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Fuel price increase inevitable as NNPC says N120 billion monthly subsidy not sustainable

Group Managing Director  of Nigeria National Petroleum Corporation (NNPC), Mele Kyari, on Thursday said that maintaining the current price of Premium Motor Spirit (PMS) popularly know as petrol is not sustainable as the corporation is currently subsidising petrol at the cost between N100 and N120 billion monthly.

Kyari told journalists at the fifth edition of the Special Ministerial Briefings coordinated by the Presidential Communication Team that the NNPC could no longer bear the burden of the product currently being sold at N162 per litre.

The briefing comes amidst controversy about the removal of petrol subsidy between the administration of former president Goodluck Jonathan and current administration of President Muhammadu Buhari.

Explaining that NNPC absorbs the cost differential in its financial books, Kyari said that while the actual cost of importation and handling charges amounts to N234 per litre, the government is selling at N162 per litre.

He, however, said that the NNPC can no longer afford to bear the cost, adding that sooner or later Nigerians would have to pay the actual cost for the commodity.

Kyari, who avoided calling the payment a subsidy, said the NNPC pays between N100-120 billion a month to keep the pump price at the current levels, insisting that market forces must be allowed to determine the pump price of petrol in the country.

The NNPC boss said: “Today, NNPC is the sole importer of PMS. We are importing at market price and we are selling at N162 per litre to day. Looking at the current market situation today, the actual price could have been anywhere between N211 to around N234 to the litre. The meaning of this is that consumers are not paying for the full value of the PMS that we are consuming and therefore, someone is bearing that cost. As we speak today, the difference is being carried on the books of the NNPC and I can confirm to you that the NNPC may no longer be in the position to carry that burden and because we can longer afford to carry it on our books.

“As we speak today, I will not say we are in subsidy regime but we are in a situation where we are trying to exit this underprice sale of PMS until we come to terms of the full value of the product in the market. PMS sells across our borders anywhere around N300 to the liter and in some places up to N500 to N550 to the litre.

“Our current consumption is evacuation from the depots about 60 million liters per day. We are selling at N162 to the litre, and the current market price is around N234, actual market price today. So, the difference between the two, multiplied by 60 million x 30 will give you per month. I don’t have the numbers now. This is a simple arithmentic that we can do but if you want exact from our books. I do not have it at this moment but it’s anywhere between a hundred billion and up to 120 billion naira per month. I don’t have the exact number.”

Kyari added that upon full deregulation, oil markets will begin to import PMS thereby taking the burden off NNPC and bringing direct sale-direct purchase (DSDP) Programme to an end.
NNPC uses a direct sale-direct purchase (DSDP) mechanism to secure Nigeria’s gasoline requirements in exchange for crude.

According to Kyari: “Upon the full implementation of the deregulation, we expect that all oil marketing companies to commence import even now so that that burden of import will be taken away from the NNPC or even the supply for when local refinery is made available so that NNPC will not be sole supplier of pms into this market. So once this situation arises, you are sure that the a direct sale-direct purchase (DSDP) programme will automatically vanish because, you will have no further need for it because market forces will now determine the import and export.

“We know there’s one major challenge why oil marketing companies have not started importing which is around access to foreign exchange and we are working on this with the Central Bank of Nigeria and as soon as that is available, oil marketing companies will also resume import of petroleum products.”

Answering questions on the two agreements between Nigeria and Niger Republic for the importation of petrol from the neighboring country to Nigeria, Sylva explained that it is a way to boost trade between the two countries.

Nigeria and Niger had in July 2018, agreed to build a pipeline to bring crude oil from Niger to the proposed Katsina Refinery with The agreement was followed In 2020 by another one signed between the two countries on petroleum products transportation and storage.

Sylva said Nigeria wants to legalize the thriving illegal petroleum products sale already going on between the countries, adding that it also needs to share its experience in the oil exploration sector with neighboring countries.

He said: “You know that Niger is a smaller country and Nigeria is more experienced in oil exploration than most countries in Africa. You find out that most of these countries have these constraints. Although we have this agreement wi Niger but they have constraint on how to deliver on it to this country because of the contract they have with the Chinese.

“So, if we realize that they have constraints we can change. The whole idea is that Niger has 20,000 bpd which is even bigger than their consumption. There is already illegal trading going on between Nigeria and Niger. So, what we want to do is to see how we can legalize it. We want to begin to create business with out neighbors. This is what ECOWAS and AU are trying to encourage. That is inter-regional trade and begin to trade among ourselves.”

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