Apprehension as pump price of petrol inches towards N1,405 per litre
Nigeria’s downstream petroleum industry may have gone into a frenzy, following clear indications that the federal government may no longer sustain the cost of under-recovery, otherwise known as subsidy, due to the steady rise in petrol import bills.
Industry operators told our correspondent yesterday that it is now clear that pump price may be officially raised soon to enable the government, through the Nigerian National Petroleum Company Limited, NNPCL, to generate enough funds to settle its outstanding bills on products received on credit supply by several international dealers, reports Vanguard.
Consequently, they speculated that a compromise pump price of N1,000 per litre or more may be underway, though some of them quoted the landing cost of the product at about N1,200 per litre, excluding the cost of delivery to petrol stations.
Presently, NNPCL, according to the dealers, is no longer getting adequate supply to meet the nation’s needs, a situation which has worsened the product scarcity in the past one week while imposing excruciating pains on the transportation sector and the entire citizenry.
The shortage in supply, they further explained, was because some of the suppliers are no longer willing to deliver the product on credit. They also said that more of the products are now being smuggled out of the country.
The current transactional analysis obtained by our correspondent, yesterday, put the landing cost, including product cost, finance cost, freight, port charges, insurance, storage and the Nigerian Midstream and Downstream Petroleum Regulatory Authority, NMDPRA at N1,205.52 per litre.
However, when the transportation cost, marketers’ margins and dues were added, the estimated official pump cost of the product rose to N1,405 per litre.
This indicates that at the proposed N1,000/ltr, under-recovery (subsidy) would still be significantly high, a situation which they said has put the government in a dilemma of choosing between full cost recovery (total elimination of subsidy) or a compromise position of splitting the cost between government and final consumers in a N1,000/ltr pump price.
NNPCL overwhelmed by subsidy
The NNPC Ltd has already indicated that it cannot continue to sustain fuel importation at rising cost while passing the cost to final consumers is proving a difficult decision.
The nation’s oil company was permitted by President Bola Tinubu to utilise the 2023 final dividends due the federation, amounting to N2.1 trillion, to pay for the petrol subsidy.
The president also approved the suspension of the payment of 2024 interim dividends to the federation to augment NNPC’s cash flow, according to a presidency source.
In addition, the national oil company told the president it will be unable to remit taxes and royalties to the federation account for now because of subsidy payments, which it termed “subsidy shortfall/FX differential.”
NNPC’s cumulative petrol subsidy bill from August 2023 has been estimated at N6.884 trillion by December 2024, making it impossible for the company to remit N3.987 trillion in taxes and royalties to the federation account.
In June 2024, NNPC cried out to Tinubu that the subsidy payments were negatively impacting its cash flow and it was struggling to remain a “going concern”, adding that it might not be able to sustain petrol imports because of the ballooning subsidy bill, which it blamed on “forex pressure.”
Also, Mele Kyari, Group CEO of NNPC, informed the president that when the subsidy was removed in June 2023, it led to monthly savings of N400 billion to the federation, which enabled the company to remit its taxes and royalties totalling N2.032 trillion into a sequestered account at the Central Bank of Nigeria (CBN) as at January 2024.
However, in August 2023, the fuel importation costs began to rise, incurring a subsidy bill of N52.73 billion that further rose to N57.59 billion in September and N212.28 billion in October before rising further to N665.60 billion in November, following depreciation of the Naira.
New pump price expected this month
Considering the situation petroleum marketers expect the government to emerge with a new fuel pump price to give direction to the market this month.
A source who opted to remain anonymous said: “We expect that the market would be driven by the forces of demand and supply in the domestic market.
“However, the government would still be guiding the market, mainly through the Nigerian Midstream and Downstream Petroleum Regulatory Authority, NMDPRA that has the responsibility to regulate as well as enforce compliance”.
NMDPRA’s Chief Executive, Engr. Farouk Ahmed did not take calls nor respond to text message, yesterday.
Marketers give conditions for importation
Oil marketers said they are not considering importation immediately because of issues and challenges, including foreign exchange, high cost of funds and uncertainty in the sector
Managing Director, 11 Plc, Adetunji Oyebanji, said: “Well, marketers were unable to import earlier when the subsidy was called off due to FOREX instability and that of the naira that was floated as at the time. These developments have hindered marketers from importing petrol.
“However, the situation with Forex is now steady (away from the jumps) and yes, marketers will import if they are given the chance to. There is no challenge if they are called upon to serve.
“As long as everyone is selling in a competitive price range, we will import. “If prices are set at an economic level, other suppliers might enter the market, improving supply and reducing financial strain.”
We can import if given support — IPMAN
In an interview with our correspondent, yesterday, the former national president of the Independent Marketers Association of Nigeria, IPMAN, and currently the Board of Trustees Treasurer of IPMAN, Elder Chinedu Okoronko, said that marketers are willing to import provided they are given similar opportunities as NNPCL.
He said: “Government should create a benchmark for marketers importing petroleum products to recover their investment on petroleum products, there should be a threshold for government to get marketers involved in the procedure.
“Dangote should be encouraged to come on stream. This will help reduce our exposure to excessive costs and problems. Whatever it will take for our crude to be refined here will help get us out of this mess. Also, the CNG degradation will reduce our exposure and boost our economy.”
Scarcity hindering our operations — Transporters
The Managing Director of a leading transport company with several offices across the country who wouldn’t like his name on print told our correspondent that fuel scarcity has been one of the major problems of transporters in the country.
He wondered: “Has there been any time that fuel is available in the country? We have resolved that whatever price we buy, we shall review the fares to break even. We won’t be working without making a profit,”
He lamented that the local governments, too, are not helping matters with all manners of levies on Transport Company.
He said: “In Enugu, Abia, Rivers, Cross River, and many others collect not less N5,000 each from every boss daily which they tag daily ticket. Also, security agencies extort drivers on the highways, making the business very difficult for transporters.
He also noted that drivers are forced to cough out huge amounts for failure to provide the already suspended proof of ownership receipt by the government.
All these, he said have contributed to the fare hike across the country. A journey from Lagos to the Eastern part of the country costs as much as N30,000 as against N15,000 a few years ago.
Motorists lament as the situation worsens
Checks by our correspondent indicated that the fuel situation within Lagos metropolis and environs has worsened, due to limited supply.
The checks indicated that many filling stations on Ikorodu Road, Agege, Iyana-Ipaja, Ikeja, Somolu, Bariga, Ogba and Surulere were closed.
Meanwhile, some motorists who spoke with our correspondent, yesterday, expressed frustration at the persistent scarcity of petrol.
They also decried the long queues at filling stations as well as increased black market sale of the product at various locations, including Ikorodu, Epe, Badagry, and Ibeju-Lekki, where a litre of petrol sold for N940 and above.
Dangote Refinery Concludes Fuel Refining Plans
Meanwhile, Dangote Group said it has commenced petrol refining, raising hope for increased domestic fuel supply.
Chief Branding and Communications officer of Dangote Group, Anthony Chiejina said the refinery on the outskirts of Lagos, built by Nigerian billionaire Aliko Dangote, can meet demand.
With a capacity of 650,000 barrels per day, Africa’s largest refinery promises to ease oil producer Nigeria’s costly reliance on imported oil products.
Dangote Petroleum Refinery said it was undergoing test runs for petrol production by mid-September 2024.
Experts harp on cooperation
Meanwhile, some experts in the oil and gas business have urged the federal government to collaborate with local refineries to process the daily allocation of 445,000 barrels of crude oil for domestic use, based on a tolling arrangement.
Senior Independent Non-Executive Director at Seplat Energy Plc., Mr Rabiu Bello, said that collaborating with local refineries would help the government to secure petroleum products needed for domestic consumption and allow the export of excess products.
Bello said that such collaboration would enable the Dangote Petroleum Refinery and other local refineries to operate profitably and achieve over 65 per cent capacity utilisation without requiring substantial additional investments in crude oil supplies.
He said that the federal government should conduct a forensic audit of NNPC/NNPCL’s financial records to assess the actual cost of importing and delivering petroleum products to Nigeria from 2012 to 2024.
Similarly, Mr Henry Adigun, an oil and gas consultant, also called for full implementation of the PIA to streamline operations in Nigeria’s downstream sector of Nigeria’s petroleum industry.
Adigun said that the current fuel scarcity could be mitigated if the government could pay outstanding debts to importers and allow fuel prices to return to market levels.
