2 January 2016

Nigeria: FG Finally Scraps Subsidy On Petrol, Kerosene

Photo: Akintunde Akinleye/Reuters Media Express
A petrol pump attendant sits on a floating fuel station on the banks of the Nun River near Yenagoa, October 8.

The federal government has officially stopped paying subsidy to oil marketers for the importation of premium motor spirit (PMS), otherwise called petrol and household kerosene.

An analysis of the Petroleum Products Pricing Regulatory Agency (PPPRA) revised pricing template displayed on its website showed that with effect from January 1, 2016, the government was no longer paying subsidy for the importation of any petroleum products.

The stoppage of subsidy payments, according to recent pronouncements by the Minister of State for Petroleum Resources, Dr Ibe Kachikwu, is to reflect the prevailing low price of crude oil in the international market.

By implication, government will not be paying subsidy to marketers until March 31, 2016 when a review of the pricing template is expected to be done. But the minister might call for a review before then if there is a major change in the price of oil in the international market.

The PPPRA had on Tuesday announced new pump prices for PMS for marketers and NNPC retail stations but said nothing about a new price for kerosene. Before the revised PPPRA template, the retail price of kerosene was N50/litre, while the government was subsidising the product at N41.59 per litre as at December 29, 2015.

The agency has removed the pricing for kerosene in the latest template it said was based on average Platt's Prices for December 31, 2015. It put the expected open market price (EOMP) of petrol for NNPC retail outlets at N84.78/litre, landing cost N70.48/litre, ex-depot price N76.5/litre and retail price N86/litre.

The EOMP of petrol for oil marketers is put at N85.1/litre, landing cost N70.8/litre and ex-depot price N77/litre, while the retail price is N86.5/litre. The difference between the EOMP (N85.1) and retail price (N86.5), which is the subsidy, amounts to N-1.4/litre.

The negative subsidy, according to the Executive Secretary of the PPPRA, Farouk Ahmed, who announced the new pricing template, meant government will recover the difference from the marketers.

He explained, "The open market price is N86.29k. If you do the calculation, that means there is an element of over-recovery and what we will do now is that we will go back to the marketers and bill them for the recovery. With regards to the NNPC, their arrival is N85.93k, but they are selling at N86, so there will also be an element of over-recovery. However, we are comfortable with the numbers."

Ahmed also disclosed that the federal government has set aside an extra N108 billion to offset subsidy claims to oil marketers for the last quarter of 2015.

The government had recently paid marketers N407bn outstanding subsidy claims, which covered claims up to September 2015, including arrears from 2014. The N108bn, Ahmed said, would cover for the month of October, November and December 2015.

"For the month of October, November and December, the PPPRA has been verifying subsidy claims. We have been able to verify October and November and we will send everything to the Debt Management Office for payment," he said.

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