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How we arrived at N145 price for fuel, by government

Related

• Minister says new regime to save N16.5b monthly
• Labour mobilises for protest, meets today

Amid threats of protest by labour, the Minister of State for Petroleum Resources, Ibe Kachiukwu, and the Petroleum Products Pricing Regulatory Agency (PPPRA) have offered explanations on how the Federal Government arrived at N145 as the price of a litre of Premium Motor Spirit (PMS) otherwise known as petrol. They assured that the new price regime would block the drain through which government loses N16.5 billion monthly.

While the minister, whose announcement on Wednesday kicked off the new regime, said the price was based on foreign exchange conversion of naira to the dollar, the PPPRA put the calculations on its latest pricing template.

There were indications yesterday that the organised labour movement and its civil society allies may begin a protest against the new regime . The National Executive Councils (NECs) of both the Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) are set to meet today to deliberate on the outlook of the protest.

Kachiukwu, who spoke on a television programme yesterday, said government arrived at the new price by “a simple conversion of using foreign exchange at N285. That N285 is from nowhere; it is basically the secondary source that people buy foreign exchange from, versus the N320, which is the black market rate.

“If you convert it and throw it in, you will get about N141, N142 or N143. So there aren’t much of palliative elements left there for you to use. It is simply, ‘go out, find your product, your cost is covered, there is an opportunity for your efficiency to make money, come and deliver.’”

But according to the PPPRA’s pricing template, the cost elements include cost/freight, N109.01; lightering expenses, N4.56; Nigerian Ports Authority (NPA) charges, N0.84; NIMASA charges, N0.22; financing, N2.51; jetty thru’put charges, N0.60 and storage charge, N2.00, which brings the landing cost to N119.74.

The landing cost is added to distribution margins, which are retailers, N6.00; transporters allowance, N3.36; dealers, N2.36; bridging fund, N6.20; marine transport average, N0.15; and admin charges, N18.37, bringing the total distribution charges to N18.37.

According to the PPPRA, the addition of the landing cost of N119.74 to total distribution margins of N18.37 gives a total cost of N138.11 per litre, putting the price at between N135 and N145.

Kachikwu justified the government decision saying, “We want everybody to be able to bring in the products. We want to achieve what was achieved in the marketing of diesel so that government will also not have intervention in petrol. Ultimately, we will let the market dynamics take place.

“In the past few months, the Nigerian National Petroleum Corporation (NNPC), imported the products largely subsidised, but the marketers took advantage and made excess profits. With this new system, they are going to start bringing in their own products and NNPC can sell its own products at its own price. So, there are no more opportunities for the short-term arbitrages unless those benefits in price come from your own efficiency

“What has happened is that we have provided an opportunity in the country for people to take advantage of government’s liberalisation policies and subsidies and make huge sums of money and this can have positive impact on the common man on the street.

“The reality is that if we let the environment free for people to operate you will be amazed at what will happen with pricing. I will almost take a bet with you that in six month’s time when you review this price, you will be amazed at what will happen to the N145 price.

“We discovered that queues would continue to happen until we address the issues. We do share sympathy and pains but as a responsible government, we must take decision to try and solve problems. We have come to see that if you free Nigerians to find sources of funds, they will find those secondary funds and import products, the burden on NNPC will reduce and the country will have peace and the suffering will go permanently.

“Extra earnings that NNPC makes through that avenue will be pumped into refineries, because our refining infrastructure are completely decayed. We mean well, Nigerians should please trust us. Give us support and you will be surprised.”

Also dwelling on the benefits of the new regime, the PPPRA said that government had been able to permanently eliminate subsidy payments, which was N1 trillion and had been able to save about N16 billion from April this year to date.

It noted that the current development would ensure 100 per cent FAAC payment on allocated 445,000 bpd and potential additional revenue stream, which can be tailored towards palliatives.

The agency said that even with the new price regime, Nigeria would remain one of the cheapest fuel markets in Africa and could even be lower, once competition takes effect, stressing, “Likelihood of smuggling to neighbouring countries will also be significantly reduced with the new price regime.”

An informed source told The Guardian last night in Abuja that the need for the labour movement to firm up mobilisation and contact and also the meeting of the two NECs were cited as the reasons the strike would not be called immediately.

Meanwhile, facts are now emerging on factors that influenced government’s decision to jerk up the pump price.
A policy document exclusively obtained in Abuja yesterday by The Guardian revealed that renewed insurgency and vandalism in the Niger Delta region which have drastically reduced crude oil production to 1.65 million barrels per day, reduction of money accruing to the Federation Account as well as crude volumes for petrol conversion, which is also impacting Federal Government foreign exchange earnings, were responsible.

The document read in part: “Renewed insurgency and pipeline vandalism in the Niger Delta has drastically reduced national crude oil production to 1.65 million barrels per day as at today, against 2.2 million barrels per day planned in the 2016 budget. Further reduction in income to Federation Account is also affecting crude volumes for PMS conversion and impacting foreign exchange earnings.”

The document also stressed that the resultant fuel scarcity created an abnormal increase in price, resulting in Nigerians paying averages of N150–N300 per litre as prevalent hoarding, smuggling and diversion of products, have reduced volumes made available to citizens

Nigerians have begun to adjust to the new realities of petrol price adjustment with many of the filling stations immediately adjusting their pump and price display to between N140 and N145 per litre.

Already, the six months old queue has automatically vanished at some filling stations about 24 hours after the announcement and marketers have immediately effected new prices and are magically selling from all pumps, as against the initial method of rationing.

The Guardian’s visit to Mobil, NIPCO, Forte Oil and Conoil filling stations along Lagos-Abeokuta Expressway showed that all were selling at N145 per litre, while Danco Oil at Iyana-Ipaja, was selling at N140 per litre.

Other stations visited were MRS, Total, and some NNPC stations, which were also selling at N145 per litre. All the visited fuel stations are in Lagos.

However about 40 per cent of the filling stations in the area of survey were still under lock and key while commuters were already paying higher fares as commercial transporters increased fares by about 100 percent.


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17 Comments
  • Mizch

    Nigerians, count your blessings! “We mean well, Nigerians should please trust us. Give us support and you will be surprised.” Nigerians, you will be surprised to see what the APC government will do. Hahahahaha!

    • bobo

      Same same, but different

    • Gbenle

      Not time now to aportion blame. But you should have allowed this removal since instead of inciting/mobilising strike then. Don’t break the country on political ground. Things are going on record.

  • Gbenle

    I pray not to abuse elders and leaders God knows about being there but the truth is remain that all should learn from is currently going on in Nigeria. We should be careful of negative critical statement against leader. My late father will always say ‘it will soon be your turn’. GBE KOTO OTA E NI WON!

  • Lims

    Fine, but the problem we’ll be facing is minimum wage! Will it be increase & @ what ratio?

    • Gbenle

      You only say that to somebody who has GOOD economic plan for the land.

  • jakiel

    THIS LOGIC DOES NOT MAKE SENSE BECAUSE IT HAS NO BEARING WITH THE KEY VARIABLE COSTS INVOLVE IN PRODUCTION OF PMS IN THOSE COUNTRIES WE IMPORT FROM. AND THESE KEY VARIABLES ARE NOT WITHIN THE CONTROL OF NIGERIA EXCEPT FOREIGN EXCHAGE POLICIES THAT NIGERIA CAN INTRODUCE FROM TIME TO TIME TO REGULATE EXCHANGE RATE WHICH HAS A MINUTE INFLUENCE ON THE PRICING REGIME FOR PMS.
    THEREFORE, IT’S MISLEADING TO THINK NIGERIA IS OUT OF THE WOODS BY THIS NEW PRICE REGIME N145 FOR PMS. SUBSIDY WILL STILL ARISE WITH TIME.
    THE SOLUTION TO THIS IS TO REFINE OUR PMS, IN THAT CASE WE HAVE SUBSTANTAIL CONTROL OVER THE VARIABLE COSTS OF PRODUCTION and in a Vantage position to do away with subsidy.
    Presently, we are creating room for more hardship, industrial and labour issues knowing that PMS is the back borne of all economic activities in NIGERIA.

  • Fellow

    In as much as the ideology is logical, there is absolute need to neutralize the devastating effect of this development on the masses shouldering the pain by ensuring that the minimum wage of workers is reviewed asap and backlog of salaries owed are paid in full, find a way to control the resulting price hike of products and services across the country.

  • fagarjaji

    woe betide mediocrity!

  • emmanuel kalu

    This is a very good decision and the effect is already taking shape. we need complete and total deregulation, so the government can focus on regulating quality, customer treatment and safety. if we continue to regulate price of anything, we continue to create illegal market benefiting only a few people. regulated price create scarcity that is not necessary. moreover how many people in the past 4 months have paid the previous official price of 86.00?

  • Maigari

    Apparently the government was aware of all the obstacles to a reliable petroleum delivery but still continued to pretend there is a way out WHY? It seems that the executive took many a Nigerian for a ride simply playing the no-subsidy-removal hype knowing fully well that the situation is untenable.
    That said, the new price seems to be an exaggeration. For example after the initial severe shortage, petrol prices were between N 110 – 125/litre; that is from the IPMAN stations. Now a ceiling was announced and all of a sudden the new floor price is N14/litre. In the event of unforeseen factors such as an increase of the price of crude where else would the prices head to but the roof? The government has made a fundamental mistake by trying to sustain the unsustainable only to come back ad exacerbate am already hard position of the economic burden on the non-salaried Nigerians. The government has created an unwanted and certainly an unnecessary distraction that may linger far longer than anticipated. This is because of the :we have not removed the subsidy” slogan which sounds really empty given the now ‘floor’ ceiling price announced by the PPPRA and the NNPC. Someone somewhere is taking Nigerians for a ride and that is untenable. If there is a deregulation then let the market forces dictate the price as case the case with diesel oil.

  • Dejoe

    But why did elements of this government resisted the same logic when Jonathan increased price? I will be very glad to hear the voice of Asiwaju Bola Ahmed Tinubu on this festering crisis. My position is, an still remain that there is no reason for naming figures. The subsidy should have been simply removed and allow market forces to determine price why allowing all Nigerians import their own fuel. If tomorrow price of crude oil improves at the international market, we will be so doomed that a litre of fuel ⛽ may rise up to N300. This is actually poor policy.

  • Adebayo Aina

    Nigerians must face reality and come to the point of appreciating that continued subsidy of petrol & its by-products will do the economy no good – a policy that has been practiced for several years but which has continued to result in fuel shortages, growth & sustenance of black markets in the products, and more importantly, has been an avenue for a very small group of the ruling class and their friends to defraud the country to the tune of billions of naira, needs to be jettisoned and replaced with a deregulation policy.
    The subsidy process also stifles business innovations, private investments in the industry, and the subsidy goals are not achieved because Nigerians end up paying much more than they would have paid if market forces had been the price determinant.
    One of the ready-made reasons proffered by supporters of continued subsidy of PMS, is that Nigeria produces oil, and therefore “we should not pay market prices”. As emotional as that reason is, the reality is that oil is a wasting asset, will be exhausted, any responsible govt must ensure that part of the funds generated therefrom are invested wisely in infrastructure and other projects that will benefit both present and future generations. The present generations must not “consume” all the benefits of the oil in our land through subsidy and leave no benefit (in terms of reasonable standard of living, economic development, etc) for future generations. That’s why Nigeria’s neighbours such as Ghana, that are oil producers have no Subsidy program.
    All the foregoing points to is that the Nigerian Labour Congress should shelve its planned protest action – it will only bring more hardship to the citizenry. Subsidy is not sustainable; it will continue to lead to shortages, deepen unreliability of the economy, unemployment and continued lining of the pockets of a few people. NLC needs to be more innovative in fighting for the rights of workers – it should for instance, monitor that the savings realizable from the subsidy removal are used judiciously – repair and overhaul of refineries as declared by the Minister, for other projects with enduring benefits to Nigerians – present & future generations.

  • Damilola

    So as it is, the govt is admitting that dollar is no longer at 196 rate and of course naira not at per with dollar but at #285. OK. Una still de expect deregulation? Baba go harder jare. No mind em.

  • Gp Njoku

    I still believe the subsidy is necessary, but can be refined to accommodate the challenges of the new age. Here is a full details of my suggestion.
    https://onedrive.live.com/redir?resid=6BCC0C812ABB0D47!25674&authkey=!ADiEeEoBFEZtJV4&ithint=file%2cpdf

  • nana

    so in conclusion the price increase is based a simple conversion of using foreign exchange at N285 and not on the removal of subsidy? i dont understand.

    but yet he claims he wants to achieve what was achieved in the marketing of diesel(which by the way has no subsidy and based on the current high US dollar to naira exchange rate is still sold at the same price since over a year).

    so he is claiming that in 6 months time this foreign exchange induced price increase would be reviewed and we may be surprised. oh i bet we will be very very surprised indeed.

    then to top it up PPPRA people claim that petrol price could even be lower, once competition takes effect – but how when you have issued a fixed price to the marketers or are they allow to sell at their own random prices; higher or lower than N145? especially as they are now supose to go and source for their petrol by themselves and not through NNPC?

    but PPPRA how did this regime eliminate subsidy payment “permanently”? Is that why there was fuel scarcity? so while we were sleeping overnight at the petrol station last month our government save N16Billion to do what with it? so N16billion was the price we nigerians payed for by carrying our generators to filling station, queing for the whole day to fill our tanks or buy a maximum of N2500 fuel only, sweltering in our hot un-airconditioned cars, paying high bus fares.

    Dear Nigerians please ask your government what they want to do with the save N16billion, if in 6 months they will finally remove fuel subsidy and can fuel marketers arbitrary choose their own selling price in order to start price competition?

  • #seriouslythinking

    LIPS SERVICE TO SMART-
    delta state government, Dr Okowa Pays lips service to Vocation training.
    Sacks over 70 staff members,UNDP and UNOPS fails to deliver excellent partnership relationship with delta state Govt by suddenly pulling out of program to put the destiny of over 120 students after spending 1 year and 6 months in training BUT NO graduation. ‘
    is this a responsive govt?
    no response govt who claims to be committed to SMART as proclaimed by Gov OKowa will dump such a world class fully equipped training institute, maybe because it was a laudable project by his predecessor.
    there should be continuity in the provision of leadership.

    read news
    This is d site.
    http://drumbeatnews.com/119708-2/