Nigerian News: Nigerians may pay more for fuel
Oil Price Increment
widespread rumour about the Federal Government’s plans to raise fuel prices is creating disquiet among stakeholders in the oil and gas industry.
Government’s basis for supporting the painful proposal Daily Sun learnt stems from the alleged increase in the landing cost of Premium Motor Spirit (PMS) coupled with a spike in the international prices of crude oil, currently selling above $57.
This has further been bolstered by the recent upsurge in global crude oil prices that had forced several countries, including Mexico and the United Kingdom, to increase the pump prices of petroleum products. Though the Federal Government has consistently denied the news of subtle plans to increase the price of petrol, the rumours have continued to create anxiety among members of the organised labour and consumers alike.
Already the various labour unions have promised the government a raw deal should it go ahead with the plan.
This was investigations by Daily Sun across depots in Apapa indicate that majority of the marketers may have abandoned the Petroleum Pricing Regulatory Agency (PPPRA) petrol pricing template, which pegged ex-depot price of a litre of petrol at N131-N133.28 price band, and are selling above the recommended threshold. The situation is more worrisome in Ibadan where the major depot has shut down.
The PPPRA, in its pricing template released following the introduction of a new price band on May 11,2016, put the landing cost and total cost of petrol at N122.03 and N140.40 per litre, respectively.
The cost of the product and the freight rate, which are the elements mostly affected by crude oil price and exchange rate, were put at $534 per metric tonne of petrol or N111.30 per litre, using an exchange rate of N280/dollar.
Global oil flagship, Brent crude, which was trading around $41 per barrel when the petrol price was increased, is now nearing $60 mark.
Crude oil price accounts for about 80 per cent of the final cost of fuel, the PPPRA said in its framework for petroleum products supply, distribution and pricing. The cost of petrol stood at $560 per metric tonne or N127.36 per litre plus N7 per litre for freight as at last month.
The addition of the cost of product with freight charge and other cost elements in the PPPRA template result in a landing cost of N145.09 per litre (using the official exchange rate of N305/dollar) or N222.33 per litre (using the parallel market rate of N490/dollar).
The Chairman, Independent Petroleum Marketers Association of Nigeria (IPMAN), Ibadan Depot branch, Alhaji Raheem R. Tayo, in an interview with Daily Sun, raised the alarm of an impending scarcity in South-West over the non-functional state of the NNPC Ibadan depot.
He said since NNPC Ibadan depot has stopped dispensing products, private depots that are the major suppliers of petrol, diesel and kerosene now increase their prices daily.
At the moment, PMS is N143/litre; AGO N248/litre and DPK N245/litre, excluding transport fare and other incidental costs.
‘‘It is obvious, their price template is over and above government recommended pump price. Unless something is done urgently by the Federal Government, our members might be forced to shut down their outlets. In fact, many are running out of stock and are closing down because they cannot replenish at the current price,’’ he alerted.
Curiously, the PPPRA had failed to update its pricing template since last year, in tune with current realities, an indication that the agency was confused as to what should be the right price for the landing cost of petrol, hence the decision to adopt the old template of N131- N145 price band, which is not in conformity with the reality at the various depots.
The Head of Energy Research, Ecobank Capital, Mr. Dolapo Oni, for his part noted that the current PPPRA pricing template for petrol was adopted when the dollar was about N315 in the parallel market and the naira had not been floated.
He said then the CBN was still selling at about N220 or so and marketers were augmenting what they got from the CBN with the parallel market supply, adding, “thus, a range of N275 to N295 was used to arrive at the template price range of N135 to N145.
Oni said: “The best solution, in my view, will be to take the last plunge and just remove cap on prices. It is probably the best in this market. Let competition regulate prices.”
Recall that the Nigerian National Petroleum Corporation (NNPC) had, last year, said it could no longer sustain the sale of petrol at N145 per litre.
Speaking at the 2016 Oil Trading and Logistics (OTL) in Lagos, Group General Manager, Crude Oil Marketing of the NNPC, Mr. Mele Kyari, noted that with the exchange rate of the naira against the dollar, it was no longer feasible selling petrol at N145 per litre.
“We have a very difficult business environment. It is impossible today to import products at the current market price, at current fixed foreign exchange rate and sell at N145. It is not possible,’’ Kyari had affirmed.
A senior executive in a Lagos-based marketing company, said the landing cost of petrol had risen above N200 per litre as crude oil price neared the $60 per barrel mark.
He said, “even the NNPC cannot import; they are using the offshore processing agreement with foreign refineries to bring in products. They cannot import at this level to come and sell at N131 to the marketers.
“The OPA is not as if you are buying at the current rate; there is an agreement between the refineries to get these products at a price less than what would have been the landing cost.”
He noted that the government failed to heed calls for a full deregulation when oil price was trading below $40 per barrel last year.
The source added that, “government has two options; it is either they increase the price and face the wrath of Nigerians or they continue to absorb the subsidy and allow the NNPC to be the sole marketer again. Most marketers are expecting that any time soon, there could be price changes; even some of them are not too keen to sell what they have.”
Asked if the government was talking to the marketers about price review, he said, “as far as the PPPRA is concerned, it is one issue they won’t want to discuss with any marketer. If you raise it, nobody wants to respond.”
Already, the Nigeria Labour Congress (NLC), National Union of Petroleum and Natural Gas Workers (NUPENG) and the Petroleum and Natural Gas Workers Senior Staff Association of Nigeria (PENGASSAN) have warned the Federal Government against such moves or be ready to incur the full wrath of the unions.
The joint body of the Nigeria Union of Petroleum and Natural Gas Workers and the Petroleum and Natural Gas Senior Staff Association (NUPENGASSAN) in its presentation to the ad-hoc committee on the review of pump price of PMS of House of Representatives, recently in Abuja, said the timing was wrong.
The union in the presentation at the public hearing held between January 23 and 24 said it believes this was not the right time to review the pricing template of PMS considering the present challenge of scarcity of forex.
According to the oil workers, the current economic situation would not accommodate such review. “The economy is biting hard on all Nigerians and any attempt to further review the template will impoverish ordinary Nigerians as the additional price will be transferred to end users of the product. Such review will further impact negatively on the economy, which the government is currently trying to pull out of recession,” the unions stated.
It equally reasoned that any attempt to increase the price will drive up the inflation index as PMS is a stable product in Nigeria.
The union explained that Nigeria depends on PMS for not only transportation but also to generate power for either home or industrial use, especially the Small and Medium Enterprises (SMEs), which can jump start the nation’s economy.
It maintained that it would not support any increase bearing in mind that the government failed to fulfil its promise to organised labour when the price was adjusted last year.
It added: “As major stakeholders in the oil and gas industry, we supported the review of the pricing template that moved the price of PMS to N145 per litre on the condition that the government will put in place some palliative measures and reinvest the gains from that price regime to cushion effects of the increase.
“Some of the palliative measures include provision of transportation system, which include rehabilitation of the rail system, good and motorable road networks, means of mass transportation, among others; review of workers’ wages to meet the reality of the increment; rejuvenation of the power sector for efficient and effective electricity supply to enhance performance of the real sector, especially the SMEs and other manufacturing companies that are affected by the erratic power supply and provision of good healthcare system.”
NUPENGASSAN said marketers are proposing N165 per litre to cover the cost of forex required for products importation, as the free fall of the naira against the dollar is seriously impacting on their ability to import fuel.
“They argued that in May 2016, when the price of petrol was reviewed from N97 to N145 per litre, the exchange rate was based on N285 to a dollar, while since June 2016 till date, the exchange rate has been fluctuating between N305 and N490 to a dollar,” the statement read.
The unions, however, said that government should rather look inward for the solution to the lingering and persistent pricing problems by enhancing local refinery.
The unions stated: “This is key to the development of the downstream sector and the deregulation policy of the government. The Minister of State, Petroleum Resources, Dr. Ibe Kachikwu, said some time ago that the nation’s four refineries in Port Harcourt 1 & 2, Kaduna and Warri had attained a combined daily production of about 6.76 million litres of petrol. This is still not what is expected from the local refineries.”
The NNPC, in its latest monthly report, said it remained the major importer of petroleum products, especially the PMS, despite liberalisation of petroleum products and government’s intervention meant to ease marketers’ access to foreign exchange.
In the past, marketers were importing 70 per cent of the products while the NNPC was importing 30 per cent, being the supplier of last resort.
Most of the marketers have yet to resume importation of petrol and continued to rely on supply from the NNPC, which sells to them at N131 per litre.
Investigations by Daily Sun across depots in Apapa indicated that majority of the marketers may have abandoned the PPPRA petrol pricing template, which had pegged the ex-depot price of a litre of petrol at N131-N133.28 price band.
Partner, Bloomfield Law Practice, Mr. Ayodele Oni, told Daily Sun that, ‘‘it is true that marketers announced late January that they would be ceasing importation. It is also not surprising that many have abandoned importation altogether and have begun to purchase petrol and automotive gas oil (diesel) directly from NNPC. Marketers are blaming government’s indebtedness in connection with the fuel already imported (amounting to about N660 billion) and high interest payments to banks (which currently have a $1.6 billion exposure to the oil marketers) for the state of affairs.”
According to him, the indebtedness to banks arises from acquisition facilities or credit lines made available to marketers denominated in USD, and the fluctuation in exchange rate has meant a huge jump in interest payments.
He explained that marketers complain of banks attempting to withdraw funds from their naira accounts at a rate of N360 per dollar, which is much more than the rate over which the Federal Government used to set tariffs and provide subsidy.
Furthermore, he disclosed that the current landing cost is about N145 per litre, meaning that marketers are making little or no money on imported fuel, while having to service large bank debts. As such, there is no surprise that depots are selling imported oil above the PPPRA ex-depot price of N133.28.
Meanwhile, he stated that the re-introduction of any subsidy in the petroleum sector would need to be by covert means as a subsidy would be unpopular.
‘‘So any re-introduction of subsidy would be temporary. Without a change in underlying market fundamentals, the trends suggest an upward revision in the fuel price,’’ he said.