FG should do more than say subsidy is removed, to full price liberalisation – oil marketer

Against the backdrop of Federal Government’s claim that the downstream sector has been deregulated, some operators disagree and are calling for full price liberalization.

Adetunji Oyebanji, managing director and CEO of 11 Plc in an interview with CNBC on Tuesday said that the retail price of gasoline when compared to the template issued by the Petroleum Products Pricing Regulatory Agency (PPPRA) using the official exchange rate and Platts oil price for the month of August, “you will find that prices at the pump should be significantly higher than they are right now.”

“We suspect that there may be some issues with how margins are being applied to various operators and the various sub headings within the template. So we continue to work with government to try to try and get clarification on this subject but definitely it is very clear that there is still an element of subsidy.

The Federal Government has often said that it wants to protect consumers against being exploited by marketers but Oyebanji clarified that  In the immediate, margins are more important than looking at the bottomline of operators.

“We have continued to engage the relevant agencies of government particularly the PPPRA in terms of getting an increase and improvement in the margins that we have which have been stuck in 2008 and they were not touched again in another 8 years,  we are trying to get an improvement of that be cause that would direc tly impact our bottomlines,” he said.

Oil marketers have severally called for the complete removal of subsidy and in March this year, the Federal Government announced a removal of subsidy on petrol but said it would continue to announce prices.

Sine August, it had been unable to issue prices because a mild recovery of oil prices when plotted against a depreciating naira translates to higher pump price of petrol. The PPPRA is unwilling to announce higher prices but the NNPC could be quietly paying fresh subsidies.

At the dollar exchange rate of N385, petrol should be selling at N155 but it sells at N145, meaning an effective daily subsidy of N560m calculated by an assumed under-recovery of N10 for each of the 56m litres of petrol sold in Nigeria every day.

At the dollar rate of N470 the subsidy is higher at N1.624bn daily. This is derived from the assumed market price of N174 a litre and a N29 per litre subsidy if importers were to secure their FX on the parallel market.

In its operations and financial report for June, the state-owned oil firm reported N5.35billion as payment for under recovery stirring controversy that it has begun paying subsidies again.

Oyebanji said that if subsidies are removed, “the market will fix the prices at the pump that will allow full cost recovery by all the operators and with that it means that more investment will be attracted to the industry at all level of the value chain which will lead to more employment and will make Nigeria a refining hub for west and central Africa.”