Oil marketers: Petrol price inches to N900/litre as FG may pay N1.68trn for fuel subsidy in 3 months

According to a study of data provided by oil marketers and the industry, the Federal Government may spend roughly N1.68 trillion as a subsidy on Premium Motor Spirit, also known as petrol, from September to December this year.

Based on the decline of the naira against the US dollar and the rise in the price of oil in the international market, PMS dealers claimed on Thursday that the pump price of petrol should be between N890 and N900/litre.

Petrol presently costs between N598 and N617 per litre, depending on where you buy it, fueling speculation that the commodity is subsidized by the federal government.

The government and the NNPCL have not formally acknowledged that the petrol subsidy has been reinstated. President Bola Tinubu proclaimed the end of the subsidy regime during his inaugural address on May 29.

PMS is subsidized by the government through the Nigerian National Petroleum Company Limited. PMS is only imported by NNPCL. Other merchants halted PMS imports due to a lack of foreign exchange.

The elimination of the subsidy caused the pump price of fuel to rise from around N198/litre in May to the current rate of N617/litre. However, the naira’s depreciation, combined with the rise in crude oil prices, has continued to put downward pressure on the cost of PMS.

According to downstream oil dealers, the cost of crude oil and the naira-dollar exchange rate accounted for more than 80% of the cost of PMS.

Brent crude, the global oil benchmark, increased to around $95 per barrel on Thursday. It had reached a high of $97 per barrel the day before, the highest level in 2023.

Oil began the year at around $82/barrel, fell to $70/barrel in June, and has recently traded above $94/barrel.

The naira continued to fall on Thursday after trading at 980 to the dollar on the parallel market on Wednesday.

The naira was trading at 950/$ against the dollar a week ago.

READ ALSO: Fuel subsidy: NLC issues two-day warning strike

However, the naira gained marginally on the FMDQ at the Investor & Exporter FX market, ending at 770.71/$ on Wednesday, up from 776.76/$ on Tuesday.

According to oil marketers, the FX crisis and recent hike in crude price have rendered it difficult for fuel prices to remain at N617/litre. They claimed that the administration had discreetly reinstated fuel subsidies.

According to a media report on Thursday, the Federal Government paid N169.4 billion in subsidies in August 2023.

According to the article, Nigerian Liquefied Natural Gas paid $275 million in dividends to Nigeria through NNPCL, citing a Federal Account Allocation Committee document.

According to the report, NNPCL spent $220 million (N169.4 billion at N770 per dollar) of the $275 million to pay for the PMS subsidy in the review month.

“I told you earlier that there is no way that the government will sustain the price of petrol at N617/litre without paying subsidy on it, going by the continued fall of the naira,” the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria, Chief Chinedu Ukadike, told The PUNCH on Thursday.

He added, “The dollar is almost N990 at the parallel market currently, and you can see the effect of this on the pump price of diesel. Diesel is close to N1,000/litre, so the retail price of PMS should be around N890 to N900/litre.

“Therefore, it is better the government assists the masses by paying subsidy. From our records, in the United States, the super product or petrol is sold around $3.9, which is close to about N3,000/litre.

“The premium product is sold at about $2.89, which is over N2,000/litre. And if you check in other African countries you will find out that the product is being sold at between N1,200 and N1,500. But going by the forex rate in Nigeria, it should be around N900/litre.”

It was gathered that the subsidised ex-depot price of petrol as sold by NNPCL, was between N585 and N600 depending on area of purchase.

By subtracting the ex-depot cost of N600/litre from the projected unsubsidised rate of N890/litre, that the government may have been spending about N290/litre as subsidy currently.

In July, data from the Nigerian Midstream and Downstream Petroleum Regulatory Authority showed that between June 1 to June 28, 2023, which was described as the post-deregulation period, the total petrol consumption across the country was 1.36 billion litres, while the average daily consumption was put at 48.43 million litres.

With an average daily consumption of 48.43 million litres and an estimated subsidy of N290/litre, the government could be incurring N14.04bn as subsidy daily, while this could rise to N421.3bn monthly.

This could rise to as high as N1.68tn for the months of September, October, November and December 2023, should the naira continues its fall against the dollar and crude price maintains its upward surge.

Before Tinubu announced the end of fuel subsidy in May, the scheme had consumed trillions of naira from the government’s purse.

In October 2022, it was reported that the government of former President Muhammadu Buhari had spent about N6.88tn in subsidising petrol at the time.

This was based on data obtained from the Nigerian National Petroleum Company Limited and the Nigeria Extractive Industries Transparency Initiative.

NEITI report showed that fuel subsidies gulped N316.7bn in 2015; N99bn in 2016; N141.63bn in 2017; N722.3bn in 2018; N578.07bn in 2019; and N134bn in 2020.

Although the NEITI report did not state the amount spent in 2021 and 2022, figures obtained from NNPCL indicated that fuel subsidy jumped to N1.43tn in 2021.

NNPCL data also showed that petrol subsidy gulped N2.565tn between January and August last year. The oil company, however, described its subsidy spending as under-recovery.

According to the most recent estimate on 169.4 billion naira spent on subsidies in August, billions of naira may be spent on the item from September to December 2023.

In response to the government’s rumored decision to resume gasoline subsidies, IPMAN National Secretary Chief John Kekeocha stated that the price of petrol was clearly greater than N617/litre.

He praised the government for understanding the condition of its residents, but emphasized that the government should be transparent about subsidies.

“The government must come out clean on subsidy. We know it is not possible to be running full deregulation at the current price of petrol. However, it is commendable that they are considering the plights of the masses,” the IPMAN official stated.

Officials of the NNPCL and the Nigerian Midstream and Downstream Petroleum Regulatory Authority stayed mute on the subject when contacted.

Meanwhile, the Chairman of Satellite Depot, IPMAN, Akin Akinrinade, said a rise in the pump price of diesel, a deregulated product, should mean a corresponding rise in the pump price of petrol which was also recently deregulated with the official ending of the subsidy regime in June.

He said, “Ex-depot price of diesel is around N989 per litre while at the pump it is now selling at N1000 per litre. Ex-depot price of petrol at DAPPMAN depots is between N572-N575 per litre, while NNPCL depots sell at N556.5 per litre.

“But you know the price of petrol at the pump has remained the same for a while now despite the increase in crude oil price at the international market. I think the government is doing everything it can to keep petrol prices the same due to the political nature of the product.”

He added, “However, there could be other means by which the government is subsidising it. For instance; local levies such as NIMASA, NPA and other levies are currently being paid in naira, no longer in dollars. So, if the government is working on that; it can also reflect on the prices of petrol by bringing it down. And as you know, no marketer brings in petrol due to the high price of forex. They claim they don’t have access to dollars at the CBN rate. So, it’s only NNPC that is bringing in products.”

An unconfirmed said “subsidies is back.

He said, “You know President Tinubu in his inaugural speech said the government would intervene if need be. So that is exactly what is happening. Because if not for that; going by what is happening now, using CBN’s official rate, petrol should be selling for N625 per litre in Lagos and higher prices going up north. But what we have at the pump is still around N580 per litre. But if you use black market rate, petrol should be around N800 per litre in Lagos. But we should be careful not to set the country on fire since we know the government is currently discussing with Labour,” the source said, asking not to be quoted.

Brent international price had reached $95 a barrel in the week, with Nigeria’s sweet crude also selling at around N100 per barrel.

“Any kindergarten would know that the government has returned to paying subsidies. I think we should be asking the NNPC to tell us the magic they are performing to keep prices the same for a while now,” a top source among the oil marketers said on Thursday.

The President, IPMAN, Chinedu Okoronkwo, said there was no need for speculation on the return of subsidies.

“The good thing is that NNPC is still importing and we are their major customers, so why should we be disturbing ourselves? Speculating will only throw the country into chaos. We believe the NNPC knows what to do, and they are doing exactly that. The Federal Government has assured us that the refineries will start working by December, and we know the NNPC has enough stock to last us till then, and even beyond,” he said.

Subsidies cost the economy N1.99 trillion between 2015 and 2020, according to a report by the Nigeria Extractive Industries Transparency Initiative.

According to projections submitted to the Federation Accounts Allocation Committee by the Nigerian National Petroleum Company Limited, petrol subsidies will cost N1.57 trillion in 2021 and N1.27 trillion from January to May 2022.

A total of N3 trillion has also been planned for subsidies from June 2022 to June 2023.

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