Sunday, June 26, 2011

Nigerian Fuel Deregulation: Federal Government Targets August Cut-off Date

Fuel Deregulation: FG Targets August Cut-off Date

By Festus Akanbi
Nigeria ThisDay
26 Jun 2011

In recognition of its inability to sustain fuel subsidies and their impact on the fiscal regime of the federal government, President Goodluck Jonathan has set up a special committee comprising major marketers and other stakeholders in the economy to fully deregulate the petroleum products sub-sector of the oil industry by August this year.

The move will usher in a new pricing regime that will end price fixing of fuel and kerosene by the federal government, encourage investment by the private sector in oil refining, and in the medium to long-term, end the fuel importation regime that has been in existence for more than 15 years.

Industry sources said it is uncertain how the government intends to tackle labour unions which have been vehemently opposed to deregulation, but THISDAY checks indicated that Jonathan is bent on deregulating the sector because he is aware that government can no longer fritter away trillions of naira on subsidies that do not get to the people for whom it is intended.

Petroleum product importation also accounts significantly for the depletion of the nation's foreign reserves owing to high demand at Central Bank of Nigeria's weekly auctions by importers of petroleum products.

It is also estimated that as the economy expands and demand for energy grows, fuel subsidies will account for N1.3 trillion of federally collected revenue between 2011 and 2012 alone.

The governors last week advised the federal government to deregulate the prices of petroleum products. They took the decision to press for the removal of subsidy on petroleum products, which the government says costs billions monthly at the Nigeria Governors' Forum meeting last week in Abuja.

The governors who also renewed their campaign for a review of the revenue sharing formula, argued that the over N693 billion the federal government claims it spends annually on fuel subsidies could be shared to give the states more money.

Fuel deregulation, however, is inflationary, but the policy is expected to get the full backing of the CBN, which has always expressed concern about the sustainability of the subsidy regime and its impact on the federal government's finances.

Also, the federal government is expected to maintain that if it deregulates, this would free up resources that can be invested in better roads, railways and water transportation infrastructure.

But labour unions which have argued in favour of palliatives such as improved transportation system are expected to resist the policy. Already, organised labour has warned that government would be setting the country on fire if it goes ahead to withdraw fuel subsidy.

The Nigerian Labour Congress last week described subsidy removal as an invitation to anarchy similar to the ongoing uprising in the Arab world.

NLC acting General Secretary, Owei Lakemfa, said the removal of fuel subsidies is an indirect appeal for an increase in the cost of pump prices across the country.

Lakemfa said in a statement last week that the call for subsidy removal by governors is a bait that the federal government should not take. “There are a lot of problems in the country. Our leaders must learn from the protests that have been sweeping through North Africa and the Arab world,” the statement said.

Industry sources have also hinted that other than labour which is expected to resist the move towards deregulation, the Nigerian National Petroleum Corporation is expected to outwardly pay lip service to the policy, but will do everything behind the scenes to thwart it. Managers in NNPC and its subsidiary PPMC, have been some of the biggest beneficiaries of the deep-seated graft and inefficient supply regime in the country.

It will not be in their interest, industry sources revealed, to see the end of deregulation. According to the Petroleum Products Pricing Regulatory Agency, the federal government subsidised petroleum products to the tune of N621.5 billion last year.

The PPPRA pricing template for June, 2011 shows that a litre of petroleum product is subsidised by approximately N81 a litre.

The landing cost per litre of imported petrol, according to the PPPRA, is N135.52, but the total amount per litre is N148.72 after the addition of distribution margins as follows: retailers (N4.60); transporters (N2.75); dealers (N1.75); bridging fund plus Marine Transport Average rates (N3.95); and administrative charge (N15).

Petrol, however, is sold at N65 per litre while daily consumption of the product is currently estimated at 35 million per litres.

Kerosene is subsidised to the tune of N111.01 per litre while daily consumption is eight million litres. The pump price of Kerosene is N50 per litre, but it costs N161.01 per litre to get it to fuel stations.

In the case of kerosene, its landing cost, according to PPPRA, is N147.81. Add to this is the distribution margin which is broken down as follows: retailers - N4.60; transporters - N2.75; dealers' margin - N1.75; bridging fund plus MTA - N3.95; and administrative charge of N0.15. This brings the total cost per litre to N161.01.

Unlike petrol, which private sector marketers import, kerosene in recent months has been imported exclusively by NNPC, a development that has led to its scarcity owing to the corporation's inefficient distribution structure and corruption in the system.

Diesel and aviation fuel, on the other hand, have been deregulated for some years.

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