The subsidy on Premium Motor Spirit, popularly known as petrol, may have gulped at least N11.20bn in one week as the rise in global oil prices pushed up the landing cost of the product.
On February 5, when oil price neared $60 per barrel, the expected open market price of petrol rose to over N200 per litre, based on the petrol pricing template of the Petroleum Products Pricing Regulatory Agency.
The product is currently being sold at between N160 and N165 per litre at many filling stations in Lagos.
Using an expected open market price of N190 per litre of petrol and an average current pump price of N162 per litre indicates a subsidy of N28 per litre.
With a daily petrol consumption of about 57 million litres and a subsidy of N28 per litre, it means subsidy gulped N1.60bn in a day and N11.20bn in a week (February 5 to 12).
The PUNCH had reported last week that the landing cost of petrol rose to N179.67 per litre on February 5 from N158.53 per litre on January 7, with the expected open market price (pump price) of the product increasing to N202.67 per litre from N181.53 per litre.
Crude oil price accounts for a large chunk of the final cost of petrol, and the deregulation of petrol price by the Federal Government last year means that the pump price of the product will reflect changes in the international oil market.
The rising price of crude oil pushed the cost of petrol quoted on Platts to $543.25 per metric tonne (N157.99 per litre, using N390/$1) last Friday from $480.25 per MT (N139.67 per litre) on January 7.
he international oil benchmark, Brent crude, extended its rally on Monday, rising by $0.88 to $63.31 per barrel as of 7:10pm Nigerian time.
The Nigerian National Petroleum Corporation, which has been the sole importer of petrol into the country in recent years, is still being relied upon by marketers for the supply of the product despite the deregulation of the downstream petroleum sector.
The Minister of State for Petroleum Resources, Chief Timipre Sylva, said last week that Nigerians should prepare for the pain associated with the increase in crude oil price.
According to him, as desirable as the increase in oil price is, it has serious consequences as well on petroleum product prices.
“So we want to take the pleasure and we should as a country be ready to take the pain. Today, the NNPC is taking a big hit from this. We all know that there is no provision in the budget for subsidy. So, somewhere down the line, I believe that the NNPC cannot continue to take this blow. There is no way because there is no provision for it.”
“As a country, let us take the benefits of the higher crude oil prices and I hope we will also be ready to take a little pain on the side of higher product prices.”