NIGERIANS got a shocking New
Year gift from the Federal
Government yesterday. They found
long queues at the filling stations
where petrol was sold at N140 per
litre. Gone was fuel subsidy, which
gave way to deregulation.
Many stations shut down their
machines.
The Petroleum Products Pricing
Regulatory Agency (PPPRA)
announced the removal of
government subsidy on Premium
Motor Spirit (PMS).
The announcement was made
following an emergency meeting
of the Executive Secretary of the
PPPRA, Reginald Stanley and
other top officials of the agency at
the Nigeria National Petroleum
Corporation (NNPC) office.
It was gathered that after the
parley between the NNPC
management and the PPPRA, the
government withdrew the fuel
subsidy on which it claims to have
spent N1.3 trillion in less than one
year.
Although the PPPRA statement did
not specify how much petrol will
now sell per litre, it was learnt that
marketers will not be allowed to
sell it for more than N141 per litre,
for now.
A source from the agency, who
pleaded not to be named because
he is not officially permitted to
speak, said the marketers should
continue to work with the PPPRA
template of December 29, 2011,
published on the agency’s website.
Based on the Platts pricing, the
template has the maximum
indicative benchmark of N131.66
per litre for depot price and
maximum indicative benchmark
price of N141 for open market
price.
But there was confusion at the
filling stations yesterday after the
announcement of the withdrawal
of subsidy.
Petrol sold for N138 at the NNPC
mega station in Kabba, Kogi State.
However, at the NNPC mega
station in Abuja, it was sold for
N65.
Also at the NNPC station in Mushin,
Lagos, petrol was being sold for
N65 yesterday afternoon.
In Ile Ife, Osun State, petrol was
sold for N140 in some of the filling
stations.
But most of the filling stations
across the country closed down.
They were, apparently, weighing
the options on what price to fix.
It could not be immediately
ascertained why the Federal
Government shelved its plan to
withdraw the subsidy in April, but a
source in government said: “The
Presidency felt this is the
auspicious time to do it. I think
latest indices available to the
government have shown that the
government cannot wait till April.
The government is also convinced
that it has concluded consultations
on the removal of the fuel
subsidy.”
The PPPRA statement noted that
the decision to stop subsidy was
taken by the agency based on
powers conferred on it by the Act
establishing it. The Agency noted
that marketers would sell petrol
according to benchmark price,
which it would release today or
tomorrow. It will be updated
biweekly.
The benchmark is to be worked
out from the daily Platts’ price of
crude in the international market.
The aim of the benchmark price,
according to the agency, is to
protect consumers from
exploitation by oil marketers
through over-pricing and
profiteering.
The statement said: “Following
extensive consultation with
stakeholders across the nation, the
Petroleum Products Pricing
Regulatory Agency (PPPRA) wishes
to inform all stakeholders of the
commencement of formal removal
of subsidy on Premium Motor Spirit
(PMS), in accordance with the
powers conferred on the agency
by the law establishing it, in
compliance with Section 7 of
PPPRA Act, 2004.
“By this announcement, the
downstream sub-sector of the
petroleum industry is hereby
deregulated for PMS. Service
providers in the sector are now to
procure products and sell same in
accordance with the indicative
benchmark price to be published
fortnightly and posted on the
PPPRA website.
“Petroleum products marketers are
to note that no one will be paid
subsidy on PMS discharges after
1st January 2012.
“Consumers are assured of
adequate supply of quality
products at prices that are
competitive and non-exploitative
and so there is no need for
anyone to engage in panic buying
or product hoarding.
“The PPPRA in conjunction with the
Department of Petroleum
Resources (DPR) will ensure that
consumers are not taken
advantage of in any form or in any
way.
“The DPR will ensure that the
interest of the consumer in terms
of quality of products is
guaranteed at all times and in line
with international best practice.
“In the coming weeks, the PPPRA
will engage stakeholders in further
consultation to ensure the
continuation of this exercise in a
hitch-free manner.”
Reacting to the development, the
Executive Secretary of the Major
Oil Marketers Association of
Nigeria (MOMAN), Chief Obafemi
Olawore, said it would be difficult
to determine the pump price of
petrol by their members because
there wouldn’t be uniform pricing
any longer. Members, he said,
would sell “according to their
costs and margins”.
Minister of Finance Dr. Ngozi
Okonjo-Iweala recently gave hints
on what the pump price might look
like, if the subsidy is removed.
She said: “Under the current
downstream sector structure,
prices are not determined by
demand and supply. Pump price of
PMS is fixed at N65 per litre by the
government.
The landing cost of a litre of PMS
is about N123 per litre, based on
an average crude oil price of US
$113.98pb. To this, add the cost of
distributing, bridging and profit
margins of N15.72 per litre. This
results in effective cost of N139/
litre.
“In 2012, the landing cost of a litre
of PMS is estimated at N104/litre
based on a crude oil price of US
$90pb. To this, add the cost of
distributing, bridging and profit
margins of N15.72/litre. This results
in effective cost of N120 per litre.
“Fuel subsidy is what is paid by
government to keep prices below
free market. The subsidy causes
distortions that result in huge
economic costs, such as rent-
seeking behaviour and smuggling.
“The amount of subsidy equals to
the difference between the
consumer pump price of fuel
versus the total cost of producing
or importing.
The price of petrol is N65 per litre,
but actual cost of supply is N139
per litre. And projected at N120
per litre in 2012.
“This means that currently for
every one litre of petrol purchased
at the official price of N65,
government contributes N73.
Presently, only petrol and
kerosene enjoy government
subsidy. Diesel has already
successfully been deregulated.”
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