Following the rise in crude oil price to about $47 a barrel, the federal government will resume the payment of subsidy on petrol as the product is now selling below the expected open market price, the pricing template of the Petroleum Products Pricing Regulatory Agency (PPPRA) has shown.
According to the updated template the agency released in Abuja, which is expected to cover the second quarter of 2016, the expected open market price of petrol has risen to N99.38 per litre for independent and major oil marketers, and N98.62 per litre for retail outlets belonging to the Nigerian National Petroleum Corporation (NNPC).
The expected open market price is the actual price of the product taking into consideration all market elements, which include landing cost and distribution margins, without subsidy element.
However, a source within the PPPRA told reporters exclusively last night that the pump price of fuel remains N86.50 for major and independent marketers, and N86 for NNPC retail outlets, adding that the difference would be taken care of through subsidy payment.
The source noted that the subsidy payment would, however, not be at any extra cost or burden to the federal government, explaining that it would be funded from the savings made during the first quarter (Q1) when the market was over-recovering, that is, selling above expected open market price due to low oil price.
Minister of state for petroleum resources, Dr. Ibe Kachkwu, had disclosed that about N100 billion had been saved from over-recovery, saying the fund would be saved and used to offset differentials when the market begins to under-recover as part of the price modulation mechanism put in place by government.
Consequently, at the current price of N86.50 per litre for major and independent marketers, and N86 per litre at NNPC retail outlets, the federal government will be paying N12.88 and N12.62 per litre of petrol respectively as subsidy.
Meanwhile, a breakdown of the updated PPPRA template shows that the landing cost of petrol now stands at N84.32 and N85.08 per litre respectively for NNPC retail outlets and independent and major oil marketers, while the distribution margin, which include retailers, transportation, bridging fund and dealers’ margin among others, stands at N14.30 for both the NNPC and the other marketers.
The expected open market price of N98.62 and N99.38 for NNPC retail outlets and other marketers respectively is arrived at by summing the landing cost and the distribution margins.
The PPPRA further stated that the latest pricing template was arrived at based on average Platts’ prices for 28th April, 2016, and using N197 to $1 as exchange rate.