• Monday, May 27, 2024
businessday logo

BusinessDay

Without subsidy petrol will cost N109 only

The subsidy albatross on Nigeria’s neck

At the current $78  average world market price for crude Nigerians will have to pay only N109.43k per litre were the highly abused subsidy on petroleum product to be removed immediately today. This price, analysts say, completely debunks the fear widely expressed that the removal of the subsidy will result in a substantial jump in the pump price of petrol.

The country’s controversial subsidy on the pump price of petrol is now about N12.43 per litre on the back of falling oil prices, BusinessDay can authoritatively report.

Industry sources confirmed to BusinessDay that the product’s pricing template authorised by the Petroleum Products Pricing and Regulatory Agency (PPPRA), recognises four main headings.

First is the product cost defined as the monthly moving average cost of products, as quoted on Platts Oil gram. The reference spot market is North West Europe (NWE). Next is freight cost which is the average clean tanker freight rate (World Scale (WS) 100) as quoted on Platts.

It is the cost of transporting 30, 000mt (30kt) of product from NWE to West Africa (WAF). Then there are margins for marketers, dealers and transporters.

Other cost items on the template are jetty-depot through-put, as well as other charges and taxes.

READ ALSO: Downturn in the Nigerian Petroleum Industry: Considerations for ameliorating fiscal burden

As at yesterday, landing cost of petrol was estimated at N100.98 per litre, consisting of product cost (N86.02),  freight (N5.34) and other delivery costs, excluding local distribution, marketing/dealers margins but including port and financing costs at N9.62.  Local distribution cost to Lagos attracts N2.05 per litre, marketers’s margin of N4.70 and dealers’ margin of N1.70 giving a sub-total of N8.45 per litre.

Thus, the total cost of petrol at the pump is N109.43 per litre.

However, given the regulated pump price of N97 per litre, the subsidy element works out at N12.43 per litre.

Nigeria’s daily consumption of petrol is estimated at 35million litres today. This means that the daily subsidy comes to N435.05million, or N13.051 billion per month.

Analysts observe that with the falling price of oil, dropping the subsidy entirely may not hurt the economy too much. It is also estimated that at the peak of oil prices, the subsidy was about N44.00 per litre.

Weneso Orogun