Oil close to $ 56, FG may resume fuel subsidy

Oil close to $ 56, FG may resume fuel subsidy

The robust rise in world crude oil prices has brought the cost of imported gasoline closer to current gasoline prices in Nigeria and appears to have triggered a return to the era of gasoline subsidies, ”FEMI ASU reported.
Since November 13, 2020, when the price of the Premium Motor Spirit (gasoline) pump last rose in the country, the price of the international benchmark Brent Crude has taken an upward trajectory, rising from $ 41.51. per barrel before closing on December 31 at $ 51.22 per barrel.

In December, fuel traders expected another upward PMS price adjustment to reflect further increases in crude oil prices.
However, the federal government announced a price cut for No. 5 gasoline effective December 14th, which shocked them and questioned the deregulation of gasoline prices.

The price of crude oil accounts for a significant portion of the final cost of gasoline, and the country continued to spend so much on oil imports for years due to low domestic refining capacity.

Petroleum Minister of State Timipre Silva said last September that the federal government has taken a step back in pricing gasoline, adding that market forces and the price of oil will determine the price. product.

The federal government lifted the gasoline subsidy in March 2020 after lowering the gasoline price to 125 N per liter from 145 N as a result of a sharp drop in crude oil prices. The decline in prices lasted until June.

In four months in Nigeria, gasoline pump prices rose: from 121.50 to 123.50 N per liter in June to 140.80 to 143.80 N in July, from 148 to 150 N in August, N 158 to N162 in September and N163-N 170 in November.

Brent, the international petroleum benchmark, has risen in price by about 35% since November 13, when the price of a gas station last went up. Friday closed at $ 55.99 a barrel, the highest level in 11 months.

In accordance with the Petroleum Product Price Regulatory Agency gasoline price model, the cost of gasoline decreased from an average of 143.60 N in December to 158.53 N per liter on January 7, at an expected open market price (retail price) of 181.53 N per liter.
The product currently sells for between 160 and 165 N per liter at many gas stations in Lagos.

Gas prices at Platts jumped to $ 480. 25 per metric tonne (139.67 Argentine pounds per liter using AR390 per US dollar) last Thursday, up from an average of $ 430.107 per tonne (125.09 Norwegian dollars per liter) in December. According to the PPPRA model, gasoline averaged $ 391.75 per tonne ($ 113.24 per liter) in July.

In addition to the increase in world crude oil prices, the devaluation of naira last year also led to a significant increase in the cost of imported gasoline.

PPPRA used the N306.90 / $ 1 exchange rate on January 14, 2020 to calculate the price of gasoline, and on July 31, N ° / $ 1 387.63.

Naira closed Friday at $ 393.50 against the dollar in an exchange window for investors and exporters and $ 472 per dollar in a parallel market.

As of January 7, the cost of gasoline plus transportation was $ 500.72 per tonne, which corresponds to 145.62 Dutch pounds per liter.

Other cost elements that make up the landing cost include assistance fee (N4.57), insurance cost (N0.21), Nigeria Port Authority Tax (N2.38), Nigeria Maritime Administration. and Security Agency charge (N0.23), pier construction charge (N1.61), storage charge (N2.58) and financing (N1.33).

The pump price is the sum of the landing cost, the wholesale mark-up, and the trade mark-up. Wholesale mark-up is N4.03, while distribution mark-up includes carrier refund (N3.89), retailer (N6.19), intermediate fund (N7.51), average shipping cost (N0.15) and administration fee ( N1.23).

The NNPC, which has been the country’s sole importer of gasoline in recent years, continues to rely on marketing, despite deregulating the oil sector.

Private oil trading companies continued to complain that their inability to access foreign exchange at official rates was hampering efforts to resume oil imports.

If the price of gasoline remains unchanged amid rising oil prices, it means that the NNPC will again bear the final costs of the subsidy on behalf of the government, as it did for several years before it was canceled last year.

There are currently subsidies, but they are absorbed by the government through the NNPC, ”Mike Osatui, National Controller of the Independent Oil Markets Association of Nigeria, told our correspondent.

He recalled that in December he said that the price of a gasoline pump was approaching 180 N per liter and added that at current crude oil prices, a gasoline subsidy would require about $ 800 million per day at an average consumption of 40 million liters.

He said: “Due to the volatility of oil prices in the political landscape of Nigeria, the government will not have the courage to authorize a complete deregulation of oil due to the increasing pressure on Nigerians and given that Nigerians are going through very difficult times.” …

Osatui said, “But the government must come forward and provide a subsidy to the National Assembly. They have to tell the Nigerians that we will go back to subsidies. But because of the IMF and World Bank loans that they received under the condition of deregulating gasoline, I believe the government is trying to solve this problem.

“If we want to achieve real deregulation, there must be a level playing field for the players. We are not where we should be; there are still some dark and hidden elements in our “deregulation”.

“We practice monopolistic deregulation – where one player is on the field and is the goalkeeper, defender and referee.”

President of the Nigerian Petroleum Retail Owners Association Dr. Billy Gillis-Harry stressed the need for proper deregulation.

He said: “It worries me that things are not going well with us. We need to think internally and build up our local manufacturing capacity. I don’t know why our refineries should not work.

“Deregulation is the right way; we want the sector to be deregulated. But this must be done correctly. There must be equal rules of the game for all operators; everyone should be able to access Forex at the same speed. “

Opposing a return to subsidies, he said, “We urge the government to speed up the regulatory process to ensure deregulation.”

On September 8, 2020, the PUNCH newspaper reported that the federal government’s removal of the gasoline subsidy and the increase in electricity tariffs are in line with the reforms sought by the International Monetary Fund and the World Bank.

“The recent introduction and implementation of the automatic fuel pricing formula will ensure that the fuel subsidies we have removed will no longer arise,” the federal government told the IMF in a letter of intent dated April 21, 2020 regarding its request. emergency financial assistance of $ 3.4 billion.

In July, Silva said in a statement that the federal government has concluded that it can no longer bear the burden of the gasoline subsidy.

Source: – Punch ng

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