High Oil Prices Pushing Up Petroleum Subsidy

Petrol supply figures indicates that the amount of financial subsidy Nigeria currently absorbs to keep the pump price of petrol at N145 per litre instead of the expected open market price might have gone up to N65.6k. 

This is following the rising price of crude oil in the international market and its impacts on the landing cost of petrol into the country. 

Oil last week traded at an average of $80 per barrel, but according to operators in Nigeria’s downstream petroleum sector, the landing cost of a litre of petrol has similarly gone up to N196.3k per litre. 

Based on this, a sum up of the N14.3 distribution margin approved in the last pricing template for petrol by the Petroleum Products Pricing Regulatory Agency (PPPRA) – an agency of the federal government responsible for periodically calculating and approving products’ pricing for the market – with the N196.3k landing cost, one will arrive at N210.6k, which should be the current open market price of a litre of petrol in the country. 

Flowing from this, the difference between N210.6k (actual market price per litre) and N145 (government price per litre) arrived at N65.6k, which is the subsidy or under-recovery recorded over every litre of petrol supplied by the Nigerian National Petroleum Corporation (NNPC), which has since October 2017 reportedly become the sole importer of petrol in Nigeria. 

Also, the N65.6k by 46.54 million litres was declared by ministry of petroleum resources last week in its newsletter for the daily petrol consumption level of the country in August, this brings the figure to N3,053,024,000 which is the figure the country may have incurred daily as subsidy on petrol consumption. 

Additionally, for a period of 31 days in August, the calculations indicate that N94,643,744,000 could have been absorbed as subsidy by the NNPC to keep the pump price at N145 per litre. 

Though the NNPC did not confirm the figures, its Group General Manager, Public Affairs, Mr. Ndu Ughamadu, however has explained that it has the financial capacity to absorb any gap between the landing costs and pump price of petrol in the country. 

Ughamadu equally stated that the NNPC will continue to shoulder this burden to keep petrol supplies stable for all Nigerians. 

“As it stands, the NNPC is currently playing the role of a ‘social supplier’ with reference to petrol. The NNPC has the financial capacity to absorb any gap between the landing cost and prevailing pump price of petrol,” said Ughamadu. 

He added that, “The corporation, therefore, will continue to shoulder associated losses in order to ensure adequate and robust supply of petroleum products to consumers and all Nigerians.” 

In December 2017 when oil price was at $64.37 per barrel, the NNPC’s Group Managing Director, Dr. Maikanti Baru, disclosed to journalists that the landing cost of petrol was N171.40, and that a metric tonne cost $620. 

Similarly, Baru explained that NNPC’s crude for product swap programme – the Direct Sales Direct Purchases (DSDP) – was under pressure and unable to satisfy increased petrol consumption in the country because it was originally programmed to meet the country’s 35 million litres daily consumption level. 

He particularly stated then that: “The landing cost goes with the CIF (Cost, Insurance and Freight) price of petrol. Currently, the CIF price is in the neighbourhood of $620 per metric tonne, with the official exchange rate of N305 to the dollar, the landing cost should be N171.40 per litre. 

“The government has consistently indicated that the N145 per litre is the price and to do that, it has mandated the NNPC to keep the equivalent depot price of N133.28 per litre which will keep a cap of N145 per litre , there is a lot of profit in between after taking the transportation cost of N7 off, so there is sufficient margin for the marketers in that PPPRA template at the price cap.”