Subsidy on petrol falls to N576m daily

From a high of N51.61 per litre on June 11, 2015, subsidy on every litre of Premium Motor Spirit consumed in the country has dropped to N14.39, data obtained from the Petroleum Products Pricing Regulatory Agency on Sunday showed.

The dip in the subsidy payable by the Federal Government is partly due to the sustained decline in global crude oil prices, which have continued to trade below the $50 per barrel mark in recent weeks.

The global benchmark Brent crude, which fell below $50 per barrel in January, rebounded to $65 in June, pushing up the subsidy on petrol. However, Brent traded around $48 per barrel on Sunday.

Subsidy refers to the money paid, usually by the government, to keep prices below what they will otherwise be in a free market system.

The PPPRA, in its latest pricing template released on Friday, October 2, 2015, stated that the landing cost and Expected Open Market Price (total cost) of petrol were N85.90 and N101.39 per litre, respectively.

This is against a regulated retail price of N87 per litre. The difference between the EOMP and the retail price is, therefore, N14.39.

According to the Nigerian National Petroleum Corporation, the country consumes about 40 million litres of petrol daily.

By multiplying the volume of petrol consumed across the country on a daily basis with the current amount spent on subsidising the product, it means that the government spends about N575.6m on subsidy, down from N2.06bn in June 11.

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 landing cost is the cost of the product plus freight rate at N75.03; trader’s margin, N1.47; lightering expenses, N4.19; Nigerian Ports Authority fees, N0.77; financing cost, N1.68; jetty depot throughput charge, N0.8; and storage charge, N3.

The addition of the distribution margins to the landing cost gives the EOMP (total cost). The distribution margins comprise retailers, transporters and dealers’ profits as well as bridging fund, marine transport average and admin charges.

Retailers get N4.6; transporters, N2.99; dealers, N1.75; bridging cost is N5.85; marine transport average, N0.15; and the admin charge, N0.15. The sub-total margin stands at N15.49.

When added to the landing cost of N85.90, the EOMP of N101.39 per litre is arrived at.

The Federal Government had on January 18, 2015 announced the reduction in the pump price of petrol from N97 to N87 per litre, attributing this to the decline in global crude oil prices.