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How we arrived at N145 price for fuel, by government

By Collins Olayinka (Abuja) Roseline Okere and Sulaimon Salau (Lagos)
13 May 2016   |   3:32 am
The Minister of State for Petroleum Resources and PPPRA have offered explanations on how the Federal Government arrived at N145 as the price of a litre of as petrol.

• 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.