How we arrived at N145 price for fuel – FG

Amid threats of protest by labour, the
Minister of State for Petroleum Resources,
Ibe Kachiukwu, and the Petroleum Products
Pricing Regulatory Agency (PPPRA) have
offered explanations on how the Federal
Government arrived at N145 as the price of
a litre of Premium Motor Spirit (PMS)
otherwise known as petrol. They assured
that the new price regime would block the
drain through which government loses N16.5
billion monthly.
While the minister, whose announcement on
Wednesday kicked off the new regime, said
the price was based on foreign exchange
conversion of naira to the dollar, the PPPRA
put the calculations on its latest pricing
template.

There were indications yesterday that the
organised labour movement and its civil
society allies may begin a protest against
the new regime . The National Executive
Councils (NECs) of both the Nigeria Labour
Congress (NLC) and Trade Union Congress
(TUC) are set to meet today to deliberate
on the outlook of the protest.
Kachiukwu, who spoke on a television
programme yesterday, said government
arrived at the new price by “a simple
conversion of using foreign exchange at
N285. That N285 is from nowhere; it is
basically the secondary source that people
buy foreign exchange from, versus the
N320, which is the black market rate.
“If you convert it and throw it in, you will
get about N141, N142 or N143. So there
aren’t much of palliative elements left
there for you to use. It is simply, ‘go out,
find your product, your cost is covered,
there is an opportunity for your efficiency
to make money, come and deliver.’”
But according to the PPPRA’s pricing
template, the cost elements include cost/
freight, N109.01; lightering expenses,
N4.56; Nigerian Ports Authority (NPA)
charges, N0.84; NIMASA charges, N0.22;
financing, N2.51; jetty thru’put 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.
According to the PPPRA, the 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.
Kachikwu justified the government decision
saying, “We want everybody to be able to
bring in the products. We want to achieve
what was achieved in the marketing of
diesel so that government will also not have
intervention in petrol. Ultimately, we will
let the market dynamics take place.
“In the past few months, the Nigerian
National Petroleum Corporation (NNPC),
imported the products largely subsidised,
but the marketers took advantage and made
excess profits. With this new system, they
are going to start bringing in their own
products and NNPC can sell its own products
at its own price. So, there are no more
opportunities for the short-term arbitrages
unless those benefits in price come from
your own efficiency
“What has happened is that we have
provided an opportunity in the country for
people to take advantage of government’s
liberalisation policies and subsidies and
make huge sums of money and this can have
positive impact on the common man on the
street.
“The reality is that if we let the
environment free for people to operate you
will be amazed at what will happen with
pricing. I will almost take a bet with you
that in six month’s time when you review
this price, you will be amazed at what will
happen to the N145 price.
“We discovered that queues would continue
to happen until we address the issues. We
do share sympathy and pains but as a
responsible government, we must take
decision to try and solve problems. We have
come to see that if you free Nigerians to
find sources of funds, they will find those
secondary funds and import products, the
burden on NNPC will reduce and the country
will have peace and the suffering will go
permanently.
“Extra earnings that NNPC makes through
that avenue will be pumped into refineries,
because our refining infrastructure are
completely decayed. We mean well,
Nigerians should please trust us. Give us
support and you will be surprised.”
Also dwelling on the benefits of the new
regime, the PPPRA said that government had
been able to permanently eliminate subsidy
payments, which was N1 trillion and had
been able to save about N16 billion from
April this year to date.
It noted that the current development
would ensure 100 per cent FAAC payment on
allocated 445,000 bpd and potential
additional revenue stream, which can be
tailored towards palliatives.
The agency said that even with the new
price regime, Nigeria would remain one of
the cheapest fuel markets in Africa and
could even be lower, once competition takes
effect, stressing, “Likelihood of smuggling
to neighbouring countries will also be
significantly reduced with the new price
regime.”
An informed source said last night in Abuja
that the need for the labour movement to
firm up mobilisation and contact and also
the meeting of the two NECs were cited as
the reasons the strike would not be called
immediately.
Meanwhile, facts are now emerging on
factors that influenced government’s
decision to jerk up the pump price.
A policy document exclusively obtained in
Abuja yesterday revealed that renewed
insurgency and vandalism in the Niger Delta
region which have drastically reduced crude
oil production to 1.65 million barrels per
day, reduction of money accruing to the
Federation Account as well as crude volumes
for petrol conversion, which is also
impacting Federal Government foreign
exchange earnings, were responsible.
The document read in part: “Renewed
insurgency and pipeline vandalism in the
Niger Delta has drastically reduced national
crude oil production to 1.65 million barrels
per day as at today, against 2.2 million
barrels per day planned in the 2016 budget.
Further reduction in income to Federation
Account is also affecting crude volumes for
PMS conversion and impacting foreign
exchange earnings.”
The document also stressed that the
resultant fuel scarcity created an abnormal
increase in price, resulting in Nigerians
paying averages of N150–N300 per litre as
prevalent hoarding, smuggling and diversion
of products, have reduced volumes made
available to citizens
Nigerians have begun to adjust to the new
realities of petrol price adjustment with
many of the filling stations immediately
adjusting their pump and price display to
between N140 and N145 per litre.
Already, the six months old queue has
automatically vanished at some filling
stations about 24 hours after the
announcement and marketers have
immediately effected new prices and are
magically selling from all pumps, as against
the initial method of rationing.
Visits to Mobil, NIPCO, Forte Oil and
Conoil filling stations along Lagos-Abeokuta
Expressway showed that all were selling at
N145 per litre, while Danco Oil at Iyana-
Ipaja, was selling at N140 per litre.
Other stations visited were MRS, Total, and
some NNPC stations, which were also selling
at N145 per litre. All the visited fuel
stations are in Lagos.
However about 40 per cent of the filling
stations in the area of survey were still
under lock and key while commuters were
already paying higher fares as commercial
transporters increased fares by about 100
percent.