• Thursday, June 13, 2024
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BusinessDay

Should a deregulated downstream sector continue to have petroleum equalisation fund?

The inability to maintain equal price for petrol across the country despite forced removal of subsidy and Nigerians paying billions has put to questioning the continuous relevance of the Petroleum Equalisation Fund.

First established in 1975, the PEF strives to equalise petrol and kerosene prices in Nigeria by paying petroleum product marketers for every litre of fuel, they sell within 100km to 450km of a depot. The fund is effectively a cross-subsidy as marketers who sell within 100km of a depot pay in contributions.

Like other obsolete laws in the sector, fresh agitations have greeted the scheme, following forced removal of subsidy in the last four months as marketers of the product and other stakeholders have insisted that the fund is a drainpipe and not needed in a market expected to survive on realities.

For instance, while the official pump price of petrol was N143 per litre in July, however, data provided by the National Bureau of Statistics ( NBS) revealed that the country was unable to keep to uniform price as petrol was sold in Adamawa State for N145.00, Abia State for N144.93 and Enugu State for N144.80.

The development defeated the reasons for setting up PEF as NBS further disclosed that the products sold lower in states like Gombe for N142.57; Ogun for N140.30; and Gombe for N142.57.

While bridging cost floats between N6 and N10, the monthly pricing template released by Petroleum Products Pricing Regulatory Agency (PPPRA), dated June 30, showed that Nigerians were charged N7.51 as additional cost from the core variables that determined how much should be paid on a litre of petrol.

Which implies for every litre of petrol consumed in June, Nigerians pay a total of N12.0 billion with an average daily petrol consumption of 52 million litres.

“PEF’S price-setting is not compatible with a liberalised downstream petroleum sector,” a source familiar with the matter says.

According to him, “allowing a government body administer equalisation fund will create a rentseeking opportunity for a gatekeeper which can easily lead to fraud.”

Former President, Nigerian Association for Energy Economists (NAEE), Wunmi Iledare, stated that the country could not pretend to deregulate and set the price at the same time, nor keep an equalisation agency.

“This is what we refer to as transfer payment syndrome. The way out is complex but doable,” Iledare said.

Another expert with the Facility for Oil Sector Transparency and Reform (FOSTER), Michael Faniran, says the muchtalked about deregulation was not holistic.

“With prices now fully deregulated, PEF has been overtaken by the recent development, although it might require appropriate legislation to scrap the agency,” Luqman Agboola, head of energy and Infrastructure at Sofidam Capital said.

Other stakeholders believe the PEF has either outlived its usefulness or at best, should be made to be an arm of a parastatal, under the Ministry of Petroleum Resources. Some are quick to allude to the Oronsaye Report, which recommends a merger of the PEF with the PPPRA.

However, some say PEF logic seems reasonable, as petrol and kerosene are important for economic activity, uniform prices should help to level the playing field for economic growth in all areas of the country.

Last month, the Independent Petroleum Marketers Association of Nigeria warned against any proposed plans to scrap the PEF, saying Nigerians in many parts of the country would be forced to buy petroleum products for as much as N400 a litre.