In this interactive session, the Executive Secretary of the Petroleum Equalisation Fund Management Board, Mr. Ahmed Bobboi, spoke about how the fund works and how its activities are assisting in stemming the rising cost of goods and services in the country. Emmanuel Addeh presents the excerpts:
Not many people have a deep knowledge of what Petroleum Equalisation Fund (PEF) does. Can you explain what the functions of the board are?
Some people call it equalisation, some people call it subsidy, but the basic thing to note is that this subsidy, if we may call it so, is not paid by the government, it is borne by the consumer himself. So, if government is talking about maybe reducing cost of governance because of subsidy, government is not talking about the one that PEF manages because government does not subsidise to the consumer. It is the consumer, you and I, which pay for what you may call the subsidy. How does it work? The thing is that we discovered that the only variable element in the business between the seller and the buyer is the transportation cost. If you can deliver the products at the pump station of all marketers because they’re bought at the same price at the depot, the only thing is that there are differences between the distances between petrol stations and the source of the order. PEF now takes up the transportation cost to the outlet of the marketer wherever they are in this country. And the way it is done is that we have three different schemes, we call one equalisation, the district movement and the third is the bridging. Equalisation is the number of …within a particular depot. These are divided based on the location of the PPMC depots, but that was before the advent of private depots because government liberalised the business and private individuals were allowed to build their storage facilities. The original one was designed around 21 or 22 depots. Movement within the depot location at 50 kilometres is called zone 1, 51-100 is zone 2, 101-150 is zone three until it gets to zone 9 which makes up 450 kilometres from the depot. Any movement beyond 450 kilometres is regarded as bridging because the distance is beyond the original nine zones that as designed because in the beginning it was expected that each depot will be able to service the immediate surroundings. That was when products were available in all the depots.
So, what changed?
After some time, things changed and it required that marketers needed to move distances beyond their depot zones to avoid scarcity. That is how bridging emerged. Bridging was designed to cover movement of product during periods of turn-around-maintenance of the refineries or when there are issues with the pipelines. But the pipelines were supposed to transport these products around the country. That was the designed network. But after some time, the depots have not been functioning properly, the pipelines have been vandalised, now instead of 30 per cent maximum bridging, it is now about 100 per cent. The cheapest we can have is 98 to 99 per cent because the movement through the pipelines is very low. In the past, because they were registered under respective districts that I mentioned, before movement, they needed approval from the NNPC because they are moving outside their depots. Marketers were divided into primary and secondary depot. If you are under Suleja, that’s your primary depot, while Minna is secondary depot. If Suleja does not have products, marketers will move to Minna and buy. But if you are going beyond Suleja and Minna as a Suleja marketer, you needed approval. But that was before the government liberalised the industry where private depots came in.
Because of this, we introduced the movement between one depot and another. You move from one depot district to another depot district.
In the past, we have had complaints that if we do not bridge, we will not get money. Between zone one and two , it is assumed that the cost of transportation that the marketer must have paid is not up to the amount on the template. So, he’s expected to return the difference if he’s in zone 1 and 2. So, the difference comes back to the fund which is now used to reimburse those within zones 3 to 9.
Can you explain how bridging is done?
For bridging, there’s a separate allowance. Before the changes that have been on and off, we were collecting N7.20k for bridging and N3.36 for local transportation. These collections are the ones we use in the fund that determine how much the marketer claims. We pay per litre and kilometres covered. So, the more volume you carry and the farther the distance you cover, the more money. That is rate per litre multiplied by the volume multiplied by distance. You as consumer does not feel the N7.20k you are paying. The burden is not much on you because you calculate the amount you would have spent to go to Lagos for instance to buy it yourself.
How do you think this affects government and the general economy?
Government should be happy because we are stabilising the price of PMS (petrol) and other price of products in the market. Because if you tinker with the price of petrol, obviously it will affect the price of other commodities in the market. This the scheme we are trying to replicate in gas supply because government has declared this as the decade of gas and we have seen that this has been working for the economy for over 45 years effectively. Because things are much better and if you want to see the benefits, then look at it that in the absence of this scheme what happens to other commodities prices, to the economy, to inflation and then many businesses would have been adversely affected. If it’s working well for petrol and government wants to promote the use of gas, if we can take the practice to gas, we believe that it will add value to the economy in so many ways in the value chain. This will help consumers accept usage of gas and age-long use of firewood with its attendant problems and challenges and the health hazards associated as well as deforestation which causes a lot of problems in the country will stop. This will make the product available because we have a lot of gas in the country , it will make it affordable which will incentivise the marketers to take it to the last mile, the consumer will also be incentivised because the marketer will bring down his price to make it affordable and accessible to the consumer. This will do a lot of good to the economy. This is our view.
How much does it cost to bridge or transport on a monthly basis?
What I keep saying is that it is a moving target. You may not have how much you pay per month because these figures keep changing. As we speak, many trucks must have loaded and are on their way now to the distributors. So, the marketer has started counting. The moment we see it, we start computing as a potential claim. The movement is not to one destination. If it’s only from Lagos to Suleja, then you know the distance, but it varies. There are over 100 destinations from the depots in the country. It may be Sokoto, Kaura Namoda, Jega etc. So, it’s difficult for anybody to say this is the cost of bridging in one month. But if you look back, you can say in May two years ago, this is what we paid for petrol because we give them 10 days to deliver the product after loading. If you load on the 28th of April, and has not arrived until 2nd or 4th of May, the loading is April, but the receipt is in May. And it’s not cash and carry, you need to process it and check that it is delivered and also ensure it was sold at approved prices because we also work with the PPPRA. But at the end of the year, we do it for accounting purposes.
How soon are we seeing the deployment of equalisation in the gas supply chain?
We have not started equalising for gas yet because government is still advocating for the acceptability of the use of gas. The decade of gas has been declared and many things are being put in place to have a workable framework. The Petroleum Industry Bill (PIB) is still in the national assembly which is considering most of the issues and whatever comes out from that deliberation will be the guiding point for all of us because we want to know the fate of PEF itself and then look at the mandate of the new or additional mandate. Once we have the legal and legislative backing, then we will come with a clear framework.
Transport owners are demanding a new bridging rate. How soon will this happen?
It’s true that NARTO spoke about this at its annual general meeting. At that time, we said it was going to be N9.11k. It was approved after series of negotiations with all stakeholders because the transporters asked for N18 plus. We had to sit down to look at all the parameters.
The assent was about to be given when labour came up with some issues because if you remember, a new pump price was announced and they kicked against it. Government came up with new electricity tariff, they kicked against it. So, these two issues became serious for government consideration at the federal level. All the relevant agencies were called together. It was agreed that the technical committee should be set up to revisit that template. Labour’s concern was that the margins were increased which will translate to increase in pump price. Which was why labour cautioned government. The technical committee met and labour said from all indications, pump price will increase, what is government going to do reduce the hardship if it happens? So, government said it will consider it. So, we are at that stage now. We deliberated and we are looking at even if coming out with a temporary arrangement without the template, maybe to move from one place to another.
Are there other issues you want the public to know about your activities Yes, there are some things I didn’t mention. Apart from gas development, we are also looking at the possibility of making marketers to transport their products by rail because the government is revamping many of the critical rail lines. We think that if marketers will patronise the railway system, that will reduce the pressure on the road and also increase turnaround time because one rail journey can take up to 20 or more vehicles. If we do that, it saves a lot of cost and reduces pressure on the road. Many state governments are complaining that heavy duty vehicles are plying their roads and destroy the road. This will reduce cost of road maintenance by government. You can equate petrol to other commodities in the market like coca cola, water in bottles etc. It’s the same price of Coca-Cola in Lagos, Enugu, Abuja, Port Harcourt, Yenagoa etc. It’s the same thing that is being applied in petrol supply. We were equalising for all the other products , including diesel, kerosene etc, but marketers started talking about market forces determining prices and that it will eventually go down due to competition. But since the deregulation of these products the prices have never gone down.
There’s competition, but it keeps going up. And they are not even as essential as petrol because cost of transportation, cost of running generators etc fall on petrol prices. Diesel was far lower than petrol, but the moment it was deregulated, instead of the price going down, it keeps going up and the price of other commodities will also go up.
