ISSUE 1: REAL COST OF FUEL
Fuel queues have disappeared but prices remain high pan- Nigeria. Is the fuel subsidy sustainable in the face of flagrant disregard by the marketers of the set PPPRA ceiling price of N86.50k/ltr?
· Pricing trend in the past 1 year demonstrates that Citizens in areas other than Lagos and Abuja have consistently paid 20 – 50% more for fuel purchased at the pumps.
· Survey by NBS indicates that apart from the Federal capital and Lagos, Citizens continue to pay for fuel at an average price of N150/ltr.
·The survey establishes that the subsidy benefits only a few (urban – metropolitan / few higher income groups) as opposed to the larger citizenry.
· Unexpectedly market trend indicates that the current approved pump price of N86.50/litre for PMS does not assure marketers of over-recovery if crude oil price continues to trade above $40/bbl. Thus, an unrealistic price in view of market realities.
· As of today, 80% of the downstream operators are still unable to carry out their business due to unavailability of Foreign exchange at the prescribed CBN rate. PPPRA’s pricing template, as approved, only recognises prevailing CBN Interbank rate which averages N197/$ in Q1 and Q2. Investigations revealed that the alternative source of FX available to Marketers is the autonomous market rate which presently averages N285/$. 2016.
· Therefore, to explain the prevailing high prices in certain states, marketers who source FX independently of CBN in order to carry on participation in PMS supply will continue to sell at prices that enable them achieve full cost recovery.
· As such, the false assumption that the current ceiling price adequately covers cost needs to be addressed by providing marketers an alternative to the primary FX market (CBN). The consequence of disregarding this solution will lead to the unsustainable development of NNPC maintaining the role of sole supplier to the detriment of federation revenues.
ISSUE 2: SUPPLY IMPACT
60 days of fuel queues – At what cost has the government cleared the queues?
· For a Corporation historically known to be inefficient and unprofitable, NNPC maintains 100% responsibility of fuel importation at subsidised pricing using Crude oil as a means of exchange. Estimated loss for NNPC is approximately N12.5bn/month.
·- To sustain supply, NNPC extended its crude source for products importation from outside the traditional refinery requirement of 445BbLs/day for petroleum products imports, to the use of federation cargoes further reducing the ability of the government to earn FX.
· – Similarly, at an import bill of $600m/month for PMS, CBNs liquidity to support the importation of PMS is challenged in the face of dwindling crude oil for exports. The limited crude oil output caused by the spate of renewed vandalism and sabotage of oil infrastructure in the Niger Delta ( now 420,000bbls/day lost) and increased participation of NNPC in products supply continue to imply limited ability to earn FX for the Federation and potential crippling of the economy.
· – An immediate solution is the reduction of this crude to products control by NNPC in order to free up crude for federation revenue. Also the movement of marketers to the autonomous FX market will make available approximately $600m of FX via CBN to be used in other sectors of the economy.
ISSUE 3: IMPACT ON STATE (FISCAL)
The Federal Government continues to incur N13.79/ltr under recovery, while States fail in their fiscal responsibilities.
· – Growing subsidy differential a threat to state debt profile. As at 29th April 2016, under-recovery of N13.79/litre was recorded in the price of PMS, thus the need to urgently address the trend, as Government has no budgetary provision for subsidy payment in the 2016 Appropriation Bill.
· – Deductions from FAC payments of N13.61bn recorded monthly while State debts accrue to N34bn/ month. If subsidy was removed, a deduction of the estimated subsidy claim will reduce governmental exposure and support States in their fiscal obligations.
· – Clearly continuation of under recoveries in any form for PMS limits the ability of the Federation to deliver its statutory functions such as power generation, security, education, health etc.
