With the gradual appreciation of prices of crude oil in the international market, the subsidy on petrol that the Federal Government will pay has been rising after it slashed the price of the product by N10 per litre on January 18, 2015.
According to figures from the Petroleum Products Pricing Regulatory Agency, the government will pay about N1.2bn as subsidy on fuel imported into Nigeria in the last two days.
Crude oil prices fell to as low as $47 per barrel in December, but the price of Brent Crude, which is the variant produced in the country, maintained an average of $61 per barrel in the last two days, data from the Nigerian National Petroleum Corporation revealed.
The PPPRA, in its template on February 19, stated that the Expected Open Market Price for petrol, which is the summation of the landing cost plus the subtotal margins, was N101.50, as against the approved retail price of N87 per litre.
This showed that the government will pay about N14.5 as subsidy on every litre of petrol consumed in the country in the past two days that the price of Brent averaged $61 per barrel.
Figures from the NNPC also showed that an average of 40 million litres of petrol was being consumed on a daily in the country.
By implication, about N1.2bn will be paid to marketers as subsidy on petrol by the government for the period under review.
The Executive Secretary, PPPRA, Mr. Farouk Ahmed, explained that the subsidy would be paid to a marketer whose product gets into Nigeria in the next 35 to 40 days.
He said, “Most people do not understand this because there is that time lag. The subsidy of yesterday for example, will be paid to somebody who loaded a cargo yesterday, and it arrives in 35 to 40 days. So, the product we are enjoying now is what somebody imported 35 or 40 days ago.
“And that is why people say if crude oil has come down, why are we not seeing commensurate reduction. No, because the cost price is still the same cost price in terms of some of the products that are deregulated. And for the case of PMS, which is regulated, government still absorbs that cost on behalf of Nigerians.”
On what will be the price of crude oil for subsidy on petrol to be eradicated completely, Ahmed said, “That was when we got to about $50 per barrel and that happened around December 30 when it switched and the cost of subsidy at that point became zero. When it went below that price, subsidy became negative, but it has started coming back up again.”