The computation of the new retail pump price of premium motor spirit (PMS), popularly called petrol, announced by the federal government on Wednesday was based on the pricing modulating template approved by the Petroleum Products Pricing Regulatory Agency (PPPRA), an official has said.
On Wednesday, the federal government announced a 13.8 per cent, or N20 reduction in the retail pump price of petrol throughout the country.
A statement signed personally by the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, said the new petrol price will be N125 per litre, down from N145.
PPPRA new price template
Details of the review by the PPPRA showed the slowing global crude oil demand, which pushed crude oil price down to $25 per barrel on Wednesday, resulted in a 30 per cent drop in the expected open market price (EOMP) of petrol below the approved retail pump price cap of N145 per litre.
The Executive Secretary of PPPRA, Abdulkadir Saidu, said the average EOMP for the months of January and February 2020 stood at about N175.52 per litre and N156.02 per litre respectively.
This translates into a subsidy component of about N30.52 and N11.02 per litre the government was saddled with through the NNPC for the two months.
The new price, the PPPRA boss said, was based on the PMS price cap of N145 per litre approved 2016, and taking into account the approved distribution margins on the pricing template, with NNPC as the sole importer of PMS.
With Ex-Coastal price (consisting cost and freight charges) set at N99.44 per litre, the new EOMP will be about N118.81.
This consists landing cost of N108.18; lightening expenses N2.75; Nigerian Ports Authority (NPA) - N0.84, and the Nigerian Maritime Administration and Safety Agency (NIMASA) charge (N0.22); jetty thru' put charge (N0.60); Storage charge (N2.00); financing (N2.33) and total distribution margin payable to petroleum product marketers at N19.37 per litre.
In announcing the new petrol price of N125 per litre, the PPPRA boss said the review was pursuant to the agency's statutory mandate to determine the pricing policy of petroleum products as enshrined in the PPPRA Act No.8 of May 2003.
Since President Muhammadu Buhari assumed office in May 2015, this will be the third time petrol price would be adjusted in the country.
On May 11, 2016, he announced the removal of fuel subsidy to allow market forces determine retail fuel prices in the country.
However, the government still fixed the new price of petrol, leading to experts questioning if any real deregulation was done.
The development saw the petrol price reduced initially to N86.50 per litre from N87, before adjusting upwards to N141. Later, the price was adjusted further upwards to N145 per litre.
Since then, the government quietly restored subsidy in the pricing template of petrol without any formal announcement.
Rather than call the excess cost above the N145 per litre ceiling fuel subsidy, the government gave the NNPC approval to deduct it as 'under-recovery', part of its operational cost.
Since then, petrol has been selling for N145 per litre as official price fixed by the government.
Despite the subsidy component in the pricing template as a result of higher crude oil prices at the international market, the government rebuffed all pressures to review the fuel price.
But, with the recent dramatic plunge in crude oil prices to less than $30 per barrel, from an average of $58, the government has no option than to respond to dynamics of the international crude oil market.
The market dynamics dictate that retail price of petroleum products at the pump reduced as crude oil prices decline, and vice versa.
Consequently, with the declining crude oil prices in the wake of the ravaging impact of the deadly coronavirus on the global economy, including the crude oil market, the government was compelled to act accordingly.
The NNPC GMD said the decision to review the ex-coastal, ex-depot and NNPC retail pump price was in compliance with the directives by the Minister of State for Petroleum Resources, Timipreye Sylva, on PMS pricing.
"Effective March 19, 2020, NNPC Ex-Coastal price for PMS has been reviewed downwards from N117.6 per litre to N99.44 per litre, while Ex-Depot price is reduced from N133.28 per litre to N113.28 per litre," the NNPC GMD said.
These reductions, he said, would translate to N125 per litre retail pump price.
Despite the obvious cost implications of this immediate adjustment, Mr Kyari said the NNPC was delighted to effect the N20 per litre reduction "for the benefit of all Nigerians."
He said all NNPC retail stations nationwide have been directed to change the retail pump price to N125 per litre.
PPPRA silent on deregulation
Meanwhile, it was not clear if the new pricing template marked the beginning of the deregulated petroleum products market in the country, as the agency said the "new price will guide PMS pricing in Nigeria for the rest of the month of March, 2020."
"Going forward, PPPRA will continue to monitor trends in market fundamentals and announce a monthly Guiding/Expected Open Market price at the beginning of every month, effective 1st April, 2020," Mr Saidu said.
He said the new arrangement is expected to establish a more transparent pricing model, stimulate investment growth in the downstream sector and encourage resumption of products importation by oil marketers, translating to more job creation, as many depots and facilities that are presently dormant will now become active.
Sylva urges compliance
Earlier, the Minister of State for Petroleum Resources, Timipreye Sylva said President Buhari approved the reduction in the price of petrol following the drop in crude oil prices at the international market.
He said the drop lowered the expected open market price of imported petrol below the official pump price of N145 per litre.
The minister urged marketers to cooperate with the government by also adjusting their pump prices at the filling station to enable Nigerians benefit from the reduction in the price of petrol as a direct effect of the crash in global crude oil prices.
He said the Department of Petroleum Resources (DPR) has been directed to enforce full compliance with the new arrangement.