Is Government still paying subsidy on Petroleum product? There are contrasting opinions on this subject matter but I would elucidate the scenario in the best way possible.
Let me put a caveat however that this is my opinion & you can educate me if I’m wrong.
It’s a thread
Let me put a caveat however that this is my opinion & you can educate me if I’m wrong.
It’s a thread
Have you heard of the acronym PEF (Petroleum Equalization Fund)?
Government in its wisdom wanted to ensure uniformity of white products (PMS, AGO and HHK) across the nation by paying for cost of transportation from the loading point to the receiving point.pefmb.gov.ng
Government in its wisdom wanted to ensure uniformity of white products (PMS, AGO and HHK) across the nation by paying for cost of transportation from the loading point to the receiving point.pefmb.gov.ng
This would have made a lot of sense if we had the equivalent in the agricultural sector as the cost of food crops at where it is harvested is different from where it is consumed. Is comparative cost advantage alien to our Government? Let’s not digress from the issue at hand.
Overtime our refining capacity dwindled and we had to rely heavily on import to meet our daily needs. PPMC (Pipelines and Product Marketing Company), the subsidiary of NNPC saddled with the responsibility of ensuring product availability couldn’t handle it alone.
They had to resort to issuing licenses to major and independent marketers for them to import petroleum products and sell at the regulated price. This was working smoothly until it was no longer profitable to sell at the regulated price due to continued devaluation of the Naira.
To address the issue, Government in its wisdom established PPPRA (Petroleum Product Pricing Regulatory Agency) in 2003 to regulate the supply and distribution of petroleum product and to also determine pricing policy of petroleum products. pppra.gov.ng/mandate/
Under the pricing template issued by PPPRA, it was clear that the landing cost was higher than the selling price but because the Government was hell bent on regulating the product, Government decided to absorb the difference in the form of subsidy payment to marketers.
As with anything that is regulated, some marketers in connivance with Government officials exploited the loopholes in and they started claiming subsidy for products not imported. The largess continued unabated until former CBN Governor Sanusi Lamido Sanusi raised alarm in 2011.
He called for complete deregulation in order to sanitize the sector. This was met with mixed reactions as people felt the masses should not bear the cost of Government’s inefficiency. The payment of subsidy didn’t stop and the opposition vowed to end it if voted into power.
Voted into power they were but instead of fulfilling the campaign promise, they continued with the payment and as our currency continued to plummet, the Government was forced to increase the pump price to match current reality. You might want to ask why the increase in price?
As earlier mentioned, as a crude oil exporter, we rely on importation of petroleum products to meet our daily demands. Absurd right? The currency for international trade is $ and price of PMS in the international market is quoted on platts using $. As prices of crude oil crashed,
The Government had a choice of either reducing their expenditure, taking funds from the excess crude account to cushion the effect of drop in revenue or devaluing the currency to still maintain the Budget. They went for the last option. ***sigh***
For a nation that is import dependent , it was a wrong move and so they came up with the ‘grow Nigeria’ which in my opinion was an afterthought. The more our currency got devalued, the more it was difficult to sell at the regulated price because it was more expensive to import
To address the issue, Government started issuing Forex at different rates to different sectors but as expected, those that had access to it started trading with it as against the reason it was collected for -importation. Somehow the system kept exploiting the loopholes.
As at today, PPMC imports almost 95% of the PMS being consumed in the country. Why are the major and independent marketers not importing? Simply because it is not profitable to do so at the regulated price which implies that somebody is absorbing the cost of the losses.
Whether or not the Gov admits, they are incurring losses on the importation of PMS into Nigeria while Nigerians also share in it through PEF reimbursement. You might also want to ask how Nigerians bear the cost of PEF? Have you heard about Bridging note? pefmb.gov.ng/?page_id=526
Sad reality is Bridging note is part of the cost that makes up the selling price of PMS and that’s where PEF gets the fund to reimburse marketers for transporting PMS via trucks.
In summary, the Gov is not paying subsidy to marketers but they are incurring losses on importation of PMS. Nigerians are equally paying to ensure it’s sold at a uniform price nationwide. Nothing really has changed @DrJoeAbah @AMADICHIMA @OfficialPDPNig @iambolar @APCNigeria
That way, marketers can import petroleum products and still sell at the regulated price even if the landing cost is higher because they would be reimbursed by the Government for the difference. This was only applicable to PMS and HHK as AGO & ATK were deregulated.
