Global Oil Surge Pushes Daily Petrol Subsidy To N8.28bn
The rapid rise in global oil prices to record highs has pushed the subsidy cost being incurred by the Federal Government to N8.28bn daily, an analysis of data collated by our correspondent has shown.
The data also revealed that without subsidy, petrol would be selling for about N300 per litre as the landing cost of the product rose to N276.94 per litre last Friday from N249.42 per litre on July 30.
The Economic Confidential had reported on September 28 that the Nigerian National Petroleum Corporation spent a total of N905.27bn on petrol subsidy from January to August, citing data from the corporation.
The subsidy, which the NNPC prefers to call ‘value shortfall’ or ‘under-recovery’, resurfaced in January this year as the government left the pump price of petrol unchanged at N162-N165 per litre despite the increase in oil prices.
Responding to an enquiry on whether NNPC would continue to shoulder the financial burden of petrol subsidy, the corporation’s Group General Manager, Group Public Affairs, Garba-Deen Muhammad, replied, “NNPC has made no secret about the burden it is shouldering.”
The Federal Government had in March 2020 removed petrol subsidy after reducing the pump price of the product to N125 per litre from N145 following the crash in oil prices.
The NNPC, which has been the sole importer of petrol into the country in recent years, has been bearing the subsidy cost since it resurfaced.
The price of crude oil, which accounts for a large chunk of the final cost of petrol, has continued to rise in recent months, with Brent, the international oil benchmark, closing at $82.39 on October 8, up from $77.72 on July 30. It increased further to $83.94 per barrel as of 5:05 pm Nigerian time on Monday.
The Petroleum Products Pricing Regulatory Agency had in March this year released a pricing template that indicated the guiding prices for the month.
The template, which showed that petrol pump price was expected to range from N209.61 to N212.61 per litre, was greeted with widespread public outcry and was later deleted by the agency from its website.
It was based on an average oil price of $62.22 per barrel, and the landing cost of petrol was put at N189.61 per litre.
Based on the PPPRA template and Platts data, the expected pump price of petrol rose to N299.94 per litre on October 8 from N272.34 per litre on July 30.
The expected retail price of N299.94 per litre and the current pump price of N162 per litre indicate a subsidy of N137.94 per litre as of October 8, compared to N110.34 per litre on July 30.
With daily petrol consumption put at about 60 million litres by the NNPC and a subsidy of N N137.94 per litre, daily subsidy increased to N8.28bn last Friday from N6.62bn on July 30.
The rising price of crude oil pushed the cost of petrol quoted on Platts to $822.75 per metric tonne (N254.25 per litre, using the I&E rate of N414.40/$1) on October 8 from $748.50 per MT (N228.91 per litre) on July 30.
The freight cost increased to $26.77 per MT (N8.27 per litre) last Friday from an average of $21.63 per MT (N6.62 per litre) used by the PPPRA in its March template.
Other cost elements that make up the landing cost include lightering expenses (N4.81), Nigerian Ports Authority charge (N2.49), Nigerian Maritime Administration and Safety Agency charge (N0.23), jetty throughput charge (N1.61), storage charge (N2.58), and financing (N2.17).
The pump price is the sum of the landing cost, wholesaler margin (N4.03), admin charge (N1.23), transporters allowance (N3.89), bridging fund (N7.51), marine transport average (N0.15), and retailer margin (N6.19).
While marketers have continued to stress the need to allow market forces to determine the pump price of petrol and do away with subsidy, it remains uncertain whether the discussions between the Federal Government and labour unions will lead to the deregulation of petrol prices.
Meanwhile, in his remarks on Monday at the African Refiners and Distributors Association conference, the Secretary-General, OPEC, Sanusi Barkindo, kicked against calls for discontinuation of investments in the oil sector.
He said, “We have recently witnessed investors, environmental lobbyists and even some corporate boards exerting increasing pressure on governments and oil companies to adopt radical policies and initiatives that could, in the end, be more disruptive than productive for the global energy industry.
“Some extreme voices have even called for a discontinuation of investments in oil and gas. These views are both risky and unrealistic.”
He said OPEC fully supported the need to decrease emissions, bolster innovation and enhance efficiency but added that this could not come at the cost of draining industry investment.