PPPRA: How Government Arrived at N87/Litre Petrol Pump Price

Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke

Chineme Okafor in Abuja   with agency reports

The Petroleum Products Pricing Regulatory Agency (PPPRA) on Friday said that the recent decision of the federal government to cut official regulated pump price of petrol from N97 to N87 per litre was taken only after it had carefully considered fundamental trends in global crude oil market.

PPPRA said in Abuja that the announcement by the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke last week was possible after the government confirmed that it was able to reduce the pump price of petrol following a consistent and diligent monitoring of market trend, since the beginning of the current drop in crude oil price.

The Executive Secretary of PPPRA, Ahmed Farouk explained in a statement that with the N87/litre amount announced, the government still subsidises the pump price of petrol in favour of consumers by N2.50/litre.

Ahmed also clarified that the price of crude oil dropped to a point where the open market price of petrol also fell to a level where the government considered it appropriate to relieve some of the burden imposed on Nigerians by the knock-on effect of the dwindling price of crude oil on the economy.

He stated that the price of crude oil averaged $62 in December, 2014 and dropped to an average of $50 per barrel in the first half of January, 2015 and that: “It was after a consistent and diligent monitoring of the trend, since the beginning of the current drop in crude oil price that government was able to confirm its ability to reduce the pump price of gasoline, commensurate with the amount announced.”

“Even at the lowest crude oil price of $47.23 recorded on January 16, 2015, the open market price of petrol was about the same as the erstwhile price of N97/litre.
What this means is that at the new price of N87 per liter, government is still subsidising the pump price of petrol,” Ahmed added.

He said on the argument that pump price should have dropped in ratio with the about 50 per cent reduction in price of crude oil that crude oil price was only one of the several components in deriving the pump price of petrol.

“Therefore, there is no linear relationship between the price of crude oil and the pump price of petrol. In addition, when the price of crude oil reached its peak of $114.26 per barrel on 18 June, 2014, the open market price of petrol was N157, but government still maintained the regulated price of N97 per litre and subsidised the difference of N59.51 per litre,” he said.

Ahmed further noted that in determining the amount of reduction on the pump price of petrol, government was mindful of the impact that an upward swing in the price of crude oil would mean in the amount of subsidy exposure.

Meanwhile, the Organisation of Petroleum Exporting Countries (OPEC) has defended its decision not to interfere with the sliding price of crude oil in the global market with its November decision to maintain production output of 30 million barrels per day (mbpd).

Rising supplies and tepid global demand has led to drop in oil price since June 2014 and the slide in prices accelerated in November after OPEC stunned the market by deciding to maintain production at 30mbpd rather than cutting output to stem the falls.

Reuters reported that OPEC Secretary General, Abdalla El-Badri told a panel at the World Economic Forum (WEF) in Davos, Switzerland that cutting output to stabilise prices was not a viable strategy for the oil cartel, which has sought to retain market share in the face of surging non-OPEC supply.

“If we had cut in November, we would have to cut again in March and June and again,” El-Badri was quoted to have said, adding that, “Non-OPEC would keep on producing and replace us.”

El-Badri also explained that the move to protect OPEC’s market share was not directed to any one country.

“It was a pure economic decision. I don’t understand, everyone is crying (and saying this was a) decision against the US, (it is a) war between Saudi and US. It is all nonsense. It is the logic,” he added.

The energy panel at the WEF also featured the Chief Executive of Saudi Aramco, Khalid Al-Falih, who said the oil market would eventually balance itself but it would take time for the supply glut to unwind.

Al-Falih was also quoted by Reuters to have said that years of elevated oil prices, propped up by geopolitics, had driven unconventional supply and complex projects around the world but that the bubble of fear burst in 2014 and expectations of elevated prices in the future had been shaken as a result.

“People will be more careful before committing large sums to the oil and gas industry,” he predicted.