The free fall in the value of the naira has started to take its toll on the price of Premium Motor Spirit (PMS), also known as petrol, as the amount the Federal Government is paying as subsidy on PMS, yesterday, rose to N31.08 per litre.
What this means is that Nigerians, as it stands, would be expected to pay about N118.08 per litre of PMS if the product is deregulated and if subsidy on the product is removed.
The Petroleum Products Pricing Regulatory Agency, PPPRA, in its Pricing Template for PMS, for February 23, 2015, released Tuesday, increased the exchange rate used in computing PMS price to N199 to a dollar compared to about N172 to a dollar a couple of days ago.
The review in the exchange rate is coming days after the Central Bank of Nigeria, CBN, unofficially devalued the naira through the closure of the Retail and Wholesale Dutch Auction System (RDAS/WDAS) foreign exchange window, channeling all demands to the interbank foreign exchange window.
As at yesterday, the naira was trading at the interbank market at about N199 to a dollar.
The rise in the amount to be paid as subsidy was in spite of the fact that oil prices have remained below $60 barrel in the international market over the last couple of weeks.
Specifically, on February 10, 2015, when the price of crude was selling at $57.90 per barrel, the amount paid as subsidy by the Federal Government was N14.79 per litre, as at yesterday, the price of crude was a little above $58 per barrel.
In the international market, Brent crude fell towards $58 a barrel on Tuesday, extending the two-percent loss in the previous session, as oversupply fears lingered, overshadowing any optimism on the outlook for the global economy.
The oil benchmark had traded above $59 in early Asian trade before negative sentiment set in, dragging prices seven per cent off its near two-month peak reached last Tuesday. Brent fell 58 cents to $58.32 a barrel in the early hours trading, while U.S. crude was down 60 cents at $48.85 per barrel.
In addition, the PPPRA in its updated template released yesterday, puts the landing cost of PMS at $691.32 per metric tonne. Using a conversion of 1,341 litres to a metric tonne and N199 to a dollar, this translates to a landing cost of N102.59 per litre.
The landing cost consists of: Cost plus freight (C+F) — N91.13 per litre or N614.12 per metric tonne; Trader’s margin — N1.48 per litre; Lightering expenses — N4.16; NPA charges — N0.78 per litre; Financing — N1.23; Jetty Depot Thru’ Put Charge — N0.80 per litre and Storage cost — N3 per litre.
The regulatory agency also put Distribution margins at $104.38 per metric tonne or N15.49 per litre, comprising: Retailers margins — N4.60 per litre; Transporters margin — N2.99; Dealers margin — N1.75; Bridging Fund — N5.85; Marine Transport Average (MTA) — N0.15; Administrative Charges — N0.15 per litre.
To this end, the PPPRA put the Expected Open Market Price (OMP) of PMS, which is landing cost plus margins, at N118.08 per litre, while the official retail price is N87 per litre, leaving the amount that is paid as subsidy at N31.08 per litre.
