• Tuesday, May 21, 2024
businessday logo


Updated: Petrol price for October to drop to N157 as landing cost falls

Why price of petrol would continue to be high

Nigerians could enjoy up to three Naira drop in the pump head price of petrol for October, courtesy of a fall in the international products price that is now used to determine the month-long price at which petroleum products are priced in the country.

According to BusinessDay investigation, there has been about $10 drop per ton of the product on the international market and this could translate into a N2.50-N3 cut from the current N160 per litre in the price of petrol at gas stations across Nigeria.

Marketers and petroleum economists say Nigerian workers could get the cut in petrol price they want without even having to go on strike, given the market-driven nature of the mechanism for fixing the price in the country.

As September comes to an end, there is consensus that the average Platt’s quotations for Premium Gasoline (10ppm) could fall from $400.750 per ton in August to $390.5 per MT, which will be the base price for determining the pump head price of petrol in October.

READ ALSO: Non-oil revenue: Delta spurs Deltans to embrace export as major business

This means that petrol could sell for about N157 across major marketers and independent stations, down from the September price of N161 a litre and it leaves petrol prices at the lowest in West Africa where a litre sells for N296.54 in Togo; N276.88 in Sierra Leone; N361.43 in Chad; N325.93 in Ghana, and N352.36 in neighbouring Benin.

By our calculation, the Pipelines and Products Marketing Company (PPMC), which is currently the sole importer of petroleum products should set its ex-depot price for October at around N143.70 a litre, all things being equal.

The pricing template developed by the sector regulator, PPPRA allows for pump head price to be made up of the landing cost or product cost plus freight cost, lightering expenses, insurance, NPA charges, NIMASA charges, Jetty throughput charges, storage charge, financing cost, wholesale cost, as well as distribution margins made up of retailer margin, bridging fund, MTA and PPPRA admin charge.

Nigeria currently operates what is called DSDP programme, where it swaps crude oil for European fuel refined mainly in Belgium and the Netherlands. Nigeria receives petroleum products from Ex-Rotterdam for delivery to Lagos offshore, which is what is also referred to as coastal. Coastal is the amount of money equivalent to the actual cost of importing finished petroleum products, anchored at full cost recovery.

The template assumes an FOB, which is a function of the prevailing benchmark price (Rotterdam) and prevailing exchange rates. In addition, the template allows for freight to Lome, which is a function of demand and supply for vessels and prevailing exchange rate and insurance cost which on the average is about $0.75-$1.0 per MT.

Financing cost is typically charged at between $1.0 and $1.0 per MT. There is also a blended cost of $5/ton which is the cost charged for transforming imported gasoline to fit or comply with Nigerian government specifications.

The Nigerian government had in March said it would no longer subsidise petrol and that the pump price would be determined by market forces, stating that how much Nigerians would pay would be determined by the international price of crude oil.

However, Nigeria will suspend the implementation of the higher electricity tariff for service bands A, B and C to allow for a joint ad-hoc committee of the government and labour to review the implementation modalities, it was agreed last night.

It is part of the deal reached a hurried meeting between government ministers and labour leaders at the Presidential villa, which may have staved off the impending nation-wide labour strike planned to begin this morning.

BusinessDay learnt from senior government officials that the electricity tariff suspension for the three bands would last for two weeks, and it takes effect immediately.

It is believed that labour might have conceded that it cannot press the demand for the reversal of the removal of petrol subsidy given the precarious state of government finances in the aftermath of the crude oil price collapse.

“This suspension of the new tariff regime for bands A, B and C customers is not an indefinite action and has nothing to do with the reasonableness of the policy,” a senior government official told BusinessDay. “It is a compliance review action and recommendations on a fairer mode of implementation will be submitted and the new tariff will thereafter go into effect.”

The government side to the meeting was led by the secretary to the government of the federation and had ministers of Labour, Power, Petroleum as well as the GMD of the NNPC in attendance.

It could be recalled that the House of Representatives on Sunday appealed to the organised labour to shelve their nationwide strike billed to commence Monday, September 28, saying some of their agitations would be captured in the 2021 national budget.

The appeal by the reps came amid intense mobilisation by the Nigeria Labour Congress (NLC), Trade Union Congress of Nigeria (TUC), and their civil society allies who were still insisting on the strike unless the government reverses to the old fuel price and electricity tariff regime, and fully implement the N30,000 minimum wage and its consequential adjustments.

To forestall the industrial action and its impact on the already battered economy, the leadership of the House Sunday met with Ayuba Wabba, president of the NLC; Quadri Olaleye, president of the TUC, and Emma Ugboaja, secretary-general of the NLC. Also at the meeting were the deputy majority leader, Peter Akpatason, and chairman, house committee on labour, Ali Muhammed.

At the end of the closed-door meeting that lasted about an hour, the NLC president said as long the demands on the Federal Government were not met; the strike and protests would go on as planned.

He said: “Well if the issues are not addressed, you are aware that we have given notice and that notice will certainly expire tomorrow. All the action pronounced will take effect”.

While dismissing an existing court judgement restraining labour from embarking on strike, Ayuba said: “We have not been served as I said. In good faith, you recall that we are on the negotiation table up till late Thursday night and therefore our expectation is that we should be able to in good faith continue to dialogue not to try to also ambush because we have not received the order as of today we don’t also know the details of any order”.

But the speaker of the House Representatives, Femi Gbajabiamila, at the meeting, appealed to the organised labour to shelve the industrial action as it would cripple economic activities of the country.

“You know we can’t do this, we can’t go on this strike. We can’t in good conscience, we are on the same page on most of the things and you know that. We, the leadership and the House of Representatives are on the same page with you.

“The consequences of the strike; and that’s the bigger picture. When we have the complete government shut down, the people we seek to protect invariably end up holding the short end of the stick. So, it ends up defeating the purpose”, he said.

Gbajabiamila noted that the legislature has been meeting with the executive to review the policies on fuel and electricity prices and called on labour to at least wait for weeks and see the outcome of legislative interventions.

He disclosed that the 2021 budget would be submitted to the National Assembly in a couple of weeks and most of the issues raised by labour concerning the welfare of Nigerian workers would be provided for.

“We have had a meeting with the Vice President, we have had a meeting with the executive on this issue, but the issue of electricity, we told them at least wait till the first or second quarter of next year and that is where we left it.

“The good thing is that this agitation is coming at the right time in the sense that I believe in the next couple of weeks or less, the budget will be presented. Many of these things have a lot to do with the budget.

“To stop estimated billings, we also need the meters to capture the true cost of the electricity that is being consumed. Now, in metering, we will provide for that in the budget, it is a deficit of about 8 million meters with my understanding, that can be provided for in the budget, if need be”, Gbajabiamila added.