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Fuel subsidy returns, as FG incurs N586m daily

Oil price soars to $58 per barrel

By Udeme Akpan & Prince Okafor

There are indications that the Federal Government has started incurring N586 million daily as fuel subsidy, following the rise in crude oil price from $49 to $58 per barrel in the international market between August and October this year.

Investigations by Vanguard showed that unlike in August this year, when refinery owners sourced their oil at $49 per barrel, the development has forced refiners to incur additional cost, which they passed on to importers, especially Nigeria that depends mainly on imported fuel to meet domestic demand.

The Petroleum Products Pricing Regulatory Agency, PPPRA, that has the mandate to work towards ‘attaining a strong, vibrant downstream sub-sector of the petroleum industry, where refining, supply, and distribution of petroleum products are self-financing and sustaining’ has stopped publishing its template to guide stakeholders since 2016.

PPPRA spokesman, Mr Lanre Oladele, confirmed there was subsidy but promised to give the figures, which he couldn’t do weekend.

But Vanguard survey of major markets around the world showed that marketers have started experiencing under recovery, meaning they get less than their cost of importing the product.

While it cost $1.70 per gallon, amounting to N140.14 per litre at the New York Harbour, it also cost $550 per tonne, amounting to N125.05 per litre at Rotterdam based on the nation’s N305 to a dollar exchange rate.

Investigations also showed that marketers traders incur other cost such as littering expenses (N4.56 per litre), NPA charges (N0.84k), NIMASA (N0.22k), Financing (N2.57k), Retailers margins (N6.0), transportation cost (N3.36), Dealers margin (N2.36), bridging fund (N6.20), administrative charge (N0.30k) and marine transport average (N0.15k), amounting to N26.56 per litre.

This showed that the total cost of importing fuel from the global market ranged between N150 and N161.75 per litre, depending on location of the market, thus culminating in an under recovery of N16.75 per litre.

Consequently, the government’s subsidy amounted to the N586 million as a bulk of the estimated about 35 million  litres per day estimated national demand is imported from the global market.

Stakeholders confirm subsidy

Commenting on the development, Mr. Dolapo Oni, Head, Energy Research of Ecobank Development Company, EDC, Nigeria Limited disclosed in an email to Vanguard:  “Instead we have NNPC selling petrol below its landing cost so the price remains at N145. Thus, there is an under-recovery, which is recognised in their finances.”

Mr. Ndu Ughamadu, Group General Manager, Group Public Affairs Division of the Nigerian National Petroleum Corporation, NNPC, also stated in a telephone interview that: “We are not so sure, but the corporation is into commercial activities.”

Subsidy may continue

Meanwhile, there was an indication that fuel subsidy may continue to rise following expected increased stability of the market in the remaining part of the year, thus imposing much burden that has found it difficult to settle an outstanding of N800 billion subsidy to marketers.

The Organisation of Petroleum Exporting Countries, OPEC, stated, weekend, that stakeholders have increased their compliance to OPEC oil cut directive, thus raising hope oil market stability.

It stated: ‘’OPEC-Non-OPEC producing countries’ Joint Ministerial Monitoring Committee (JMMC) stated that based on the report of its Joint Technical Committee (JTC) for the month of September 2017, OPEC and participating Non-OPEC producing countries have achieved a record high conformity level with the voluntary production adjustments, reaching 120%.

‘’The JMMC was established following OPEC’s 171st Ministerial Conference Decision of 30 November 2016, and the subsequent Declaration of Cooperation made at the joint OPEC-Non-OPEC Producing Countries’ Ministerial Meeting held on 10 December 2016 at which 11 (now 10 after Equatorial Guinea became a Member of OPEC ) non-OPEC oil producing countries cooperated with the 13 (now 14) OPEC Member Countries in a concerted effort to accelerate the stabilization of the global oil market through voluntary adjustments in total production of around 1.8 million barrels per day.

‘’The resulting Declaration, which came into effect on 1 January 2017, was for six months. The second joint OPEC-Non-OPEC Producing Countries’ Ministerial Meeting, held on 25 May 2017, decided to extend the voluntary production adjustments for another nine months commencing 1 July 2017.

‘’In September 2017, the OPEC and participating non-OPEC producing countries achieved an excellent conformity level of 120%, the highest level since the start of the Declaration of Cooperation.

‘’This again underscores the resolute commitment of participating producing countries to cooperate towards the rebalancing of the market. The JMMC expressed satisfaction with the overall results and encouraged all participating countries to continue on the path towards conformity, for the benefit of producers and consumers alike.

‘’The JMMC noted that while some participating producing countries have consistently performed beyond their voluntary production adjustments, others are yet to achieve 100% conformity.

‘’The JMMC took note of the recent developments in the market and expressed confidence that the oil market is moving in the right direction towards the objectives of the Declaration of Cooperation. Indicative of these positive developments are the recent upward revisions for global oil demand growth in both 2017 and 2018.

‘’Commercial oil stocks in the OECD fell further in September and the difference to the latest five-year average has been reduced by 178 million barrels since the beginning of this year, however, there remains another 159 million barrels of stock overhang to be depleted.”

However, Mr Muda Yusuf, the Director General of Lagos Chamber of Commerce and Industry, LCCI, noted that the fuel subsidy phenomenon had become a recurring distraction in the management of the country’s economy.

“It is regrettable that government has over the years got itself entangled in a problem which should not have arisen in the first place.

“We have consistently argued that the government should completely decouple itself from the business of importation, refining, transportation and retailing of petroleum products.

“This arrangement has created considerable distortions and stagnated private investment in the downstream sector because these are enterprises that the private sector is best suited to manage.”



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