As the deadline for the full deregulation of the downstream sector of the nation’s oil industry draws closer, there were fears at the weekend that the pump price of premium motor spirit (PMS), popularly known as petrol, would suddenly surge to N105 per litre as the federal government withdraws subsidy on the product.
Two weeks ago, the federal government had vowed that the downstream sector of the oil industry would be fully de-regulated in six weeks’ time.
Authoritative industry sources told LEADERSHIP SUNDAY that the federal government would almost certainly flag off full deregulation of the downstream sector of the oil industry by October 1, 2009.
However, the monthly pricing template of the Petroleum Products Pricing Regulatory Agency (PPPRA) for August shows the landing cost of petrol surging to N91.46 per litre as the price of crude oil hovers around $70 per barrel.
The distribution margins for the product which includes retailers (N4.60 per litre), transporters (N2.75 per litre), dealers (N1.75 per litre), bridging fund (N3.95 per litre) and administrative cost (N0.15 per litre) adds a total of N13.20 to the landing cost, raising its pump price in the Lagos area to about N105 per litre.
The pump price of the product is currently fixed at N65 per litre with the federal government paying the difference between the artificial pump price and the actual market price.
With full deregulation and consequent withdrawal of subsidy, the pump price of petrol would surge to N115 in other parts of the country as the federal government would no longer pay the bridging fund of N11 per litre to distant parts of the country outside Lagos and the South-west.
Petroleum products marketers have been pressing for full deregulation of the downstream sector of the oil industry on the ground that long delays in payment of government subsidies for imported petroleum products were partially responsible for the huge bad debts to banks now haunting some marketers as the Central Bank of Nigeria (CBN) and the Economic and Financial Crimes Commission (EFCC) set out to recover bad debts for banks.
The federal government, on its part, claims that in the face of mounting budget deficit engendered by lower crude oil prices and low production occasioned by increased activity of militants in the volatile Niger Delta region, it lacks the financial muscle to foot the huge subsidy bill which was put at N500 billion last year alone.
The nation’s daily oil production last month inched up to 1.7 million barrels per day (mbd) after a dismal outing in the first half of the year which saw production dropping to 1.3 mbd.
Besides, the federal government blames its inability to persuade private investors to build refineries in the country in the last 10 years on the fact that the pump price of refined petroleum products is artificially fixed by government agencies which in turn delay payment of the subsidies to marketers.
Government therefore believes that full deregulation would encourage private investors to build refineries and sell their products at acceptable market prices that would allow for considerable profit, in a desperate bid to ease the nation’s shameful dependence on imported petroleum products.
Critics of the deregulation however contend that government’s haste to deregulate the downstream sector of the oil industry amounts to handing the marketers a blank cheque to fleece innocent consumers at a time when most of the homes in the urban centres generate their own electricity.
An economist who would not want his name in print told LEADERSHIP SUNDAY that government has not set up any structures to check the excesses of petroleum products marketers as it hurries to hands off the industry.
He contended that the situation would see inflation spiralling out of control as transporters, landlords and petty traders hike prices with the upsurge in the pump price of petrol.