The Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, announced the reduction while briefing State House correspondents at the Presidential Villa, Abuja.
Alison-Madueke said the reduction, which took immediate effect, was because of the recent drastic fall in the prices of crude oil in the international market.
The minister further directed the Petroleum Products Pricing Regulatory Agency and the Directorate of Petroleum Resources to immediately effect the change.
Alison-Madueke said, “As you may be aware, there has been a lot of volatility in the price of petroleum products, particularly crude oil, over the last few months. Invariably, this has meant that the price of the product in Nigeria has also been greatly impacted.
“It is as a result of this, under the approval and directive of Mr. President and in line with Section 6 Clause 1 of the Petroleum Act, that it is my responsibility as the minister of Petroleum to announce that there will be a reduction in the pump price of petrol (Premium Motor Spirit) by N10.
“Therefore, the reduction will be from N97 per litre to N87 per litre effective as from midnight, Sunday January 18, 2015.
“In line with this, I have directed the Petroleum Product Pricing Regulatory Agency and the Directorate of Petroleum Resources to ensure that there is strict adherence to this new pricing regime as soon as it takes effect from midnight Sunday, January 18, 2015.
“I do hope the entire country will benefit immensely from this reduction in the pump price of petrol.”
The minister said the Federal Government had been watching events carefully in the last two weeks to ensure that volatility did not destabilise the reduction in price.
She said the government had found it safe to implement the reduction at this time.
Following prolonged street demonstrations against the decision of the government to remove subsidy on the product per litre as announced on January 1, 2012, it was forced to cut the pump price from N141 to N97.
The Federal Government, through the PPPRA, had before now maintained the N97 fixed in 2012 after wide protests against the decision of the government to withdraw subsidy on the product.
A banker and energy analyst who handles transactions for fuel importers in Nigeria calculated that the product ought not to sell for more than N84 at filling stations across the country, thereby automatically wiping off the government’s subsidy on petrol.
His position was complimented by a website, globalpetrolprices.com, which claims to be providing the most wide-ranging and reliable data on retail fuel prices around the world, which put the price at which fuel ought to be sold in Nigeria at N87.39 per litre.
The website says its data are collected on a weekly basis using information from government institutions, regulatory agencies, major media sources and oil companies.
Using the spot price of gasoline in the Amsterdam-Rotterdam-Antwerp refining hub in Northwest Europe, where most of the country’s fuel import comes from, the Nigerian banker said on Friday that the product cost and freight component of petrol pricing was $511 per metric tonne or N63.10 per litre, using the PPPRA exchange rate of N171.36 to a dollar. The spot price for ARA gasoline 10ppm was $461 per metric tonne and the freight rate was $50 per metric tonne.
The PPPRA said on its website, “Product cost is the monthly moving average cost of products cost as quoted on Platts Oil gram. The reference spot market is North West Europe. Freight is the average clean tanker freight rate as quoted on Platts. It is the cost of transporting 30,000mt (30kt) of product from NWE to West Africa.”
The cost and freight of PMS as of December 29, 2014 was $566.57 per metric tonne or N72.40 per litre, according to data obtained from the PPPRA website. On that day, the price of global benchmark Brent crude closed at $57.94 per barrel.
Other items in the PPPRA pricing template include trader’s margin (N1.28 per litre), lightering expenses (N3.91 per litre), Nigerian Ports Authority fee (N0.67), financing cost (N0.35), jetty depot throughput charge (N0.80), and storage charge (N3.00). The distribution margins comprised retailers (N4.60), transporters (N2.99), dealers (N1.75), bridging fund (N5.85), marine transport average (N0.15) and administrative charge (N0.15), which added up to N25.50.
As of December 29, when the PPPRA last updated the pricing template, the Expected Open Market Price (retail price) of petrol was N97.90 per litre (addition of the cost of petrol and freight at N72.40 and the extra N25.50), with subsidy on the product dropping to N0.90 per litre, compared to N44.94 on November 3, 2014,.
The banker, however, said, “Crude oil was $57.98 on December 29. Today (Tuesday), crude is $46.26; that’s a 25 per cent fall in crude oil feedstock price. The naira has stabilised, hence we should have no exchange rate impact. Although freight rates are higher due to high demand for vessels to move products (especially diesel), they are likely to have very little to modest impact on the eventual import cost.
“We should see at least a 15 to 20 per cent reduction in fuel price. Thus the price could likely be around N80 to N84 per litre if they are eventually adjusted this week.”
Data obtained from globalpetrolprices.com on Sunday put the market price of petrol in Nigeria at $0.51 per litre as of January 12; that is, N87.39, using PPPRA’s exchange rate of N171.36 to a dollar. On the day the price was calculated, Brent crude, equivalent of Nigeria’s Bonny Light, sold for around $48 per barrel in the international market.
However, the price of crude has since fallen further. It was $46.03 on Sunday.
The site explained, “All countries have access to the same petroleum prices of international markets but then decide to impose different taxes. As a result, the retail price of gasoline is different.”
It put the prices of petrol for other oil-producing countries such as Libya, Saudi Arabia, Algeria, Sudan, Qatar and Oman at $0.12, $0.16, $0.26, $0.35, $0.27 and $0.31, respectively.
There have been calls on the Federal Government to reduce the pump price of petrol because of the sharp decline in the price of crude oil, which constitutes a major component in the pricing template.
The Minister of Finance, Dr. Ngozi Okonjo-Iweala, had in the overview of the 2015 budget proposal dated December 17, 2014, said preliminary estimates showed that “the break-even crude oil price at which the landed cost of PMS will equal our current price of N97 per litre so that there will no longer be subsidy is about $60 per barrel.
“It is only when the crude oil price (Bonny Light) falls below this level that the pump price of PMS (which includes N15.49 per litre distribution and Petroleum Equalisation Fund costs) can begin to come down. The breakeven price of crude oil would have been higher were it not for the N15.49 per litre distribution margin.
“Many Nigerians have rightly asked when the pump price of Premium Motor Spirit will be reduced, given the declining price of oil. As you know, the relevant agency of government responsible for petroleum product pricing matters is the PPPRA. The information we have is that they are now updating their template based on recent developments and we hope they can address this issue soon.”
Our correspondents gathered that the pump price of the product had not changed in filling stations before now because the Federal Government had made an arrangement with petroleum product marketers to use the difference between the regulated price of N97 per litre and the reduced retail price to settle the arrears of subsidy being owed the importers.
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 fall in oil price has triggered the decline in the landing cost of petrol.
The landing cost of petrol dropped to N82.41 per litre as of December 29, from N127.57 on November 3, according to PPPRA data.
However, the spokesperson of the PPPRA, Mr. Lanre Oladele, told one of our correspondents on the telephone that the agency remained committed to the stand of the Finance minister as regards the pump price of petrol.