The cost of subsidizing Premium Motor Spirit (PMS), commonly known as petrol, has risen dramatically, now requiring Nigeria to spend about N707 billion monthly, according to oil marketers. With a current landing cost of N1,117 per litre, this subsidy has become a significant financial burden on the country.
In August, the Dangote Petroleum Refinery is set to begin producing petrol, but it faces challenges including a crude oil supply crisis and regulatory issues, which might force the company to export its products rather than sell them domestically. The Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, held a meeting on Monday with officials from the Dangote refinery, the Nigerian National Petroleum Company Limited (NNPC), the Nigerian Upstream Petroleum Regulatory Commission, and the Nigerian Midstream and Downstream Petroleum Regulatory Authority to address these concerns.
Additionally, the House of Representatives has launched an investigative committee to examine the lack of crude oil for domestic refineries and accusations of deliberate price hikes for profit.
Last Wednesday, the Major Energies Marketers Association of Nigeria (MEMAN) reported that the landing cost of petrol was N1,117 per litre. The Independent Petroleum Marketers Association of Nigeria (IPMAN) stated that despite claims from the government, the Federal Government continues to subsidize PMS, which could soon lead to higher petrol prices.
Subsidy Breakdown and Consumption
Retail outlets operated by NNPC and major marketers currently sell petrol at between N617 and N670 per litre, while the ex-depot price is N585 per litre. Independent marketers often pay more due to purchasing from private depot owners, leading to pump prices above N700 per litre. Since NNPC is the sole importer of petrol, and other dealers have stopped importing due to difficulties in accessing US dollars, the subsidy covers the gap between the landing cost and the ex-depot price, amounting to N532 per litre.
Nigeria consumes tens of millions of litres of petrol daily. Estimates from various government agencies range from 44.3 million litres in October 2023 to 66.8 million litres in September 2022. Using the recent figure of 44.3 million litres, the daily subsidy spending is approximately N23.57 billion, leading to a monthly cost of N707 billion.
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Industry Reactions
Mohammed Shuaibu, Secretary of IPMAN Abuja-Suleja, highlighted that the government is not transparent about the subsidy situation.
He stated, “Petrol price is determined by international demand and supply. The landing cost of petrol is above N1,100 per litre, indicating that the monthly subsidy is over N700 billion.”
Shuaibu added that if the government was not subsidizing petrol, full deregulation of the downstream sector should be implemented. He referenced former Kaduna State Governor, Nasir El-Rufai, who claimed the government is still paying subsidies.
Shuaibu said, “If they are not paying, why is NNPC the only importer of petrol? Competition would reduce prices, but NNPC’s monopoly indicates ongoing subsidies.”
In April, El-Rufai mentioned, “The Federal Government is now subsidizing fuel again, paying more than before. The policy was reintroduced due to implementation bottlenecks.”
NNPC’s Chief Corporate Communications Officer, Olufemi Soneye, did not confirm the subsidy claims but reiterated that NNPC had stopped subsidizing petrol.
“We are recovering our full costs from the products we import,” Soneye stated.
However, Chief Ukadike Chinedu, Public Relations Officer of IPMAN, insisted that if petrol was not subsidized, prices should exceed N900 per litre.
He noted, “The landing cost of N1,117 per litre proves the ongoing subsidy through NNPC.”
Dangote Refinery’s Potential Export
The Dangote refinery might export its products due to difficulties in obtaining crude oil from International Oil Companies (IOCs) in Nigeria. Importing crude oil from the US has increased production costs, making locally produced petrol more expensive than imports.
An anonymous official from the refinery confirmed, “We will supply PMS in August, but we might export it due to high production costs and local market constraints.”
Prof. Wumi Iledare, an energy expert, stated, “Dangote can export PMS if the Nigerian market doesn’t want it. The government can’t dictate crude prices; it’s a negotiation. If Nigerians are willing to pay market rates, Dangote will sell locally.”
The $21 billion Dangote refinery, located in Lekki, Lagos State, aims to stop PMS imports into Nigeria and Africa. However, challenges in securing local crude supplies have raised production costs, potentially leading to exports.
House of Representatives and Ministerial Interventions
The House of Representatives, led by Speaker Tajudeen Abbas, is investigating the quality of imported petroleum products and the availability of crude for local refineries. Abbas emphasized the need for compliance with global standards to avoid economic losses and vehicle damage from substandard products.
Ikenga Ugochinyere, Chairman of the Committee on Petroleum Resources (Downstream), outlined tasks for the committee, including verifying product quality and investigating middlemen in crude trading. The committee aims to ensure transparency and compliance in the petroleum sector.
Lokpobiri’s meeting with key stakeholders aimed to resolve issues affecting the Dangote refinery.
His media aide, Nneamaka Okafor, stated, “The meeting focused on finding a sustainable solution to the current impasse, demonstrating a commitment to collaborative problem-solving.”