With N69.3bn ‘Under-recovery’, NNPC Retains Petrol Price at N145/ltr in Jan

• Calculation based on new consumption rate, landing cost Under-recovery in line with credit structure, corporation insists

Chineme Okafor in Abuja

The Nigerian National Petroleum Corporation (NNPC) may have absorbed a financial subsidy worth N69.393 billion in January to keep the pump price of petrol at service stations within the government’s regulated price of N145 per litre, THISDAY investigation has revealed.

THISDAY checks were based on disclosures and figures given by the NNPC on the landing cost of petrol and current volume of petrol consumed in the country. These figures were provided in December 2017 – for the landing cost, and January 2018 – for current consumption rate.

Though the NNPC did not confirm the figures, it however told THISDAY that its under-recovery in this regards was in line with its credit structure, but that it was looking to the federation to help in the recovery.

The NNPC’s Group Managing Director, Dr. Maikanti Baru, had last December, disclosed to journalists that the landing cost of petrol was N171.40, with a metric tonne at $620.

He also stated during a session with the Joint National Assembly Committee on Petroleum Downstream in January that the current volume of petrol consumed in Nigeria everyday had gone up to 55 million litres from its previous level of 35 million litres because a syndicate of cross-border smugglers were taking advantage of the country’s current supply challenges to force NNPC to push out more products.

Similarly, Baru, explained that NNPC’s crude for product swap programme – the Direct Sales Direct Purchases (DSDP) was under pressure and unable to satisfy this increased petrol consumption because it was originally programmed to meet the 35 million litres daily consumption level and not the new 55 million litres.

Following from this, THISDAY added the N14.3 distribution margin approved in the last pricing template for petrol by the Petroleum Products Pricing Regulatory Agency (PPPRA) to the N171.40 landing cost, to arrive at N185.7, which should be the current market price of a litre of petrol in the country. PPPRA is the agency responsible for periodically calculating and approving products’ pricing for the market,

It then calculated the difference between N185.7 (actual market price per litre) and N145 (government price per litre) to arrive at N40.7 – the subsidy or under-recovery recorded over every litre of petrol supplied by the NNPC which in October reportedly became the sole importer of petrol in the country.

THISDAY then multiplied the N40.7 by 55 million litres daily consumption to arrive at N2.238 billion, being the daily subsidy figures, and then N2.238 billion by the 31 days in January to get the N69.393 billion total amount of subsidy the NNPC may have absorbed in the month.

In December, Baru said while responding to a question on the landing cost: “The landing cost goes with the CIF (Cost, Insurance and Freight) price of PMS. As of Friday, the CIF price was in the neighbourhood of $620 per metric tonne, with the official exchange rate of N305 to the dollar, the landing cost should be N171.40 per litre.

“The government has consistently indicated that the N145 per litre is the price and to do that, it has mandated the NNPC to keep the equivalent depot price of N133.28 per litre, which will keep a cap of N145 per liter. There is a lot of profit in-between after taking the transportation cost of N7 off, so there is sufficient margin for the marketers in that PPPRA template at the price cap.”

He also said at the National Assembly meeting: “The sudden and unnatural shock in fuel consumption to record levels has over-stretched the DSDP crude for product supply arrangement which was originally based on 35 million per day petrol consumption pattern.”

Similarly, the Finance Minister, Mrs. Kemi Adeosun, recently said the petrol subsidy was not paid by the government to oil marketers or the NNPC, but that the corporation was making under-recoveries which were affecting the Federation Account.

“Now, when there is the talk of payment of subsidy, technically today, there is no subsidy but there is under -recovery. Why that is because NNPC is presently doing all the importing.

“They are importing at a higher price than they are selling which means they are losing money, which means effectively that loss is being borne by everybody and effectively it reflected in the federation account,” Adeosun said.

Speaking to THISDAY over the phone on the development, NNPC’s Group General Manager, Mr. Ndu Ughamadu, explained that the corporation like other business entities has a credit structure and that its under-recovery was in line with this.

Ughamadu equally noted with regards to the landing cost, that the NNPC was bringing in products within the confines of its DSDP programme. He, however, noted that suppliers in the programme were complaining that prices of crude oil had gone up.

“In terms of under-recovery, it is in line with our credit structure. Every entity, including Coca-Cola, have credit structures, but what matters is how you recoup the under-recoveries, and that is why we are making appeals to the federation to see how it can help,” said Ughamadu.

The spokesman further stated that, “NNPC is supplier of last resort, and you know that. If it behaves like other marketers and back out when the situation get tough like it is now, the whole country would be in trouble. Many marketers still rely on NNPC for supplies and this has impacts on our operations because the downstream is just one aspect of what we do.

“If you consider all the man-hours and workload put into this, and quantify it, you will see that it is affecting us, and this comes with other challenges like diversion, hoarding, profiteering and all others.”