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Daily subsidy on petrol hits N2bn

By on June 16, 2015

The Federal Government’s daily spending on petrol subsidy may have risen to N2.06bn as the pricing template for the product by the Petroleum Products Pricing Regulatory Agency on Sunday put the subsidy at N51.61 per litre, the highest level this year.

The landing cost of Premium Motor Spirit, otherwise known as petrol, was put at N123.12 per litre as of Thursday, June 11, up from N119.66 per litre on June 2, while the Expected Open Market Price was N138.61 per litre.

Based on daily petrol consumption of 40 million litres, a figure supplied by the Pipelines and Products Marketing Company, the total subsidy cost on the product as of June 11 would amount to N2.06bn at N51.61 per litre, up from N48.15 on June 2.

Subsidy refers to the money paid, usually by the government, to keep prices below what they will otherwise be in a free market system.

Nigeria, which relies on importation for most of its fuel needs as the country’s refineries are in a poor state, has seen a drop in importation of refined petroleum products in recent months, leading to acute scarcity of the products across the country.

The global benchmark Brent crude lost almost half of its value between June 2014 and January this year, plunging below $50 per barrel, but has rebounded in recent months. It traded between $63 and $65 last week.

The landing cost of petrol was put at N75.15 per litre on January 23, with a subsidy of N3.64 per litre, almost a week after the Federal Government reduced the pump price of the product by N10 per litre.

The landing cost is the cost of the product plus freight rate at N107.66; trader’s margin, N1.47; lightering expenses, N4.19; Nigerian Ports Authority fees, N0.77; financing cost, N1.68; jetty depot throughput charge, N0.8; and storage charge, N3.

The addition of the distribution margins to the landing cost gives the Expected Open Market Price (total cost). The distribution margins, which comprise retailers, transporters and dealers’ profits as well as bridging fund, marine transport average and admin charges, were not stated.

Retailers get N4.6; transporters, N2.99; dealers, N1.75; bridging cost is N5.85; marine transport average, N0.15; and the admin charge, N0.15. The sub-total margin stands at N15.49.

When added to the landing cost of N123.12, the EOMP of N138.61 per litre is arrived at. But this is subsidised and a flat official rate of N87 per litre is given.

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

There have been calls in many quarters on the government to fully deregulate the downstream sector of the oil and gas industry to encourage private investments in crude oil refining, as well as the privatisation of the nation’s existing refineries, which are working far below their installed capacities.

 

[Punch]