As PPPRA, N’ Assembly Debate on Petrol Pump Price…

An attendant dispensing fuel at a petrol station

Chineme Okafor writes on the recent debate on pump price of petrol between the House of Representatives and the Petroleum Products Pricing Regulatory Agency (PPPRA), bringing into play the views of independent experts on the arguments proffered

Recently, at its public sitting, the House of Representatives Ad-hoc Committee on the Review of Pump Price of Petrol accused the Petroleum Products Pricing Regulatory Agency (PPPRA), the government agency responsible for regulating petroleum prices in Nigeria, of making Nigerians pay more for petrol through unnecessary costs in its pricing template for petrol.

According to the committee, the pump price of petrol which is presently N145 per litre across service stations in the country, should not be more than N70 per litre based on their findings.

They explained that the 84k port charge and the 30k administration charge, which are embedded in the PPPRA pricing template as part of its fundamentals were fraudulent. In their findings, the committee alleged that the 84k port charge was for services that the Nigerian Ports Authority (NPA) never rendered while the 30k was provided for in the annual budget of the PPPRA.

In their claims, the committee also noted that the administrative charge was increased by 100 per cent to 30k from 15k after the removal of subsidy on petrol in 2016. They maintained that the PPPRA template was skewed to exploit petrol consumers in Nigeria on the basis of the needless costs they alleged existed in the template.

“In the 2017 budget, which is before us, PPPRA has a proposal of another N500 million for regulation, monitoring and supply of petrol. This budgetary provisions have already taken care of the purpose for which you charge 30k on the template, yet Nigerians continue to bear the burden by paying N145 per litre.

“This has left Nigerians in a situation where they still pay for lightering services for smaller vessels that go to Cotonou or Lome to offload products from mother vessels…but PPPRA will then add the cost to the pump price and ask Nigerians to pay,” said Hon. Raphael Nnanna Igbokwe who chairs the committee on his claims against the agency.

Igbokwe also alleged that these costs were included in the pump price for petrol refined in-country in the three refineries of the Nigerian National Petroleum Corporation (NNPC), adding that such was unwholesome.

Responding, however, to these claims of the committee, the Acting Executive Secretary of the PPPRA, Mr. Victor Shidok, indicated that the charges in the template were verified and justified as statutorily requested before inclusion in the template.

Shidok explained that the administrative charge was used to pay for the services of certified cargo inspectors, who are engaged by the PPPRA, and that the budgetary allocation the committee mentioned was inadequate for payment of the inspectors, and take care of other overhead charges.

On the committee’s probe on pump price of petrol from NNPC’s refineries still being sold at the same rate with imported petrol, Shidok stated that there were two separate templates in operation which allowed for a price band of N140 to N145 per litre and that the NNPC or marketers were allowed to source for products and sell within that range.

Notwithstanding the claims of the House Committee on the pump price of petrol, the template as currently designed was not an autonomous design of the PPPRA, but a collective outcome from a consultative forum that reportedly involved the National Assembly, organised labour in the country, organised private sector, and all other relevant stakeholders in the country.

According to knowledgeable industry players who spoke to THISDAY, the process of arriving at the current template in May 2016, when the Federal Government opted for a partial deregulation of the downstream petroleum sector, was quite extensive.

Last updated in 2016, the template which places landing cost at N122.03 and distribution margins at N18.37, has the total cost of importation and distribution of a litre of petrol at N140.40, and has remained unchanged. It also indicated that marketers can sell petrol within the retail price band of N140 to N145 per litre.

Economic Fundamentals Vs. Populism

Though the House Committee said its deep findings supported its claims and expectations that pump prices of petrol should be sold at N70 per litre, the current market fundamentals on refined petroleum products do not seem to support such claims.

As contained in the January 2017 monthly market reports of the Organisation of Petroleum Exporting Countries (OPEC) which was released recently, the average crack spread for US and European refineries where Nigeria reportedly gets most of its refined products from was $20 per barrel and $17.8/b respectively, while the prices per barrel of refined US gasoline cargoes on Free on Board (FOB) basis were $63.10/b and $63.58/b for premium gasoline in that order.

Accordingly, the crack spread is usually the difference between the purchase price of crude oil and the selling price of finished products, such as gasoline, that a refinery produces from the crude oil.

The spread show the short-term profit margin of refineries in consideration of the cost of the crude oil inputs to the wholesale, or spot prices of the outputs, though without other variable costs or any fixed costs.

It is also calculated in US index terms that there are 159 litres in a barrel of oil, and about seven barrels in a metric tonne of cargo. This, though not confirmed by marketers however suggests that a metric tonne of petrol may cost about $441 at the moment, and this is excluding other costs such as storage, handling and freight costs.

Some global oil and gas business expert who spoke to the paper on the development explained that the committee may have failed to work with existing market fundamentals in its investigations. One of such, Mr. Dan Kunle called on the committee to explain how it arrived at its pricing model.

He said: “We don’t know where they are coming from, how they arrived at that price or their econometric parameters. If you produced a barrel of oil for about $25 onshore and offshore for $35, and add refining and other associated costs, will you arrive at N70 per litre?”

“If their econometric was based on a 100 per cent local production and refining, when you add other inputs, can you still sell for N70 per litre? So, on that basis, the National Assembly should show their economic parameters because if it is based on importation, and at the exchange rate, can you import a litre of petrol even at 50 cents and still sell at N70 with the current exchange rate?

“If you find the median between the government and parallel market exchange rate, you will find that it is about N450 to a dollar. It is difficult for me to understand this (N70 per litre) because I have not seen their scientific analysis which should show the unit cost of producing a barrel of crude oil and refining costs, and this should also include the cost of financing,” Kunle added.

Board Meets on the Debate

Meanwhile, the board of the PPPRA on Thursday met behind closed doors perhaps to consider the debate on the pricing template following the committee’s claims and rumours of imminent price adjustments.

As reported in the media, the board which consists of the Nigerian Chamber of Commerce, Industry, Mining and Agriculture (NACCIMA), the Manufacturers Association of Nigeria (MAN), Nigeria Labour Congress (NLC), Major Oil Marketers Association of Nigeria (MOMAN), Independent Oil Marketers Association of Nigeria (IPMAN), Petroleum and Natural Gas Senior Staff Association (PENGASSAN), as well as Transport Owners, and Nigerian Employers Consultative Association (NECA), amongst others, met to consider a review of the pricing template but the outcome of their deliberation was not made available to the media at least as the time of filing this report. Efforts to get insight on details of the board’s deliberation from the PPPRA proved abortive as its officials kept mum.