By Adewale Sanyaolu
fresh speculations and news making the rounds about another round of fuel price hike, seemed to have unsettled most stakeholders in the economy. Despite a recent rebuttal by the Federal Government through the Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, Nigerian National Petroleum Corporation (NNPC) and the agency saddled with the pricing of petroleum products, Petroleum Products Pricing Regulatory Agency (PPPRA), there is some anxiety in the horizon considering claims by marketers that the global economic dynamics have altered the pricing matrix.
But if the feelers from the petroleum products depots located in the Apapa area of Lagos are anything to go by, the apprehension, jitters and a state of confusion expressed by Nigerians and other stakeholders in the downstream sector cannot be wished away.
A survey conducted by Daily Sun across major depots in Lagos last week, revealed that majority of the depots have abandoned the PPPRA pricing template, which pegged the price of a litre of petrol at N133, excluding all other ancillary costs, including marketers’ margin, bringing it to a price band of N140 to N145.
Ironically, a litre of petrol from the depot at the moment has peaked to an all time high of N142, excluding all other costs. When these margins are added, a litre of petrol should ordinarily sell for about N170 a litre or less.
The spike in the landing cost of petrol was, however, expected since the price of crude oil at the international market hit about $50 a barrel last year.
Deregulation /liberalisation
Last year, the Federal Government, in a bid to exit the controversial subsidy regime, announced that it had deregulated the downstream sector of the petroleum sector, to allow market forces determine the price of petroleum products.
But more worrisome then, is the stance of the Federal Government to continue to determine and fix prices of petroleum products, which many stakeholders have said were bound to fail, describing such as partial deregulation.
Major Oil Marketers Association of Nigeria (MOMAN) and Depot and Petroleum Products Markets Association (DAPPMA) have consistently said the way forward for the downstream sector was for the Federal Government to hands off price fixing and allow market forces determine the price of petroleum products. Today, DAPPMA is being owed about $660 billion for petrol imports with interest rate differentials, coupled with their inability to import due to unavailability of foreign exchange.
In May 2016, when PPPRA announced a new pricing template for petrol, which pegged the price at N145, a forum of former Group Managing Directors of NNPC faulted the price cap because it believed such was not sustainable. The call then, stirred controversy among stakeholders and Nigerians in general.
The forum, which had the incumbent NNPC GMD, Dr. Maikanti Baru, in attendance expressed reservation over the N145 price cap at which the Pipelines and Products Marketing Company (PPMC), a subsidiary of NNPC, sells petrol to marketers.
It argued that the N145 price of PMS was not in conformity with the liberalisation policy of the government and current realities in the foreign exchange market.
A statement issued by the former Group General Manager, Public Affairs, NNPC, Garba Deen Muhammad, on behalf of the forum, said, “that the PMS price cap of N145/litre is not congruent with the liberalisation policy, especially with the foreign exchange rate and other price determining components such as crude cost and Nigerian Ports Authority (NPA) charges, among others, remaining uncapped.”
Price modulation
One of the novel ideas introduced by the former NNPC GMD, who also doubled as the Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, in 2015, was the price modulation scheme, which has been jettisoned.
Price modulation fixes the commodity price in a market by tweaking price components. PPPRA will fix the retail PMS price while the Expected Open Market Price will vary daily depending on the Platts daily Northwest Europe PMS spot prices and freight costs. The modulated prices will be reviewed quarterly. The modulated PMS price for the first quarter of 2016 was N86.50 per litre.
Kachikwu had said in 2015 that the Federal Government would focus on price modulation of petroleum products to ensure efficiency and provision of the products.
PPPRA pricing template as obstacle
The PPPRA template as presently computed adds more to the cost of petrol, a development the House of Representatives is not comfortable with and has commenced moves to probe the agency and its difficult-to-understand template.
In a recent interview with Daily Sun, former Minister of Petroleum Resources, Prof. Tam David-West, said that it was possible for petrol to sell at N40 per litre if some 14 items currently listed in the petrol pricing template as approved by the PPRA were removed.
David-West said some of the 14 items, including Petroleum Equalisation Fund (PEF) charges, transporters margin, NPA/NIMASA lithering expenses, administrative charges, jetty throughput charge, storage charge, among other charges, currently contained in the pricing template tend to increase the cost of petrol.
He said it was shameful that Nigeria was still involved in importation of petroleum products despite having four refineries capable of meeting the energy needs of the country.
Drumming support to the assertions made by David-West, members of the House of Representatives, last Monday, said the current pricing template set for PMS by the PPPRA was “fraudulent.” They insisted that PMS, otherwise known as petrol, should not have cost Nigerians more than N70 per litre.
Lawmakers noted that if unnecessary charges built in by government regulatory agencies were removed, the price of the product would have been below the current post-subsidy N145 per litre.
The revelations came in Abuja as an Ad-hoc Committee of the House on the Review of Pump Price of Petrol opened a public hearing at the National Assembly. The committee, chaired by a member from Imo State, Nnanna Igbokwe, grilled PPPRA, NPA, Nigerian Customs Service (NCS) officials and other industry players, including marketers.
For instance, lawmakers established that the 30k built into the template by PPPRA as “administrative charge”, was needless because the National Assembly also approved a separate budget for the same purpose.
Igbokwe tendered a copy of the 2016 budget as evidence, wherein the sum of N1.3 billion was approved for PPPRA to cover the cost of hiring six cargo inspectors.
“In the 2017 budget, which is before us, PPPRA has a proposal of another N500 million for regulation, monitoring and supply of petrol. This budgetary provisions have already taken care of the purpose for which you charge 30k on the template, yet Nigerians continue to bear the burden by paying N145 per litre,” Igbokwe added.
The committee also queried the rationale for the 84k built into the template as port charge paid to NPA.
Oil workers kick
Organised labour in the petroleum sector has kicked against any further increase in the pump price of PMS.
The joint body of the Nigeria Union of Petroleum and Natural Gas Workers and the Petroleum and Natural Gas Senior Staff Association (NUPENGASSAN) in its presentation to the Ad-hoc Committee on the Review of Pump Price of PMS of House of Representatives, in Abuja, said the timing was wrong.
The union in the presentation at the public hearing held between January 23 and 24, said it believes this was not the right time to review the pricing template of PMS considering the present challenge of forex scarcity.
According to the oil workers, the current economic situation would not accommodate such review. “The economy is biting hard on all Nigerians and any attempt to further review the template will impoverish ordinary Nigerians as the additional price will be transferred to end users of the product. Such review will further impact negatively on the economy, which the government is currently trying to pull out of recession,” the unions stated.
It equally reasoned that any attempt to increase the price will drive up the inflation index as PMS is a stable product in Nigeria.
The union explained that Nigeria depends on PMS for not only transportation but also to generate power for either home or industrial use, especially the Small and Medium Enterprises (SMEs), which can jump start the nation’s economy.
It maintained that it would not support any increase bearing in mind that the government failed to fulfil its promise to organised labour when the price was adjusted last year.
It added: “As major stakeholders in the oil and gas industry, we supported the review of the pricing template that moved the price of PMS to N145 per litre on the condition that the government will put in place some palliative measures and reinvest the gains from that price regime to cushion effects of the increase.
“Some of the palliative measures include provision of transportation system, which include rehabilitation of the rail system, good and motorable road networks, means of mass transportation, among others; review of workers’ wages to meet the reality of the increment; rejuvenation of the power sector for efficient and effective electricity supply to enhance performance of the real sector, especially the SMEs and other manufacturing companies that are affected by the erratic power supply, and provision of good healthcare system.”
NUPENGASSAN said the marketers are proposing N165 per litre to cover the cost of forex required for products importation, as the free fall of the naira against the dollar is seriously impacting on their ability to import fuel.
“They argued that in May 2016, when the price of petrol was reviewed from N97 to N145 per litre, the exchange rate was based on N285 to a dollar, while since June 2016 till date, the exchange rate has been fluctuating between N305 and N490 to a dollar,” the statement read.
The unions, however, said that government should rather look inward for the solution to the lingering and persistent pricing problems by enhancing local refinery.
The unions stated: “This is key to the development of the downstream sector and the deregulation policy of the government. The Minister of State, Petroleum Resources, Dr. Ibe Kachikwu, earlier said the nation’s four refineries in Port Harcourt 1 & 2, Kaduna and Warri had attained a combined daily production of about 6.76 million litres of petrol. This is still not what is expected from the local refineries.”
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