Lagos — Dwindling crude oil prices in the international market has led to a corresponding drop in the landing cost of Premium Motor Spirit (PMS), commonly known as petrol to N39.17 per litre as at Wednesday, December 3 2008.

Crude oil dropped 20 percent in early Friday trading to $42 per barrel.

According to the product pricing template for petrol made available by the Petroleum Products Pricing Regulatory Agency (PPPRA), the landing cost of N39.17 a litre only represents a portion of the cost components that make up the price of petrol.

Other components comprise distribution margins at depot and retail levels which when added to the landing cost, brings the total cost or expected open market price (OMP) of petrol to N55.37 kobo per litre.

At N55.37, this represents a difference of N14.63 kobo per litre between the official pump price of N70 per litre and the final cost expended by marketers to import and distribute the product nationwide.

It is also an indication that the price of petrol is no longer subsidised by the Federal Government.

Meanwhile, PPPRA indicated in the pricing template for kerosene that its landing cost is N58.71 per litre, while the expected OMP of the commodity is N74.91 per litre, which is N24.91 higher than official pump price of N50 per litre at which kerosene is sold.

On this basis, the government is still effectively subsidizing the cost of kerosene to the tune of N24.91 per litre.

But since pricing for diesel (Automotive Gas Oil - AGO)) and fuel oil (Lour Pour Fuel Oil - LPFO) are deregulated, prices of both products have dropped at both the entry point into the country and at pump stations.

The landing cost of petrol, kerosene, diesel and fuel oil, as defined by PPPRA, comprises the cost of the products, cost of transportation (freight), and the cost incurred on trans-shipment of products from the mother vessel into smaller vessels to allow for the onward movement of the mother vessel into the jetty.

Other components of the landing cost include cargo dues charged by the Nigerian Port Authority (NPA) for use of port facilities, cost of funds for the imported products, tariffs paid for use of facilities at the jetty by the marketers to move products to the storage depots and the storage margin for depot operations covering storage charges and other services rendered by the depot owners.

A detailed breakdown of the pricing template for petrol shows that the landing cost is N39.17 per litre; distribution margins at depot level - N9.10 per litre; while distribution margin at retail level is also N9.10 per litre.

The distribution margin at depot level is made up of storage charges (N3.00 per litre); pipeline charges (N2.00/litre); bridging fund, plus marine transport average (N3.95/litre); and administrative charges (N0.15/litre).

While the distribution margin which allows petroleum marketers to recoup their costs include retailers margin (N4.60/litre); transporters margin (N2.75/litre); and dealers margin (N1.75/litre).

Given that Nigeria imports more than 90 percent of its domestic fuel requirements, the price of crude oil is the major determinant of the price of petroleum products.

Official statistics provided by PPPRA indicate that the reference crude is Brent (dated) crude which is the sweet crude with API density of 38 degree produced from the Brent Field in the North Sea. It is quoted on the International Petroleum Exchange (IPE), London.

Despite the current low price at which petrol is imported and distributed, eyebrows are being raised that the public is still made to pay N70 for a litre at the pump stations, instead of N54.19 per litre, with one commentator last night describing the premium accruing to the government as an "indirect tax." At the moment, the government does not impose any form of taxes on fuel consumption.

He however noted that given that the subsidy element on kerosene is still high, and in fact higher than the premium being made on petrol, the government is effectively cross-subsiding kerosene and is still doing so at a loss.

Defending the development, group general manager, Public Affairs of the Nigerian National Petroleum Corpo-ration (NNPC), Dr. Levi Ajuonuma explained that the country is not operating a deregulated pricing regime.

"The minister (Mr. Odein Ajumogobia) has given reasons why the price of petroleum products cannot come down. If we were deregulated, when the price of crude oil moves down, the price of petroleum products will also come down and vice versa.

"America and other countries that operate deregulated markets are now enjoying the low price of crude oil," he said.

On the extra money Nigerians are paying for imported products, Ajuonuma said, "government has lost so much money on subsidy over the years. With this present situation, government is barely recovering the money it lost.

"About three months ago, the Minister said that the subsidy was unsustainable. that is why he said that the government might increase the pump price of fuel by January 2009.

"But now, nobody is talking about increasing prices anymore. No matter what the landing cost is, the subsidy that accumulated over the years was too much.

"When crude oil price peaked at $147 per barrel, we still sold at N70. 00 and government paid for the shortfall. The subsidy was too much. now that the price is coming down, we shall still be paying the same thing because the market is not deregulated."

Ajuonuma stressed that the government alone suffered the consequences of the effects of the high cost of crude oil at that time.

"When the price was high, no major marketer imported products because they knew that they would be losing by selling at N70 per litre. It was only NNPC that was importing products," he said.

The NNPC spokesman was concerned that the country does not have strategic national reserves like the United States and other advanced countries.

"This is the best time to import products. If we have strategic reserves, we will import fuel massively and store the reserves because this low price will not continue for a very long time.

"We pray that we can import as much as we can now before the price moves up again," Ajuonuma added.

Hopes that the falling crude oil prices would lead to cheaper petroleum products in Nigeria were also recently dashed by Minister of State for Energy (Petroleum), Mr Odein Ajumogobia, who said the inability of the government to opt for a reduction in the domestic prices of petroleum products was because the sector is not deregulated.

Ajumogobia during a recent phone conversation with THISDAY further admitted that the position in which the government finds itself is indeed a Catch-22 situation, but that the government needs to plough back some of the money it has spent over the years subsidizing fuel products, especially when crude prices were very high.

But the government's pronouncement contradicts earlier positions that the periodic hikes in the prices of petroleum products resulted from the high price of crude oil in the international market, since Nigeria imports a significant percentage of what it consumes because of inadequate domestic refining capacity.

The argument was that when crude prices fall, petroleum products would be reduced correspondingly.

PPPRA Product Pricing Template

S/No. Costs/Charges PMS - DPK - AGO -

Petrol Kerosene Diesel

(N/Litre) (N/Litre) (N/Litre)

1. Cargo + Freight 35.45 53.86 50.95

2. Lightering

Expenses (SVH) 2.51 2.50 2.50

3. NPA 0.89 0.97 1.02

4. Financing (SVH) 0.03 1.08 0.46

5. Jetty Depot Thru' Put 0.30 0.30 0.30

6. LANDING COST 39.17 58.71 55.24

Distribution Margins

(Depot Level):

7. Storage Charge 3.00 3.00 3.00

8. Pipeline 2.00 2.00 2 .00

9. Bridge Fund + MTA 3.95 3.95 3.95

10. Admin Charge 0.15 0.15 0.15

11. SUB-TOTAL COST (1) 9.10 9.10 9.10

Distribution Margins

(Retail Level):

12. Retailers 4.60 4.60 4.60

13. Transporters 2.75 2.75 2.75

14. Dealers 1.75 1.75 1.75

15. SUB-TOTAL (2) 9.10 9.10 9.10

TOTAL COST or OMP 55.37 74.91 71.44

Under/Over recovery 14.63 (24.91) -

RETAIL PRICE 70.00 50.00 71.44