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Subsidy removal: FG saves N18.3bn in six weeks

By on February 16, 2016

Between January 1 and February 12 this year, an interval of about six weeks, the Federal Government made over N18.3bn as savings from the removal of subsidy on Premium Motor Spirit and House Hold Kerosene.

The government officially stopped subsidy on PMS, popularly known as petrol, on January 1, 2016, while on January 23 this year, it also ended the subsidy regime on kerosene, according to the pricing templates for both commodities obtained from the Petroleum Products Pricing Regulatory Agency.

The PPPRA is the agency of the Federal Government that fixes and regulates the prices of the white products, PMS and HHK, as well as other refined petroleum products across the country.

It unveiled its revised PMS template on January 1, 2016 while that of HHK was posted on January 23, a development that showed that the Federal Government now makes extra cash daily from every litre of petrol and kerosene sold across the country.

The PPPRA occasionally updates the templates for both commodities to reflect fluctuations in the global prices of crude oil.

An analysis of the various updated templates so far released by the agency after they were revised showed that the Federal Government had raked in over N18.3bn in six weeks.

For instance, in the recent template for PMS, which was posted on the PPPRA website on February 12, the government made a cash recovery of N15.23 on every litre of petrol sold in the country.

On petrol alone, about six templates had been released by the regulatory agency, beginning with the one posted on January 1 this year, which confirmed the stoppage of petrol subsidy and showed an over recovery of N1.4 per litre of PMS.

Other templates were posted on January 11 and January 20, as well as on February 6 and February 11, while their over recoveries were N4.7, N7.49, N10.5, and N16.06 per litre, respectively.

Therefore, on the average, the over recovery for PMS since January 1 this year is N9.23 per litre.

According to the Nigerian National Petroleum Corporation, about 40 million litres of petrol are being consumed daily in the country.

When multiplied by the average over recovery on the product and the number of days (January 1 to February 12), the result shows that the government must have made extra cash of N15.88bn from the sale of petrol alone since the halt of subsidy on the commodity.

In the case of kerosene, findings by our correspondent showed that an average over recovery of N10.25 was made by the Federal Government on every litre of HHK sold since January 23, when subsidy was officially removed on the product.

So far, about four updated templates have been posted by the PPPRA for kerosene. They were posted on January 23, January 30, February 11 and February 12, 2016, while their over recoveries per litre were N10.72, N6.3, N12.51 and N11.47, respectively.

According to the Pipelines and Product Marketing Company, a subsidiary of the NNPC, Nigeria consumes about 11 million litres of kerosene daily.

By multiplying the average over recovery on HHK with the volume consumed daily, it shows that about N2.4bn has been saved by the government since subsidy on kerosene was officially removed on January 23 this year.

The NNPC is the major importer of kerosene in the country, as most marketers have yet to venture into the business due to the fact that the HHK market was only deregulated recently by the government.

The summation of the amounts saved on both PMS and HHK shows that the Federal Government must have recovered over N18.3bn on the products since they were officially deregulated.

On how an over recovery is arrived at, taking a look at the recent template posted on February 12, the PPPRA stated that the Expected Open Market Price for PMS was N71.27 per litre, whereas the retail price was N86.50 per litre in non-NNPC filling stations.

Petrol price is N86 per litre at fillings stations run by the NNPC.

While the EOMP is the actual cost of the commodity, the difference between it and the retail price as sold at filling stations is the over or under recovery. But since the halt in subsidy payment, the government has been making over recoveries on both PMS and HHK.

The EOMP is the summation of the landing cost of the commodity and the subtotal margins like bridging fund, transporters’ cost, dealers’ charge, admin charge etc.

The February 12 PMS template puts the commodity’s price plus freight cost per litre at N52.11; lightering expenses, N2.02; Nigerian Ports Authority fee, N0.36; jetty throughput charge, N0.6; and storage charge, N2.

Others under the distribution margins are retailers’ cost, N5; transporters’ charge, N3.05; dealers’ fee, N1.95; bridging fund, N4; marine transport average, N0.15; and admin ch

arge, N0.15.

When summed up, an EOMP of about N71.27 was obtained, in contrast to a retail price of N86.5, leaving an over recovery of N15.23.

Officials at the PPPRA as well as those at the NNPC explained to our correspondent that the over recoveries from both PMS and HHK would be saved by the government and used to fund future subsidies if the need arose.

When asked to speak on the extra amount being paid by consumers for the commodities, the Group General Manager, Corporate Planning and Strategy, NNPC, Mr. Bello Rabiu, told our correspondent that the negative subsidy would be remitted to the Petroleum Support Fund in line with the PPPRA guidelines.

“The savings under such a regime could be domiciled in the PSF as a buffer to fund future subsidies (if any) that may arise during high oil price regime or invested by the industry in supply and distribution efficiency improvement projects such as the decongestion of the Apapa area, Single Point Monitoring in Port Harcourt and Warri, complimentary rail services, inland waterways, etc,” he said.
[Punch]