Don't Miss

Devaluation of naira further increases landing cost of petrol

By BusinessNews Staff on March 11, 2015

The recent relief enjoyed in subsidy payment by the federal government as a result of the drop in the international price of crude oil has further been eroded as the recent devaluation of the naira by the Central Bank of Nigeria (CBN) has led to the high landing cost of petrol.

THISDAY gathered that before the naira was devalued from N171 per dollar to N199 per dollar, the landing cost of PMS was N82.41 per litre, and expected open market price was N97.90 per litre, with the price of crude oil at $60 per barrel.

This translated to a subsidy payment of N0.90 per litre, compared to N44 per litre before crude oil price slumped.

This had effectively reduced subsidy claims from N1.54 billion daily to N0.90 per litre or N31.5 million daily, representing daily savings of N1.225 billion.

But with the recent devaluation of the country’s currency by the CBN, the landing cost of petrol has since risen, even though crude oil price still hovers around $60 per barrel.

The latest official pricing template released at the weekend by the Petroleum Products Pricing Regulatory Agency (PPPRA) showed that the Federal Government now pays subsidy of N35.22 per litre, as against 90 kobo per litre before the devaluation of the Naira.

According to the latest template, while the landing cost of petrol is N106.72 per litre, compared to N82.41 before the devaluation, the expected open market price (EOMP) has also shot up to N122.22 per litre, up from the previous N97.90 per litre.

While blaming the high cost of petrol on the devaluation of the naira, marketers however, said the increased subsidy claims were partly as a result of the government’s reduction of the pump price from N97 to N87.

The Executive Secretary of Major Oil Marketers Association of Nigeria (MOMAN), Mr. Obafemi Olawore had stated that as the value of the naira was also declining, the cost of petrol was rising, despite the slump in crude price.

“For petrol, the exchange rate for bringing products before the devaluation was N171.36 per dollar. At that rate, the landing cost of petrol was N90.67 per litre.
There was a time the exchange rate rose to N188, that is, N188 was the interbank rate, while the Central Bank of Nigeria (CBN) gave us N171.36. But when it went to N188, the landing cost of petrol rose from N90.67 to N98.36. As at today when the exchange rate has gone to N199 (there is no window again), the landing cost rose to N103.45. So, you see that the main factor here is the exchange rate. If it moves to N215 per dollar, the landing cost will move to N110.84,” he explained.

[ThisDay]

headline