PMS Deregulation: Buhari’s unfulfilled promise

According to the Fuel consumption Statistics [1] published by the Nigeria Office of Statistics, the average daily consumption of PMS in Nigeria is between 41m and 52m litres per day. This was the statistics in 2016. It means that the total Annual consumption will be 365 x 41m, ie 14,965million litres, or simply put, 15Billion litres per year. The figure has now risen to 55m litres in 2018 [2].

At the current retail price of N145 per litre, it means the total annual expenditure of Nigeria on PMS is N2,169Bn or N2.1Tn. Is is therefore disturbing to read in the news that Nigeria spends N774m daily on fuel subsidy [3].

Everything does not add up. When you consider the fact that Nigeria has 774 Local Government Areas, If each LGAs in Nigeria get an extra N1m per day, I am sure development will go deeper into the grassroots.

From the published daily statistics, with 52 million daily consumption, it means that the pump revenue is 52mx145 ie N7.54Bn. To pay a subsidy of N774m ie N0.774Bn daily therefore means that the level of subsidy is (0.774/7.54) ie 10.27%. So, you will ask, why do some stations sell Premium Motor Spirit (PMS) at N145, some at N143 and some at N142?

The answer is right there in the Pricing template [4] of the Petroleum Products Pricing regulatory Agency (PPPRA). It has been taken off-line! So much for a Government that is fighting corruption.

When Fuel price was increased from N86 to N145 per litre in may 2016, several components of the pricing template were adjusted as reported by the Press then[5].  It was reported that:

“Littering expenses, which hitherto attracted a N2 charge, would in the new dispensation attract N4.56 per litre, while the charges for the Nigerian Ports Authority, NPA, and the Nigerian Maritime Administration and Safety Agency, NIMASA, which had N0.21k and NO.15k before, would now get N0.84k and N0.22k respectively.

Financing, which usually received N0.64k, would now receive N2.57k, while retailers’ margin, which used to take N5, would now take N6 per litre.

Other component items include transportation cost, which increased from N3.05 to N3.36; dealers’ margin, from N1.95 to N2.36 per litre; bridging fund, from N4 to N6.20, while administrative charge increased by 100 percent from N0.15k to N0.30k per litre.

The only component that remained unchanged was the charge for marine transport average, MTA, which would still be getting N0.15k per litre.

The new template also fixed ex-depot price, which, until May 10, 2016, was N72.20, at a price band of between N116.03 and N126.63 per litre.

Equally, ex-depot price for collection, which used to be N76.50 per litre, would now be between a price band of N123.28 and N133.28 per litre”

If you look carefully at this, you will see that costs such as Financing (N2.57k) Retailers Margin (N6), Transportation (N3.36), Bridging Fund (N6.20) all add up to be N18.13.

For a 33,000 litre Tanker, the transportation allowance is N33,000×3.36 or 110,880. That will transport fuel from Lagos to Maiduguri. What then is bridging fund and where does it go?

According to the 11th July 2016 news from the sun newspaper [6]

“Petroleum Equalisation Fund which was es­tablished by Decree No. 9 of 1975 (as amended by Decree No. 32 of 1989) charged as reimbursement to petroleum marketing companies for losses suffered solely and exclusive, as a result of sale of petroleum products at uniform prices throughout the nation has become another drain pipe on government purse.
Indeed, while those in the hinterland that are supposed to be the major beneficiary of the fund, suffering acute shortage of petroleum products as a result of scarcity of the products, those involved in that act of sabotage through diversion of products are smiling to the banks.
In the heat of the last fuel scarcity across the country, for example, immediate past Managing Director of Pipelines Products Marketing Company (PPMC), Mrs. Esther Nnamdi-Ogbue, raised the alarm over the massive diversion of petroleum products to neighbouring West Africa countries.
Before the President assumed office, he was quoted [7] as saying:
On subsidy, Buhari said: “It’s Nigerian money [that was spent on exploration of crude oil and building of refineries and depots]. From each Nigerian crude, whether Akwa Ibom, Bonny Light or whatever it is, you can work out how much products it will give you; how much petrol it will give you; how much diesel it will give you if you want to produce diesel.

“We could tell how much Nigerian crude cost, the cost of transportation from there to the refinery, the cost of refining, the cost of transportation to the pump stations and maybe 5 per cent go for overhead. I can understand if Nigerians pay for those costs. But somebody is saying he is subsidizing Nigerians. Who is subsidizing who?”

He promised to look at the economics of fuel pricing when he gets into government. Buhari said the zoning of positions in government was a “speculation” because he only read it in the newspapers, and said party supremacy does not mean the APC national working committee should not have extended “courtesy” to him on the issue.

Having been in the saddle for almost three good years, what is the President waiting for? Indeed recently, NNPC clearly stated what the problem is, during a visit to Comptroller General of the Customs. According to the News Agency of Nigeria in March 2018 [8] when Baru visited Ali.

“My mission today is to sensitise your top management on the issues relating to smuggling of Petroleum products, particularly the regulated one which is the Premium Motor Spirit (PMS) popularly known as Petrol.

“We have seen a lot of volumes being smuggled out of the country, we have seen volumes been evacuated in very high quantities.

“ I want to bring to your attention that there is a huge differential between Nigeria’s sells price of petrol and that of our neighboring countries.

According to Baru, because of the regulation of the price, government is under recovering a lot of cost base on landing cost and exchange rate of the product in the country.

He said that currently it had been observed that the marketers sell the products between N170 to N185 per litre.

These challenge, he said had made marketers to stop importing and left NNPC with the sole importation of the products.

He said special market for Nigerian product were been created in the various neighbouring countries to sell these smuggled products.

He added that the arbitrage opportunities in the neighbouring countries had pushed daily National consumption from less than 35 million litres per day to over 55 million litres per day.

There you are!! Now you see that 57% of the fuel costs is lost to rent seekers. The concept of making Fuel the same in Lagos as in Zaki-Biam is just like making Yam the same in Lagos, as it is in Zaki-Biam. That is pure economic sabotage.

As a matter of priority, we need to abolish petroleum subsidy. Scrap agencies such as the PPPRA and Equalization fund, SURE-P etc. These are rent seeking pipes and not in anyway pro-masses.

The hardship will be temporary. Within months, responsible companies will continue to import petroleum and sell at decent prices. The activities of Bovas Petroleum in the South West of Nigeria is an indication of what will happen, if shenanigans and rent seekers exit the business.

Take a stand today, accept deregulation, it will not be harder!!

References and Further reading
1. http://www.nigerianstat.gov.ng/pdfuploads/2016%20Petroleum%20Products%20Consumption%20(Jan-Sep)%20.pdf

2. https://www.thisdaylive.com/index.php/2018/01/25/nnpc-petrol-scarcity-pushes-nigerias-daily-consumption-to-55m-litres/

3. https://www.vanguardngr.com/2018/03/fuel-subsidy-at-n774-million-daily-says-nnpc-boss/

4. http://pppra.gov.ng/pricing-templates/

5. https://www.premiumtimesng.com/business/203370-pppra-reviews-petrol-pricing-template.html

6. http://sunnewsonline.com/deregulation-why-govt-should-abolish-bridging-claims-payment/

7. http://nigeriantimes.ng/news/i-dont-believe-in-fuel-subsidy-buhari-angry-with-apc-over-zoning/

8. http://www.nan.ng/oil-gas/petrol-smuggling-nnpc-seeks-customs-collaboration/

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