Nigeria’s ministry of petroleum resources would be working with the Petroleum Products Pricing Regulatory Agency (PPPRA) to review the petrol-pricing template in order to accommodate the marketers who now suffer very low margins as product-landing cost nears selling price reports MetroBusinessnews.
It is however not yet clear, which cost items could be taken out in the review, but a ministry source, completely ruled out the possibility of the Federal Government reverting to subsidy payment in order to accommodate a new cost structure occasioned by an uptick in oil prices.
“We are working with PPPRA to update the template so that some of the components that make up landing cost are cut off,” the source said .
As oil prices fell far below expectations, the Federal Government on May 11, 2016 announced a new petrol price band of N135 to N145 per litre, signalling the end of long-held controversial fuel subsidy.
Government authorities said then, that the new price band was arrived at, using N285 as exchange rate to the US dollar.
The PPPRA’s pricing template indicates the cost elements to include cost of freight, N109.01; lightering expenses, N4.56; Nigerian Ports Authority (NPA) charges, N0.84; NIMASA charges, N0.22; financing, N2.51; jetty throughput charges, N0.60 and storage charge, N2.00, which brings the landing cost to N119.74.
The landing cost is added to distribution margins, which are retailers, N6.00; transporters allowance, N3.36; dealers, N2.36; bridging fund, N6.20; marine transport average, N0.15; and admin charges, N18.37, bringing the total distribution charges to N18.37.
The PPPRA says addition of the landing cost of N119.74 to total distribution margins of N18.37 gives a total cost of N138.11 per litre, putting the price at between N135 and N145.
But since that announcement, Brent crude, which was trading around $46 per barrel when the petrol price was increased, soared past $55 per barrel, as of weekend, indicating that the current landing price is no longer realistic. Some players in the industry have put the landing price at anywhere between N165 to N210 per litre.
Meanwhile, official exchange rate at N305 to US$ has made product import unprofitable and has seen many marketers withdraw, leaving the NNPC to now import about 90 per cent of the country’s total import requirement.
Ibe Kachikwu, Deputy Minister of Petroleum Resources, recently acknowledged the need to work out a strategy to handle the unfolding situation on account of oil price pick up.
“Now we are going to continue to focus on downstream issues because although we have liberalised, there are still some challenges. The reality is that marketers are still suffering because the price at which these products are landing is slightly less than the price at which they are selling,” he had said in a podcast detailing his 2017 strategy for the oil sector earlier in the month.
“We are going to see how we are going to work within the liberalisation infrastructure, such that we are able to take away the difficulties.”
The NNPC confirmed recently that it is the major importer of petrol, raising concerns as to whether the government is operating some form of subsidy regime, even after seemingly liberalising importation of products.