had been deregulated.

A total of 128 companies were engaged in fuel importation in the old regime thus providing an opportunity for the abuse of the system.

The PPPRA later reduced the number of participating companies to 42 from 128 in the first quarter of 2012, before it was further reduced to 39 in the third quarter of 2012, terming the development a reformatory move.

The volume of imported products also dropped from 5.036 billion litres in the first quarter of 2012 to 4.20 billion litres in the third quarter.

But due to growing concerns that the inability of these accredited importers to access credits from the banks could fuel another crisis in the system, the PPPRA later expanded the list to over 40 participating companies, since 2013.

As of Friday last week, the Federal Government was said to be paying N1.38bn as subsidy on petrol within the country on a daily basis.

It is said to be paying a subsidy of N34.51 per litre of petrol, according to data from the Petroleum Products Pricing Regulatory Agency’s website on Friday.

Figures from the Pipelines and Products Marketing Company, a subsidiary of the Nigerian National Petroleum Corporation, show that Nigeria consumes 40 million litres of petrol daily; and with N34.51 per litre payable as subsidy, over N1.38bn is said to be paid as total daily subsidy on the product.

The PPPRA puts the product cost and freight elements of imported Premium Motor Spirit (petrol) at N94.46; with other cost items like traders’ margin, lightering expenses, NPA, financing, jetty depot thru put charge, and storage charge were put at N1.48, N4.16, N0.78, N1.34, N0.80, and N3.00 respectively.

Currently, the landing cost for petrol, according to the agency, is N106.02.

The PPPRA also pegged various distribution margins for retailers, transporters, dealers, bridging fund, marine transport average, and administrative charge at N4.60, N2.99, N1.75, N5.85, N0.15, and N0.15 respectively.

Total cost (open market price), according to the agency’s data is N121.51.

Data from the PPPRA on February 16 showed an over 6.9 per cent increase in subsidy payable by the Federal Government to oil marketers within five days.

The agency had put the total cost of petrol at N102.82 per litre for February 16, with a subsidy of N15.82 per litre of petrol.

As of February 9, the total cost per litre of the product was put at N101.79 as of February 9, with a subsidy on the product pegged at N14.79 per litre.

The Federal Government had on Sunday, January 18, 2015, announced the reduction in the pump price of petrol to N87 from N97 per litre, attributing this to the decline in global crude oil prices.

Subsidy on PMS stood at N12.27 per litre on February 3 as the PPPRA put the Expected Open Market Price (total cost) of the product at N99.27 per litre, up from N95.47 on February 2, and N88.23 on January 29. The subsidy was N8.47 per litre on February 2.

The PPPRA put the combined product cost and freight charges at N76.88 per litre on February 16. The same was N75.90 per litre on February 9, up from N73.46 on February 3 and N69.79 on February 2.

The landing cost, which is the sum of the product cost, freight rate, traders’ margin, lightering expenses, Nigerian Ports Authority fees, financing cost, jetty depot throughput charge and storage charge, increased to N87.33 per litre.

The landing cost was put at N86.90, N83.78 and N79.98 per litre on February 9, 3 and 2 respectively.

MOMAN had called on the government to totally deregulate the downstream business of the petroleum industry, saying that such a move would make it incumbent on the marketers to either raise or reduce product prices, given market realities.

[Punch]

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