Against the backdrop of the fall in global oil prices, the landing cost of Premium Motor Spirit, commonly known as petrol, has dropped to N82.57 per litre as of Thursday, December 18, from N127.57 on November 3.
The Federal Government’s spending on petrol subsidy has, therefore, fallen to a five-year low of N1.06 per litre as of that, compared to N44.94 on November 3, according to data obtained from the Petroleum Products Pricing Regulatory Agency.
Subsidy refers to the money paid, usually by government, to keep prices below what they will otherwise be in a free market system.
For instance, the Expected Open Market Price (retail price) of petrol is N98.06 per litre as of December 18, but the regulated price is N97. The difference is subsidy.
As of November 3, the retail price of petrol was N141.94 per litre, according to the PPPRA.
Nigeria, Africa’s top oil producer, relies on importation for most of its fuel needs as the country’s refineries are in a poor state. The fall in oil price has triggered the decline in the landing cost of petrol.
There have been calls in some quarters on the government to reduce the pump price of refined petroleum products as the price of crude oil, which constitutes a major component in the pricing template, have plunged by more than 45 per cent.
Global benchmark Brent crude has lost almost half of its value since its mid-June spike of $115 per barrel, hovering around $61 on Sunday. It recently fell below $60 before rebounding last week.
An executive in the Nigerian National Petroleum Corporation, who pleaded anonymity, gave an indication as to why there had not been a reduction in the pump price of petrol in the country.
The executive explained, “Reduction of the pump price of petrol doesn’t happen like that because we don’t know how long this fall in oil prices will be. We had the same situation in late 2008 and early 2009. Oil price fell and we had over-recovery (a situation whereby the total cost is lower than the regulated price).
“So, the government went ahead to reduce the pump price of petrol to N65 from N70. The following day, we started having subsidy again because the oil price started increasing. By April of that year, the price had reached N140. So, the market is such that we don’t know what can happen next.”
The Managing Director and Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, had in November, when the oil price was still above $80, said that subsidy on refined petroleum products would decline from N2tn by almost 30 per cent.
According to energy specialist at Ecobank, Mr. Dolapo Oni, the weakening of the naira by low oil prices has moderated the gain from the 45 per cent decline in prices.
“While the spot price of West African grade gasoline (which is much lower than typical premium gasoline blends in Europe) has fallen by about 50 per cent, the increase in value of the dollar has limited the gains for Nigerian importers,” Oni said two weeks ago.