Laguda:
Your question has to do with how would the Government can "regulate price of a production in an "open economy" where subsidy does not exist".
Well, I will respond to you quickly, starting with the following diagram of fuel depots around the country:
(1) The South of Nigeria is replete with depots, including NNPC depots. 75 out of the 79 Independent Marketer depots, 20 out of the 23 Major Marketer depots, and 11 out of the 22 NNPC depots are in the South - that is 106 depots total in the South - with Lagos area having 59 of them. If there is enough fuel in these depots, there should be not much problem in maintaining sustainable prices in the South.
(2) There needs to be more depots - but private and public - built in Central and Northern Nigeria.
(3) Traveling around the country by road, one notices how our roads are ridiculously plugged with fuel tankers going long distances - a very inefficient way of moving fuel around. (During Christmas period, it took my family eight hours between Lagos and Benin. We had to spend the night in Benin before continuing to Bayelsa the following day.) Therefore, a more extensive pipeline system between depots - and between refineries and depots - in addition to an integrated road--and-rail transportation of fuel tankers must be developed. The rail system should initially be more emphasized for MATERIALS transportation (liquid and solid minerals) rather human transportation.
(4) Ultimately, our refineries in Warri, Kaduna and Port Harcourt - with a name-plate of 440,000 barrels per day - must be made to work 95-100%, either through more private or public investment - or both. Each 42-gallon-barrel yields 19 gallons of petrol, meaning that with 1 gallon equal to 3.785 liters, a 100% working refinery will give us 31.6 million liters per day, which would be about 75% of our daily 40-million-liters national need. We need to get our refineries working, encourage Dangote to complete his 650,000 bpd private refinery soon, and enable more modular refineries (of the 40-100 bpd capacity) to begin operation.
We have a short window to do all of these things - and I am confident they can be done.
And there you have it.
Bolaji Aluko
Signing off
On Thu, Dec 31, 2015 at 3:03 PM, 'danoye oguntola' via USA Africa Dialogue Series <usaafricadialogue@googlegroups.com> wrote:
--Dear Prof AlukoI wish to join BAI to ask for a simple explanation of this reduction in pump price of PMS for the benefit of the common man in view of change. Yes the price has been reduced but the filling stations still sells in my area in Lagos for between 87-130 naira per litre. I engaged two managers out of curiosity to know why the difference in prices especially in view of the roles played by DPR in recent times in sealing up filling stations selling above "normal" price. My first respondent informed me that he does not patronize NNPC depots but buy from private depots in Lagos at a price that is between 97 and 105 Naira per litre. The question then is how much will he sell to be in business? The second respondent who claimed to buy from NNPC depot said the "Nigerian factor" made it difficult if not impossible for the PMS to get to his station at 100 Naira per litre. So the question for you sir is how would the Government regulate price of a production in an "open economy" where subsidy does not exist? For me, I rather think the best PMB should do is to officially pronounced the complete withdrawal of "subsidy" and inform the common man to brace up to the challenge of buying the product at different prices from different vendors. This will remove doubt in the policy of government in this regard and restore confidence in the process so long as the product is available at all times..........I await your response.LagudaOn Thursday, December 31, 2015 1:09 PM, Mobolaji Aluko <alukome@gmail.com> wrote:
--Dear BAI:On Thu, Dec 31, 2015 at 10:35 AM, <o......s@yahoo.com> you wrote:Dear Prof Aluko,
Thanks so much for your analysis of issues at all time. I do enjoy it.
There's a particular aspect the government has always been oblivious about in subsidy or price modulation debate. That's how it ultimately affects the common man/woman. I can confirm to you that in Akure where I live, and I've travelled through Osun, Kogi, Delta, Anambra, Imo, Rivers, Bayelsa, Edo and suburbs of Abuja for the past three weeks or so, no filling station we bought fuel from has correct measurement of litre, while prices ranged from N120 to N170. Therefore, even when the price is reduced, which is good at least for the change agenda, there's more need to ensure that at 86.50 per litre, we are not buying less than a litre at that price. Correct litre, reduced price, that's only when we can appreciate it. Otherwise, we may be where we are. Can't government do something in this direction?
Praying God to bless you and all yours in 2016, in Jesus' name.
BAIThanks for your thoughts.All government policies are an admixture of politics and economics - among other factors - and this price modulation policy is no different.Many people, including yours truly, believe that "fuel subsidy" existence is not actually real. Rather it is a legacy support scheme once introduced politically that has since hurt the nation through manipulative and corrupt means. However, it has become difficult over the years to remove it "just like that" without causing some discontent in society, so care had to be taken about how and when to remove it.Since the subsidy SUB - some positive difference between OPM and fixed retail price FRP (or pump price), however defined - is determined from some thirteen cost items in a template, clearly that same template had to be referred to again to modulate subsidy. Some of the cost items leading to the OPM are fixed by(A) the vagaries of international commodity and transportation pricing;(B) some by local negotiating realities, and others(C) by government.then government, in its own wisdom, has some level of control over (B) and (C), while watching the extant (A) to see whether it increases or reduces the OPM, and then see whether the new OPM (say OPM-2) is greater or lower than the old FRP (say FRP-1). That is what price modulation is all about.The old subsidy SUB-1 was OPM-1 minus FRP-1. Now if government STILL wishes to pay subsidy, it can of course still change FRP-1 to FRP-2 to make OPM-2 minus FRP-2 positive. But what it has done now is to reduce FRP-1 to FRP-2 in such a manner that OPM-2 minus FRP-2 is negative, in effect eliminating the need for subsidy.It is a neat trick, I think, particularly when coupled with setting a price range to N87-97 (rather than a fixed value) before government intervenes more strenuously! :-)As to your real experience about fuel prices being in the stratospheric ranges outside the set price, I too have experienced same, having traveled from Yenagoa to Lagos and back by road during the past two weeks. However, rather than Government trying to enforce prices at ALL PETROL STATIONS, my suggestion is that it should enforce these ONLY at:(1) the 124 FUEL DEPOTS, which should sell at the set N77.00 / liter ex-depot price;(2) the NNPC petrol stationsand let ALL others sell at whatever pricing they wish to sell. The problem is that most petrol stations have correctly stated that they cannot sell at prices LESS than they have bought the petrol ex-depot, when they are not "crazy."The table below is a summary of petroleum products storage in Nigeria:According to the latest news item:QUOTE[Farouk] disclosed that PPPRA had approved for importation three million metric tonnes of petrol in the first quarter (Q1) of 2016, of which NNPC was granted 78 per cent of the total allocated volume for the period, while 22 per cent would be supplied by other oil marketing companies.UNQUOTENow 3 million MT of petrol is about 4,000 million liters (1 MT is 1341 liters). which, if the daily need in Nigeria is 40 million liters, will last for 100 days - or roughly just over one quarter (three months). Of that amount, just over 3,000 million liters will be made available to NNPC depots (which, according to the table above is more than twice the total available capacity of all the 22 NNPC/PPMC depots), while the remain 1,000 million liters will be made available to the almost 100 independent and major marketers (which is just less than half of their total capacity.) So clearly, it appears to me that there will be an attempt to control prices through MORE availability of fuel at NNPC/PPMC depots, and worry less about what happens at petrol stations, except at NNPC petrol stationsWe shall see....And there you have it.Bolaji AlukoOn Thu, Dec 31, 2015 at 10:35 AM, <o......s@yahoo.com> wrote:Dear Prof Aluko,
Thanks so much for your analysis of issues at all time. I do enjoy it.
There's a particular aspect the government has always been oblivious about in subsidy or price modulation debate. That's how it ultimately affects the common man/woman. I can confirm to you that in Akure where I live, and I've travelled through Osun, Kogi, Delta, Anambra, Imo, Rivers, Bayelsa, Edo and suburbs of Abuja for the past three weeks or so, no filling station we bought fuel from has correct measurement of litre, while prices ranged from N120 to N170. Therefore, even when the price is reduced, which is good at least for the change agenda, there's more need to ensure that at 86.50 per litre, we are not buying less than a litre at that price. Correct litre, reduced price, that's only when we can appreciate it. Otherwise, we may be where we are. Can't government do something in this direction?
Praying God to bless you and all yours in 2016, in Jesus' name.
BAISent from my BlackBerry wireless device from MTNFrom: "Mobolaji Aluko alukome@gmail.com [NigerianID]" <NigerianID-noreply@yahoogroups.com>Sender: NigerianID@yahoogroups.comDate: Thu, 31 Dec 2015 09:37:14 +0100To: africanworldforum@googlegroups.com<africanworldforum@googlegroups.com>; naijaintellects<naijaintellects@googlegroups.com>; NigerianWorldForum<NIgerianWorldForum@yahoogroups.com>; NaijaPolitics e-Group<NaijaPolitics@yahoogroups.com>; Ra'ayi<Raayiriga@yahoogroups.com>; AfricanWorldForum@yahoogroups.com<AfricanWorldForum@yahoogroups.com>; nigerianid@yahoogroups.com<nigerianID@yahoogroups.com>; OmoOdua<OmoOdua@yahoogroups.com>; USAAfrica Dialogue<USAAfricaDialogue@googlegroups.com>; ekiti ekitigroups<ekitipanupo@yahoogroups.com>; Yan Arewa<YanArewa@yahoogroups.com>; NiDAN<nidan-group@googlegroups.com>ReplyTo: Mobolaji Aluko <alukome@gmail.com>Subject: NigerianID | STAR INFORMATION: FG Approves New Petrol Prices: NNPC to Sell at N86/litre, Marketers N86.50k {Re: On the Matter of FG finally scrapping fuel subsidy and reducing (?) petrol price to N85/litre from Jan 1, 2016QUOTEMotorists yesterday got a New Year present. Petrol is to sell for N86 per litre at Nigeria National Petroleum Corporation (NNPC) outlets. Others will sell at N86.50k as against the present N87 per litre. The Petroleum Products Pricing Regulatory Agency (PPPRA) said the prices would run from January 1 till March 31, under a revised pricing template. PPPRA Executive Secretary Farouk Ahmed broke the news to reporters in Abuja. Within the new pricing template, the government approved two pump prices-one for NNPC retail outlets and the other for retail outlets operated by private business concerns. Both open market prices indicate a N1 and 50k drop from the official pump price of N87 per litre, which will become obsolete on December 31 – tomorrow.UNQUOTEMy People:Although PPPRA has not provided its final template, however, from newspaper reports and my own arithmetics, I believe that the table below will apply with respect to the ongoing quarterly (rather than daily) price modulation. Of the thirteen cost items, seven have been reduced in amount (#1-4, 6-7, 13 with one #2 completely eliminated/zeroed), three (#10-12) have been increased, and three (#5, 14, 15) have been retained, all resulting in a reduced Expected Open Market Price OMP of N86.29 per liter (instead of N93.41) for retailers and N85.93 for NNPC (which saves the N0.36 per liter from lower financing). With the pump price (compared to OMP) then being set to the nearest whole number or 50 Kobo, retailers and NNPC pump prices have then been set to N86.50 and N86.00 respectively, effectively eliminating subsidy at the same time as marginally reducing the pump price from the previous N87.00. Furthermore, nothing will be done by government with respect to further price modulation unless the OMP price moves OUTSIDE the N87 - 97 band - or until April 1, 2016, whichever comes first.Quite some un-common political calisthenics.....And there you have it.Bolaji AlukoPricing Template – PMS (anticipated by Aluko)
FG Approves New Petrol Prices: NNPC to Sell at N86/litre, Marketers N86.50k
30 Dec 2015• New prices to last from Jan 1 to March 31
• PPPRA reviews pricing template, grants import permits for 3mmt of fuel for Q1
• NLC warns against removal of fuel subsidy under any guiseChineme Okafor and Paul Obi in AbujaThe federal government, through the Petroleum Products Pricing Regulatory Agency (PPPRA), on Tuesday approved new pump prices of petrol starting from January 1 to March 31, 2016 under a revised pricing template.
Under the new pricing template, the government approved two pump prices – one for the retail outlets of the Nigerian National Petroleum Corporation (NNPC), which will sell at N86 a litre, and another for retail outlets operated by private business concerns in the downstream petroleum sector, which will dispense at N86.50 a litre.
The Executive Secretary of the PPPRA, Farouk Ahmed, disclosed this to journalists in Abuja. He said NNPC was expected to sell petrol at N86 per litre to customers at its retail outlets, while other operators would sell at N86.50k per litre.
He said both open market prices reflect a drop of N1 and 50k respectively from the current official price of N87 per litre, which will no longer obtain after December 31.
Ahmed added that the announcement followed the approval granted by the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, for the implementation of the revised template.
Similarly, he disclosed that PPPRA had approved for importation three million metric tonnes of petrol in the first quarter (Q1) of 2016, of which NNPC was granted 78 per cent of the total allocated volume for the period, while 22 per cent would be supplied by other oil marketing companies.
According to Ahmed, the cost elements that were affected by the review of its pricing template for petrol included the traders' margin which was revised downwards from N1.47 per litre to zero; lightering expenses, from N4.07/litre to N2.00/litre; charges by the Nigerian Ports Authority (NPA), from N0.77/litre to N0.36/litre; jetty throughput charges, from N0.80/litre to N0.40/litre; storage charge, from N3.00/litre to N1.50/litre; bridging fund, from N5.85/litre to N4.00/litre; and ex-depot price, from N77.66/litre to N77.00/litre.
He stated that other elements such as the retailers' margin were however revised upwards from N4.60/litre to N5.00/litre; transporters' margin, from N2.99/litre to N3.05/litre; and dealers' margin, from N1.75/litre to N1.95/litre.
"Accordingly, the ex-depot price of petrol shall be N77.00k per litre, while the pump price shall be N86.50k per litre in line with the prevailing market trend.
"The key thing here is that with the revision, the open market price has come down slightly. The new pump price for private marketers is N86.50k, down from N87 per litre, effective January 1, 2016.
"However, for NNPC imports, because an element of the template which is the financing cost is not captured in the NNPC template, its imports are slightly lower, so NNPC's price will be N86 per litre, meaning that if you go to NNPC retail stations, you should buy at N86 per litre and N86.50k in other stations," Ahmed explained.
He noted that the new price regime was being introduced to engender competition and stability in the downstream petroleum sector.
"Another important point is that this is not static, as there will be a quarterly review of the pricing template. However if there is a major shift, the minister may call for a review either upwards or downwards depending on the market.
"But for now, at least for the first quarter, this price remains for three months, from January to March," he said.
Ahmed further disclosed that there is supposed to be a pricing advisory committee made up of industry technocrats, which would meet from time to time and advise the PPPRA on price movements.
"But the PPPRA will still sit down and do its work while the committee will advise it on any drastic movement in price," he said.
He also confirmed Kachikwu's recent statement that there was no subsidy on petrol under prevailing market trends (the prevailing price of crude oil in the international market).
"The open market price is N86.29k, if you do the calculation, that means there is an element of over-recovery and what we will do now is that we will go back to the marketers and bill them for the recovery.
"With regards to NNPC, their arrival is N85.93k but they are selling at N86, so there will also be an element of over-recovery. However, we are comfortable with the numbers," he said.
Speaking more on the review, Ahmed said: "In order to encourage investments in retail outlets, we slightly increased the provisions in the retailers, transporters, and dealers' margins.
"In terms of the distribution margins, we have also revised down the bridging fund and increased the retailers, dealers and transporters' margins."
On the first quarter import permits, Ahmed did not disclose the identity of marketers selected for the period but stated that the agency had taken into consideration three key factors in selecting them.
These factors, he said included retail outlets ownership; marketers' performance in previous quarterly allocations; as well as the challenges in sourcing foreign exchange.
He noted that in allowing NNPC to import 78 per cent of the total allocated volume, the agency envisaged that the corporation would have fewer challenges sourcing for foreign exchange while the Central Bank of Nigeria (CBN) would be able to comfortably take care of the foreign exchange demands of other marketers who would import the remaining 22 per cent.
"This measure is to guarantee uninterrupted fuel supply nationwide. Marketers are required to note that there shall be a mid-quarter review of performance where volumes of non-performing marketers including the NNPC shall be withdrawn and reallocated to performing marketers," Ahmed explained.
He also stated that the NNPC had in previous allocations done up to 111 per cent in product importation to stabilise supply, adding that future allocations shall be based on 100 per cent performance in the first quarter allocation.
Ahmed equally stated that the revised template was built a little bit above the domestic consumption of 40 million litres per day.
He disclosed that the agency was currently verifying for the months of October, November and December marketers' subsidy claims, after which the Debt Management Office (DMO) would be advised on further action.
PPPRA's briefing on the new prices of petrol and its revised pricing template came just as the Nigeria Labour Congress (NLC) said it would resist all attempts to remove the subsidy on petrol through the back door.
The body observed that there had been frantic efforts by the All Progressives Congress (APC)-led federal government to hoodwink Nigerians through deception in the planned removal of fuel subsidy.
In a statement released yesterday by the NLC and signed by its General Secretary, Dr. Peter Ozo-Eson, the body maintained that the move by the Muhammadu Buhari-led government to remove fuel subsidy was a replica of the 2012 fuel subsidy crisis, of which many chieftains of APC were the kingpins who led the protest against its removal.
Ozo-Eson said: "In the past few weeks, we have heard discordant tunes from government officials and chieftains of the ruling APC on what the future portends for the price of petroleum products and the management of the subsidy scheme.
"Party chieftains who supported and encouraged the massive protests against subsidy removal in 2012 are now preaching the inevitability of subsidy removal!
"The Minister of State for Petroleum first announced that come next year the price of petrol will revert to N97 per litre and that subsidy will be phased out.
"Two days thereafter, he denied this and stated that what he said was that the price will operate within a band of N87 to N97 and that this did not mean removing the subsidy.
"The same minister now says that the price of petrol will be N86 in January, signifying the deregulation of the sector.
"These vacillations and flip flops are, in our view, designed to confuse Nigerians and pave the way for deregulation of petrol prices through the back door.
"The fact of the matter is that as long as we continue to depend on imported refined products, deregulation and the abandonment of the subsidy scheme will unleash hardship on Nigerians."
The NLC general-secretary also stressed that the determination of recommended prices of petroleum products was the responsibility of PPPRA.
"By law, the board of PPPRA is made up of stakeholders. None of the contradictory prices the minister is throwing up is a product of the agency.
"Indeed, the board of the PPPRA has not operated for over two years, although we have made repeated demands for the convening of the board.
"We call on the government to be guided by the rule of law, and constitute and convene the board of PPPRA in accordance with the law without further delay.
"This will enable the agency to examine and agree a new pricing template based on the realities of today. Any price unilaterally determined and announced by the minister is in violation of the law.
"In the meantime, we wish to restate our opposition, adopted at our Central Working Committee (CWC) emergency meeting of 22nd December, to any attempt by the government to increase the price of or remove the subsidy on petrol.
"We reiterate our directive to our state councils and industrial unions to commence the process of mobilisation prior to a meeting of the National Executive Committee (NEC) to be convened in the New Year," he said.
Also speaking to THISDAY on the issue, NLC President, Mr. Ayuba Wabba, expressed great concern over comments credited to an APC chieftain and former governor of Lagos State, Bola Tinubu.
Tinubu had called for the removal of fuel subsidy, a policy he vehemently opposed in 2012 under President Goodluck Jonathan's administration, ostensibly for political reasons.
Wabba said: "It is a great surprise to hear that Tinubu is calling for the removal of fuel subsidy," adding that NLC would seriously resist the plan to remove the subsidy.
He held the view that Tinubu's comments fall flat on the face of the APC campaign, given that the party in different forums had supported the retention of fuel subsidy.
The APC and Tinubu have come under intense criticism over their support for the removal of fuel subsidy, with many describing their new stance as hypocritical, given that Tinubu was believed to be the brain behind the sponsorship of the protests, particularly in Lagos in 2012, against the removal of subsidy.REVISED PPPRA PRICING TEMPLATE FOR PETROL
COST ELEMENTS OLD (Per Litre) NEW (Per Litre)
Traders' Margin N1.47 N0.00
Lightering Expenses N4.07 N2.00
NPA Charge N0.77 N0.36
Jetty Throughput N0.80 N0.40
Storage Charge N3.00 N1.50
Bridging Fund N5.85 N4.00
Ex-depot Price N77.66 N77.00
Retailers' Margin N4.60 N5.00
Transporters' Margin N2.99 N3.05
Dealers' Margin N1.75 N1.95
• This template excludes cost and freight charges for importing petrol into Nigeria__THE NATIONPetrol to sell for N86 from Jan 1
Posted By: John Ofikhenuaon: December 30, 2015MotoristS yesterday got a New Year present. Petrol is to sell for N86 per litre at Nigeria National Petroleum Corporation (NNPC) outlets.Others will sell at N86.50k as against the present N87 per litre.The Petroleum Products Pricing Regulatory Agency (PPPRA) said the prices would run from January 1 till March 31, under a revised pricing template.PPPRA Executive Secretary Farouk Ahmed broke the news to reporters in Abuja.Within the new pricing template, the government approved two pump prices-one for NNPC retail outlets and the other for retail outlets operated by private business concerns.Both open market prices indicate a N1 and 50k drop from the official pump price of N87 per litre, which will become obsolete on December 31 – tomorrow.Farouk said the announcement followed the approval of the Minister of Petroleum Resources, Dr. Ibe Kachikwu, for the implementation of the revised template.The PPPRA has approved importation of three million metric tonnes of petrol in the first quarter of the year. The NNPC was granted 78 per cent of the total allocated volume for the period. The balance of 22 per cent will be supplied by other oil marketing companies.According to Farouk, a couple of elements that were affected by the price review include traders' margin, which was revised downwards from N1.47 per litre to zero; lightering expenses (N4.07/litre to N2.00/litre) charges by the Nigerian Port Authority (NPA), (N0.77/litre to N0.36/litre); jetty throughput charges, (N0.80/litre to N0.40/litre); storage charge (N3.00/litre to N1.50/litre); bridging fund (N5.85/litre to N4.00/litre) and ex-depot price (N77.66/litre to N77.00/litre).Other elements, such as retailers' margin, were, however, reviewed upwards from N4.60/litre to N5.00/litre; transporters, from N2.99/litre to N3.05/litre; dealers' margin, from N1.75/litre to N1.95/litre;"Accordingly, the ex-depot price of PMS shall be N77.00k per litre while the pump price shall be N86.50k per litre – in line with the prevailing market trend."The key thing here is that with the revision, the open market price has come down slightly. The new pump price is N86.50k, down from N87 per litre, effective from January 1, 2016."However, for NNPC import, because an element of the template which is the financing cost, is not captured in the NNPC template. Therefore, NNPC import is slightly lower. The NNPC price will be N86 per litre, meaning that if you go to NNPC retail stations, you should buy at N86 per litre and then N86.50k in other stations," Ahmed said.The idea is to instill competition and stability in the downstream petroleum sector, he said."Another important point is that this is not static as there will be a quarterly review of the price template. However, if there is a major shift, the minister may call for a review either upwards or downwards, depending on the market."But for now, at least for the first quarter, this price remains for three months, from January to March," he added.Ahmed noted that there was to be a pricing advisory committee made up of industry technocrats and which would sit down from time to time and advise the PPPRA on price movements.He added: "But the PPPRA will still sit down and do its work. The committee will advise it on any drastic movement in price."The open market price is N86.29k. If you do the calculation, that means there is an element of over recovery and what we will do now is that we will go back to the marketers and bill them for the recovery."With regards to NNPC, their arrival is N85.93k but they are selling at N86, so there will also be element of over recovery. However, we are comfortable with the numbers."Speaking more on the review, Ahmed said: "In order to encourage investments in retail outlets, we slightly increased the provisions in the retailers, transporters, and dealers' margins."In terms of distribution margin, we have also revised down the bridging fund and increased the retailers, dealers and transporters' margins."On the Q1 import permit, Ahmed did not disclose the identity of marketers selected for the period but stated that the agency had considered three key factors in selecting them.These factors, he said, include retail outlets ownership; marketers' performance in previous quarterly allocation; as well as the challenges in sourcing foreign exchange.He noted that in allowing the NNPC to import 78 per cent of the total allocated volume, the agency envisaged that the corporation would have little challenges in sourcing for foreign exchange while the Central Bank of Nigeria (CBN) would be able to comfortably take care of the foreign exchange demands of the other marketers who would import the remaining 22 per cent."This measure is to guarantee uninterrupted fuel supply nationwide. Marketers are required to note that there shall be a mid-quarter review of performance where volumes of non-performing marketers, including the NNPC shall be withdrawn and reallocated to performing marketers," Ahmed explained.He also stated that the NNPC had in previous allocations done up to 111 per cent in product importation to stabilise supply, adding that future allocations shall be based on 100 per cent performance in the Q1, 2016 allocation.Ahmed said the revised template was built a little bit above the earlier daily consumption rate of 40 million litres per day.He said the agency is currently verifying the October, November and December claims of marketers for subsidy, after which the Debt Management Office (DMO) would be notified for further action.On Sat, Dec 26, 2015 at 3:00 PM, Mobolaji Aluko <alukome@gmail.com> wrote:My People:If the report of the FG finally scrapping fuel subsidy and reducing (?) petrol price to N85/litre from Jan 1, 2016 is correct, then Minister of State for Petroleum, Dr. Emmanuel Ibe Kachikwu is moving in the right direction here, as he inspects more closely some of the arbitrariness in the Pricing Template that is used to determine the so-called "Fuel Subsidy" that we have been allegedly paying......May his tribe increase....Please come with me....In the PMS Pricing Template posted below by PPPRA for Christmas Day 2015, the expected Expected Open Market Price (OMP) for PMS based on thirteen cost items is N93.45 per liter. With the Retail Price fixed at N87 per liter, that requires a so-called subsidy of N6.45 nper liter. Let us put that at N6.5 per liter. To be more aggresive and fix the price at N85 means a subsidy removal of N8.5 per liter.Let us stay with N6.5 per liter subsidy removal for now, meaning an OMP of N87 per liter.That means that if on average EVERY cost element were reduced in price by N0.50 per liter, the OMP would come to N87 per liter. More realistically, if we leave three of the cost elements (#5, 14 and 15) in place, reduce two of them (#4, 6) by N0.25 per liter, two of them (#2, 12) by N0.5 per liter, four of them (#3, 7, 10, 11) by N0.75 per liter, one of them (#13) by N1.0, and one of them (#1) by N1.25 per liter and impose a Highway Maintenance Tax of N0.25 per liter (instead of building new toll gates, which require new capital costs without assurance of recovery), then we can still maintain the OPM at N87, and thereby completely eliminate so-called "subsidy". After all, some of those charges are somewhat arbitrary - some are even government-imposed (eg NPA cargo charges) - and are subject to negotiations.These are examples of the "price modulations" that Kachikwu must be talking aboutIn finally removing subsidy, the move must be properly explained to The People. The Wailing Wailers must NOT be allowed by subterfuge to turn The People against The Government under the political guise of protecting The People against Subsidy Removal - as we had in January 2012.And there you have it.Bolajij Aluko_______________________________________________________________Pricing Template – PMSPosted on December 25, 2015 by pppra in Pricing Templates // 0 Comments
1. PRODUCT COST ($/MT)
This is the monthly moving average cost of products cost as quoted on Platts Oil gram. The reference spot market is North West Europe (NWE).2. FREIGHT ($/MT)
This is the average clean tanker freight rate (World Scale (WS) 100) as quoted on Platts. It is the Cost of transporting 30, 000mt (30kt) of product from NWE to West Africa (WAF). Trader's margin of $10/MT is also factored into the Freight cost.3. LIGHTERING EXPENSES ($/MT)
STS/Local Freight charge is the cost incurred on the transshipment of imported petroleum products from the mother vessel into daughter vessel to allow for the onward movement of the vessel into the Jetty. This charge includes receipt losses of 0.3% in the process of products movement from the high sea to the Jetty and then to the depot. The mother vessels expenses are based on the allowable 10 days demurrage exposure at the rate of $28,000 per day.The Lightering Expenses also includes the Shuttle vessel's chartering rates from Offshore Lagos to Lagos and Port Harcourt which currently stands at N2.00 per litre and N2.50 per litre respectively. Transshipment (STS) process is as a result of peculiar draught situation and inadequate berthing facilities at the Ports.4. NIGERIA PORT AUTHORITY (NPA) CHARGE ($/MT
It is the cargo dues (harbor handling charge) charged by the NPA for use of Port facilities. The charge includes VAT and Agency expenses.Currently, NPA charge attracts $10.50/MT on the pricing template.5. FINANCING
It refers to stock finance (cost of fund) for the imported product. It includes the cargo financing based on the International London Inter bank Offered Rates (LIBOR) rates+5% premium for 30 days (for Annual Libor rate of 2.07%, LIBOR cost would be 7.07%). Also included in the Finance cost is the inertest charge on the subsidy element being awaited for an allowable 60 days period at Nigerian Inter Bank Offered Rate (NIBOR) rate of 22%.6. JETTY DEPOT THRU PUT
This is the tariff paid for use of facilities at the Jetty by the marketers to move products to the storage depots. The value is currently N0.80/litre.7. STORAGE CHARGE
Storage Margin is for depot operations covering storage charges and other services rendered by the depot owners. The charge is currently N3.00/litre.8. LANDING COST
It is the cost of imported products delivered into the Jetty depots. It is made up of components highlighted above (1, 2, 3, 4, 5, 6 and 7).9. DISTRIBUTION MARGINS
These include Retailers (N4.60 per litre), Transporters margins (N2.99 per litre), Dealers margin (N1.75 per litre), Bridging Fund (plus Marine Transport Average) (N6.00 per litre) and Administrative charge (N0.15 per litre). This amounts to N15.49 per liter on the template. The overhead cost and other running costs have been considered in the determination of these margins.10. TAXES
These include highway maintenance, government, import and fuel taxes. It has the overall objectives of revenue generation, social infrastructure investment and servicing and efficient fuel usage. Presently, all these attract zero taxes.11. RETAIL PRICE
This is the expected pump price of petroleum product at retail outlet. It is made up of landing cost of imported product plus reasonable distribution margins._______________________________________________________________________FG to scrap fuel subsidy, reduce petrol price to N85/litre from Jan 1
The Federal Government would on January 1 next year reduce the pump price of the Premium Motor Spirit (PMS) to N85 per litre, reports PR Nigeria.The Minister of State for Petroleum, Dr. Emmanuel Ibe Kachikwu [image above] broke the news to journalists in the Port Harcourt Refinery Company (PHRC), where he spent Christmas inspecting the plant.Asked when the Federal Government would release the new price template of the Petroleum Product Pricing Regulation Agency (PPPRA), he said that he approved the new price for the agency on Thursday.Pressed to reveal when the new price will become effective, Kachikwu, who is also the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) said "like I said, we have done a modulation calculation and it is showing us below N87. I imagine that if PPPRA publishes it today, it will become effective immediately. But the 1st of January that is when we are looking at."According to him, the new price is below the current N87 per litre and it would now convince Nigerians that the pricing modulation that the Federal Government promised to embark on a few days ago was not a trick.He noted that following government's analysis and research, it has been realized that the country can fluctuate the fuel market in accordance with the crude oil market fundamentals.Justifying government's reasons for scrapping the Petroleum Support Fund otherwise known as oil subsidy, Kachikwu explained that government can no longer afford to subsidize the product following the fraud that has attended its operation.He added that it has become clear that government earnings are dipping on daily basis.His words: "It is out; I signed off on it yesterday (Thursday). I imagined that in the next couple of days the marketers would get advice on that. The nice thing about the PPPRA, where I signed up on it yesterday is that the price will be far below N87.So for the first time people will understand that the pricing modulation I was talking about is not a gimmick. It is for real. We have gone to find out how we will be able fluctuate this market to reflect what the reality of crude market is. The objective is that one, we cannot afford to continue to subsidize.We can't even understand where those subsidies were going to. There are a lot of fraud elements in it so we need to cut that of.The second is the earning capacity of the Federal Government is deteriorating by the day with lower prices of crude and come out more."He submitted that from the application market realities for the pricing modulation, government has discovered that petrol would sell for either N85 or N86 per litre.The minister recalled that it was from this axiom that President Muhammadu Buhari announced that the price of petrol remains N87 at the moment.Kachikwu said: "But in applying that where we landed when we did the analysis for the very first time was about N85 or N86 so it is below N87.And maybe the first price that will come will reflect it. That was why Mr. President said that prices will be N87 for now. And that is what we have in mind."On the security of the pipelines, he said that government had tried stopping the menace with military intervention to no avail before it engaged some private contractors who had worked with the majors for the crude pipeline management.According to him, the private contractors have taken over Atlas Cove, Mosimi and they would be extending the surveillance to Ilorin between yesterday and today.They will also look at the Port Harcourt and Aba axis, he stressed.The minister said that government is now beginning to have a clue of how to tackle pipeline insecurity, adding that it is far more expensive to convey petroleum and products through pipelines than trucking them by road.He said from the briefing he got from the inspection of the refineries, they are close to re-opening."In the next one week, we are ready to see products out of here", he disclosed.Kachikwu said that a lot of the rehabilitation of the refinery was being done with intensive manual labour of the staff since paucity of fund affected the holistic change that is required in the factory.He said that the refinery is now aging so one fault comes up after the other even after repair but that would stop when government repairs the plant holistically early next year.According to him, about 5.5 million litres daily of PMS is expected from the refinery in the next few days. Other products to come from the plants, said Kachikwu "are AGO, Kero and others. Where we love to be is to have half of the consumption of this country at the refineries at the minimum, which is about 20million litres. But where we are with the sleepless night I have had in the last few weeks any molecule is significant.Kaduna will still be doing 2.3million. Let's start from there. And that is doing 60 per cent performance. This is still an assumption. I will like to see them getting closer to 80 or 90. By the time they time they do that we will be getting 11 to 12million litres out of this place."_________________________________________________________________________._,_.___
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