Subsidy Rises to N5.58bn Per Day as Landing Cost of Petrol Hits N232

Nigerian National Petroleum Corporation NNPC tender
The landing cost of petrol, otherwise known as Premium Motor Spirit (PMS) being imported into Nigeria increased by more than 60 per cent between December 2020 and mid-June this year.

The landing cost of PMS rose to N231.98 per litre on June 16 from an average of Ni43.60 recorded in December 2020. This is not unconnected with the rally in global oil prices and the depreciation of the naira against dollar.

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It would be noted that the Petroleum Products Pricing Regulatory Agency had in March this year released a pricing template that indicated the guiding prices for the month.

According to the template, the petrol pump price was expected to range from N209.61 to N212.61 per litre. Following the widespread public outcry that greeted the template, it was later deleted by the agency from its website. Since December, the pump price of petrol has remained at between N162 and N165 per litre at many filling stations in Lagos.

The template, which was based on an average oil price of $62.22 per barrel for February and an exchange rate of N403.80 to a dollar, showed that the landing cost of petrol was N189.61 per litre.

It is worthy of note that the Central Bank of Nigeria devalued the naira last month as it adopted the NAFEX exchange rate of N410.25 per dollar as the official exchange rate after removing the N379/$ rate from its website.

In recent months, the price of crude oil, which accounts for a large chunk of the final cost of petrol, has continued to rise, with the international oil benchmark closing at a record high of $76.18 per barrel last Friday as against $73.88 per barrel on June 16.

The price of crude oil, which accounts for a large chunk of the final cost of petrol, has continued to rise in recent months, with Brent, the international oil benchmark, closing at a record high of $76.18 per barrel last Friday, up from $73.88 per litre on June 16.

The Group Managing Director, Nigerian National Petroleum Corporation, Mele Kyari, said on March 25 that with the current market situation, the actual price of petrol could have been anywhere between N211 and N234 per litre.

He therefore disclosed that the Federal Government was subsidising petrol with about N100bn to N120bn monthly (N3.3bn-N4bn daily) for it to be sold for N162 per litre.

Based on the PPPRA template and Platts data, the expected pump price of the product stood at N254.90 per litre as of June 16, up from N239.31 per litre on April 16. The expected retail price of N254.90 per litre and the current pump price of N162 per litre indicate a subsidy of N92.98 per litre as of June 16, compared to N77.31 per litre on April 16.

With daily petrol consumption put at about 60 million litres by the NNPC and a subsidy of N92.98 per litre, daily subsidy increased to N5.58bn on June 16 from N4.64bn on April 16. The rising price of crude oil pushed the cost of petrol quoted on Platts to $691.25 per metric tonne (N211.47 per litre) on June 16 from $642.25 (N193.39 per litre) on April 16.

In its March template, the PPPRA used an average cost of $561.96 per MT (N169.22 per litre) and an average freight rate of $21.63 per MT (N6.62 per litre).

Other cost elements that make up the landing cost include lightering expenses (N4.81), Nigerian Ports Authority charge (N2.49), Nigerian Maritime Administration and Safety Agency charge (N0.23), jetty throughput charge (N1.61), storage charge (N2.58), and financing (N2.17).

The pump price is the sum of the landing cost, wholesaler margin (N4.03), admin charge (N1.23), transporters allowance (N3.89), bridging fund (N7.51), marine transport average (N0.15), and retailer margin (N6.19).

The NNPC, which has been the sole importer of petrol into the country in recent years, is still being relied upon by marketers for the supply of the product despite the deregulation of the downstream petroleum sector.

This month, the International Monetary Fund expressed concern over the resurfacing of fuel subsidies in Nigeria, describing it as ‘concerning, particularly in the context of low revenue mobilisation’.