» New Petrol Price: A Shift From Subsidy To Profit Making - The Guardian «

WITH the newly adopted modulation model for the pricing
of petroleum products nationwide, government has
‘stylishly’ deregulated the downstream sector.
In the new pricing model, Premium Motor Spirit (PMS),
otherwise known as petrol, is sold at N86.50, kerosene at
N83 and diesel at 74.99 per litre at filling stations.
From all indications, government is believed to be making
a profit of N3.83 per litre of PMS, but the Petroleum
Products Pricing Regulatory Agency (PPPRA) regard what
is perceived as profit as ‘over-recovery.’
Over the years, government has been selling the idea of
fuel subsidy removal to Nigerians, communicating how
immensely beneficial the measure would be for everyone.
It argued that savings from not paying subsidy could be
channeled to the provision and improvement of
infrastructure such as roads, schools and hospitals, among
others.
In the last few years, subsidy debate has polarised the
country. Envisioned as a people-oriented policy to help
reduce the price of fuel for Nigerians, it has become a cash
cow for the cabal involved in PMS importation.
Watchers of events in the petroleum sector believe that
with the plummeting price of crude globally, the
commodity ought to have gone below the recent pump
price released by the price regulatory body, the PPPRA.
They said from the new pricing template, government has
gone into the petroleum business with the sole aim of
profit making. And instead of paying subsidy on the
commodity, it is angling to make marginal profit, as the
Estimated Open Market Price (EOMP) for the commodity is
lower than the pump price.
This is even more worrisome, when the price template is
compared to prices in fellow oil-producing countries.
Nigeria is the biggest producer of oil in Africa, yet it was
gathered that the same fuel that sells for N86.50 per litre
(without payment of subsidy) in Nigeria goes for between
N4 and N5 in Venezuela and N22 in Libya.
According to the template, government would be making
about N3.83 profit on every one litre of the product. The
PPPRA template states that that the EOMP of petrol is
N82.67 with a retail price of N86.50 at filling stations
nationwide.
The EOMP is the total landing cost of PMS and sub-total
margins, including transporter’s cost, dealer charges,
bridging fund, administrative charges and a handful of other
variables to make it the true cost of the product.
By the end of 2014, the official pricing template for petrol
by PPPRA indicated that government was paying N6.45 per
litre as subsidy, as the EOMP then was N94.45, which was
N6.45 higher than the pump price of N87 per litre.
The difference between the EOMP and the retail price was
what the government was paying as subsidy. This
difference has now been removed with the new template,
and government is now set to make profit instead of using
public resources to pay for what has not been beneficial to
majority of Nigerians.
Speaking on the development, Senator Lee Maeba said the
Minister of Petroleum is still shy to announce a complete
deregulation of petroleum products. The Senator, who
represented Rivers South East in the Senate and initiated
the Petroleum Industry Bill (PIB), told The Guardian that
the type of modular prices system the Minister introduced
cannot guarantee adequate pricing system of petroleum
products.
Said he: “the Federal Government is shy to announce full
deregulation and without deregulation, the price is still
what the minister feels. He fixes it, and you cannot get
adequate pricing system without full deregulation. When
you deregulate, everybody would sell how he/she
produces. In fact, there would be so many refineries
producing. But the situation now is that we are still in
price fixing.
“Whether you remove subsidy or not, as long as you are
doing price fixing, you are regulating. So, the government
should not shy away from deregulation. Yes, I agree that
the first set of product that comes out is diesel, while the
second set is kerosene, petrol and the last is jet fuel, and
it goes down. So, these products are cheaper from
concentration. So, as long as the price fixing is still going
on, and as long as you have PPPRA, they will continue to
fix price. When you deregulate, you disband all these
institutions, so the market forces now control prices. Until
market forces control pricing, you cannot have adequate
price.”
However, the organised labour believes that government is
moving from petroleum subsidy to that of petroleum tax
collection. The General Secretary of Nigeria Labour
Congress, Dr. Peter Ozo-Eson, said the new pricing regime
is fraught with ulterior motives.
Ozo-Eson told The Guardian that the process of arriving at
the new template should have been transparently executed,
with the consultation of the PPPRA board empowered by
the laws of the land to fix price of petroleum products.
“We need to have a transparent re-working of the
template. The PPPRA, by law, is saddled with that
responsibility, but it also by law constituted in a
stakeholders’ context, which stipulates that engagement
takes place before a change in template is effected,” he
said.
“PPPRA Executive Secretary, who is appointed by
government and is directed either by the Minister or the
President, cannot, on his own, fix the template. This is
because the stakeholders have not met or reconvened for
a long time. Therefore, there is a violation of the law by
government. We need to be careful as a mono-economy
country.
“The N3.83 government is making now would not make
sense, unless the price remains excessively depressed
over a long period of time. This cannot be the basis of
building up the kind of fund that is needed. Though a
modulation scheme in itself can have economic logic, the
way we have it now is not sustainable, if prices were to go
up,” he added.
The Chairman of Trade Union Congress in Rivers State,
Chika Onuegbu, described the price of diesel as very
exorbitant. He argued that government is making money
from the diesel, because, “there is no how petrol will sell
at N86.50 per litre without subsidy, and diesel will sell for
N125 or N130, also without subsidy, which is a difference
of about N40 per litre.
He said, “obviously, government has not reviewed the
PPPRA template for diesel and AGO and that shows that a
lot of money is being made from people. Government
needs to review the template and bring it down. What is
more painful is that these products are actually what most
businesses use, as a result of poor power supply in the
country. Companies use diesel to power their generators
and that increases the cost of doing business in Nigeria.
From hotels to hospitals, banks and telecom operators use
diesel and that increases the cost they charge.”
Onuegbu asked, “How could government reduce the price of
PMS this time, and did not do anything to the price of
diesel? Government should reduce price of diesel to around
N80 per litre, because without subsidy, it should not be
more than N80 given the current price of crude oil.”
According to the labour leader, government should prove
that it is concerned about people’s welfare and generating
employment.
On his part, the Rivers State Chairman of Independent
Petroleum Marketers Association of Nigeria (IPMAN),
Sunny Nkpe, said the answer to the whole issue is
deregulation following the dwindling of foreign exchange.
“We have all seen that government can no longer sustain
this thing anymore. The main thing is deregulation. Price
of diesel was deregulated long time ago. NNPC sells at
N90 per litre, while pump price of diesel fluctuates
between N120 to 130. What determines the prices is the
loading from government depot. If you load from
government depot at less than N75 and the man that buys
from private depot for N95, they cannot sell at the same
price. So, deregulation is the solution to encourage
competition and level playing ground for everybody.”
The President, Association of Petroleum Explorers, Mr. Afe
Mayowa, said government was collecting a form of tax
from petroleum consumers. He agreed that government,
through the differences in the landing cost and pump price,
is collecting petroleum tax from consumers, but advised
that the profit be ploughed back into the society for the
benefit of Nigerians.
“Government is collecting tax with the price differential.
But my advice is that the proceed should be invested in
infrastructure such as roads, hospitals and schools for the
education of the people, especially those in the North and
Niger Delta, where illiteracy is prevalent. With education,
there will be peace and security because people will not be
deceived to imbibe false doctrine.
“The landing cost for PMS is supposed to be lower than the
pump price, because government is now in business. The
government has to make profit from what it is doing. The
subsidy was a fraud, which has no justification. They
should now allow market forces to determine the pump
price of petroleum products. There is no way you can
subsidise consumption, because that subsidy has no way
of getting to the generality of the people. In my opinion, the
difference is not too much. People paid as much as N150
per litre in Akure during the Christmas season,” he said.
He added, “We should invest in the youth, create
opportunity for the people to be educated and exposed. It
is a lot of money the government is going to make. So,
they should put the money to fix power infrastructure. The
money is being taken from us and should be spent on the
people. It is a tax being collected from the people. They
should, therefore, not share it. I don’t blame the people for
not willing to pay such tax, because government had in the
past disappointed them, such that the fund ended up in
private pockets.”
Commenting on the disparity in the prices of PMS, diesel
and kerosene, he said the forces of demand determine
their prices, supply and preferences, which have to do with
the population, technology, economics and usage.
In his view, the demand for kerosene and diesel is very
low, so is the supply, hence the rise in price.
Commenting on the price enforcement for the product by
the government, Mayowa said the regulation is necessary
for marketers not to become “shylock.”
“In a market like this, you need some form of regulation
(Cap) to prevent emergence of shylocks in the
downstream sector. It is like what Lagos is doing to
housing. Government says you cannot charge beyond
certain limit. In this case, the government says you cannot
sell PMS beyond N86.50, but you can sell below the price.
If there is no such control, marketers will team up to fix
pump price arbitrarily,” he said.
The Assistant General Manager, operations at the PPPRA,
Victor Shidok, said the agency has created a template that
is normal and would prevent frequent changes of pump
price.
He said government is yet to make official pronouncement
on subsidy, hence it would be incorrect to say it has
discontinued subsidy payment or petroleum products.
He said, “The government has not made public
pronouncement on petroleum subsidy. It has not said it
has stopped. Under Petroleum Support Fund (PSF)
guidelines, there is what we call under and over recovery
scheme. None of them is a permanent state.