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EXPLAINER: What makes up the petroleum pricing template?

Oil and gas

From Lagos to Potiskum, Abuja to Enugu, and Port Harcourt to Makurdi, the story is the same. An anticipated increase in petrol price is always unwelcome by most Nigerians

For a vast majority of its 200 million people, cheap fuel is seen as the only benefit from a state that built no social-safety net for its citizens from money made during past oil booms. They couldn’t care less how the price of a litre of petrol is calculated every month using. Petroleum products pricing template.

Components of the template

The price of petrol is sold at filling stations is the sum of the landing cost, wholesale margin, and distribution margins. The wholesale margin is N4.03 while the distribution margins comprise transporters allowance (N3.89), retailer (N6.19), bridging fund (N7.51), marine transport average (N0.15), and admin charge (N1.23).

Landing cost is the sum of all a sellers’ costs associated with a product, from the time they produce the product to the moment it’s in the customer’s hands.

It’s part of other major component costs such as wholesale margin and the distribution margins used by Nigeria’s Petroleum Products Pricing Regulatory Agency (PPPRA) in deriving monthly petrol prices.

How template determines what to subsidised

As of January 7, the cost of petrol plus freight stood at $500.72 per Metric Tonne (MT), translating to N145.62 per litre.
Other cost elements that make up the landing cost include lightering expenses (N4.57), insurance cost (N0.21), Nigerian Ports Authority charge (N2.38), Nigerian Maritime Administration and Safety Agency charge (NIMASA) (N0.23), jetty throughput charge (N1.61), storage charge (N2.58), and financing (N1.33).

Why subsidy is back

The price of crude oil surged by about 45 percent to $58 this year since the end of October 2020, however, the price of petrol has remained unchanged since November 13 2020 when the government made the last increase.

Fuel marketers had in December expected another upward adjustment of PMS price to reflect the further rise in crude oil prices.

However, an N5 reduction in petrol price, effective December 14, was announced by the Federal Government, a development that left them reeling in shock and questioning the deregulation of petrol price.

The sustained increase in global crude oil prices has pushed up the landing cost of imported petrol closer to the current pump prices of the product in Nigeria and appears to have triggered a return to the petrol subsidy era.

Read Also: Petroleum Industry Bill: New law to make Nigeria largest crude production hub- Osinbajo

Inefficient infrastructure makes the transfer of petrol costly For most experts, a major concern of the landing cost of PMS from PPPRA is rising Lightering Costs which accounts for about N4.57 on every litre.

Lightering is the cost associated with the transfer of petrol from one vessel (usually the mother vessel) to a smaller vessel (usually called the daughter’s vessel). This is typically done in the open sea with the vessels positioned alongside each other, according to Ogechi Nkwoji, head, economic Intelligence research & Regulation, MOMAN in an article for the organisation’s newsletter.

“If Nigeria’s ports were functional, consumers could be spared this unnecessary expense,” Alao Abiodun, head of energy research at New Nigeria Foundation, an advocacy group exposed to the oil and gas sector said.

According to Nwoji, Apapa, Tincan, and Ijegun areas have some jetties with drafts deep enough to take between 20KT and 100KT vessels. The average draft in Warri can accommodate a 10-15KT vessel, Port Harcourt’s loading bay can accommodate a vessel of between 15-20KT and that of Calabar can only take on a vessel of 5-15KT.

The Apapa jetty in the Lagos area, infrastructure deficit is the major reason why lightering of vessels is done, noted Nwoji.

Other stakeholders complained that PPPRA pricing template uses the higher grade NWE Platts gasoline bought by European buyers while Nigeria imports lower grade gasoline with a higher Sulphur content.

“This grade is at least $25 – 35 cheaper per tonne than the reference-grade,” Abiodun said.

Nigeria has the potential to produce more than 2.5m barrels a day. But it rarely reaches that level because of poor infrastructure, theft, and pipeline sabotage driven by unrest in the oil-rich Niger Delta region.

With State-run refineries operating at zero percent of their 445,000 barrel-a-day capacity; the government then sells the fuel to retailers, which sell on to the public at the subsidised rate of N162 a litre.