The delay by the Petroleum Product Pricing Regulatory Agency (PPPRA) to review the price of Premium Motor Spirit (PMS), popularly known as petrol, for May has increased the profit margin of oil marketer to N15.5 per litre.
This is as a result of the recent slash in the ex-depot price of petrol by the Nigerian National Petroleum Corporation (NNPC) from N113.28/litre to N108/litre. That is the price at which the national oil company sells petrol to marketers.
Analysis by BusinessDay shows that the oil marketers, who sell directly to the final consumers at the approved pump price by PPPRA are yet to reflect the NNPC price slash in the petrol being sold in May due to PPPRA’s delay in updating the price for the month.
Going by BusinessDay calculations, if the oil marketers are buying petrol from NNPC at N108/litre and are still selling at the approved retail price of N123.5/litre for April, it means they are enjoying a distribution margin of N15.5/litre.
This is an increase of N5.28/litre when compared to the N10.22/litre distribution margin initially enjoyed by the petrol marketers before NNPC slashed the ex-depot price on May 6, 2020.
“The lack of communication by PPPRA about the new pump price of petrol for May has created an opportunity for marketers to make some quick gain,” Yinka Ademuwagun, Research Analyst at United Capital, said.
While PPPRA released the updated petrol price for April on the 1st of April, the regulatory agency said it is engaging the Central Bank of Nigeria (CBN) to determine the applicable foreign exchange rates for the importation of petroleum products into the country, the likely reason it is yet to give an update for May, almost two weeks into the new month.
“The agency is engaging the CBN to determine the applicable foreign exchange rates for the importation of petroleum products and modalities for accessing the applicable foreign exchange window by the marketers,” Abdulkadir Saidu, Executive Secretary of the agency said in a statement.
According to the secretary, the rate will be reflected in the pricing template to determine the expected open market price of the product. “This means that going forward, the guiding price to be advised will be determined based on the rates quoted by the CBN,” he said.
The multiple exchange rates and windows in Nigeria have been opposed by analysts as they believe it creates a lot of distortion in prices, hurts businesses, and encourages corruption as it is susceptible to manipulation.
While PPPRA, the agency which is responsible for fixing petroleum products prices is yet to review petrol price for May against its promise to release pricing templates at the beginning of every month, analysts are questioning the state of Nigeria’s downstream oil sector deregulation.
The industry experts have urged the Federal Government to make pronouncements that provide clarity on where, when, and how Nigeria would do away with petroleum subsidy.
Nigeria’s Federal Government said in March that it had bowed to long-standing pressure to restructure the downstream oil sector and had therefore removed oil subsidy after the country was hit by lower oil prices which placed more pressure on its foreign exchange reserves.
The Muhammadu Buhari administration removed the petrol price peg of N145/litre to N125 in March this year, the first time the price would be adjusted since it was reviewed in 2016, from N86 per litre to N145 by President Buhari on the assumption of office.
Petrol price was further reviewed to sN123.5 per litre effective April 1, 2020. The 1.2 percent cut was a N1.5 reduction from N125 that was approved by the Government on 19th March 2020.
According to PPPRA the pump price of petrol will henceforth continue to rise or fall with the international price of crude oil.
“There is no fuel subsidy anymore in Nigeria. It is zero subsidy forever,” Mele Kyari, Group Managing Director of NNPC, said on April 7th 2020 but he also added that: “We (NNPC) will be there for the country to sustain the security of supply at market price.”
According to a recent tweet by Kalu Aja, the CEO of Abuja-based AfriSwiss Capital Assets Management Ltd, there is no need for the Federation to pay a part of the fuel bill of Nigerian consumers at the moment due to global drop in crude prices, meaning there is no subsidy on imported PMS on retail price. He, however, explained that the cost of fuel or the selling prices is still fixed by the Federal Government, hence no deregulation.
“Retail not deregulated. If oil prices rise tomorrow, NNPC will step in and import and sell at fixed government-approved prices,” Aja said in a tweet, adding that “the downstream sector is not deregulated, and PMS subsidy not removed, it’s just not being paid because it’s zero.”
