SPECIAL REPORT: Nigerians pay billions as equalization yet fail to buy petrol at equal prices
Nigerians who bought petrol across the country paid over N180 billion under the belief that it would be sold at equal prices to Nigerians nationwide in 2017, an analysis by PREMIUM TIMES has revealed.
Despite this huge amount paid by each Nigerian who bought petrol, known as Premium Motor Spirit (PMS), official data analysed by this newspaper revealed that the products were not sold at equal prices throughout the year across the country.
The revelation calls into question the relevance of the multi-million naira Petroleum Equalisation Fund (PEF), the special intervention put in place by the Nigerian government with the mandate of ensuring that petroleum products are sold at equal prices across the country.
According to the PPPRA pricing template, for every litre of petrol bought by every Nigerian across the country, a total of N10.71 that represents ‘equalization margin’ is paid into a fund managed by the Petroleum Equalization Fund (PEF) Management Board to ensure petrol prices are equal nationwide. This is to erase the suffering encountered by Nigerians as a result of fuel scarcity, especially during the yuletide period.
The payment feeds into a subsidy mechanism that is supposed to ensure that petrol is sold at regulated price throughout Nigeria. The fund is earmarked for paying bridging claims and reimbursing transportation costs incurred by petrol marketers.
In addition to this margin, the federal government appropriates public funds to run PEF’s operations and cover its financial shortfalls when equalisation claims exceed PEF’s income from marketers.
PREMIUM TIMES findings based on an exclusive analysis of data on petrol prices in 2017 as published by the National Bureau of Statistics (NBS) show that prices Nigerians paid for petrol in 2017 were mostly unequal across the country. Given the existing price differentials across the country, it is clear that the N10.71K paid by every Nigerian on every litre of PMS is not achieving its stated purpose of ensuring that petrol is sold at equal prices across the country.
Goddy Nnadi, spokesperson of PEF, however, argued that the scheme still serves its purpose, even amidst calls for its abolition.
”The Board provides an organized way of taking care of a cost element that will always be there in view of the geographical nature of our country,” Mr Nnadi said. He added that the PEF arrangement has been a veritable vehicle for solving an inherent challenge in our system, and needs to be applauded as one of the pro-active, service-oriented and utility organizations in the country.
“PEF makes it possible for all Nigerians: from Sokoto to Ikorodu, from Owerri to Calabar to Jos to Maiduguri to buy petrol at the same price. It has eliminated leakages and diversion and is doing more to save money for the country and propel economic development.”
This claim, however, was proven untrue from findings by this newspaper.
Petroleum Equalisation Fund (PEF)
The Petroleum Equalisation Fund (PEF) was established by Decree No. 9 of 1975 (as amended by Decree No. 32 of 1989). It came into being to address incidences of long queues experienced nationwide due to frequent shortages of petroleum products. Between 1974 and 1975, the nation had been rocked with incidences of queues and unavailability of petroleum products. The problem was compounded by the haphazard way marketers priced the product on the basis of transportation cost incurred by them.
The Nigerian government in an effort to solve the problem set up a committee which agreed that the only variable element in the provision and the sale of petroleum products at uniform price nationwide was the transportation cost.
Based on the recommendation of the committee, the government introduced the Uniform Pricing System. To address inequality in the transportation cost of distributing products throughout the country, the Petroleum Equalization Fund (Management) Board was established.
Mr Nnadi told PREMIUM TIMES the mandate was to ensure that Nigerians do not bear the burden of the extra cost incurred on the transport of petrol to different parts of Nigeria.
“Government takes out the cost of transportation so that you (marketers) don’t add it on top of the cost of the product,” he said. “Typically, if you buy fuel in Lagos and move it to Abuja, you have to rent a truck and you have to pay for diesel to move it to Abuja. And if you add the cost of transportation to the cost of the product, there’s a possibility you will not sell it within the bound. The bound, if you notice, is from N143 to N145.”
PEF was charged with the primary responsibility of reimbursing petroleum marketing companies for any losses suffered by them as a result of the sale of petroleum products at uniform prices throughout the nation.
Similarly, the board’s legislative charter as provided by Decree No 9 of 1975 was designed to ensure that the Uniform Pricing Mechanism works effectively throughout the country and equalise the transportation differentials in petroleum product marketing.
But Dauda Garuba, an oil and gas expert, told PREMIUM TIMES the scheme would have to be abolished before Nigeria finds a solution to the crises associated with petroleum prices in the country.
“If we are truly interested in dealing with the challenges of unequal prices of petroleum products in Nigeria, we will need to abolish PEF and the subsidy regime,” he said.
Over N180bn paid by Nigerians in 2017
A PREMIUM TIMES analysis shows that, in 2017, a total of N183 billion was paid by Nigerians who bought petrol from different parts of the country. Details were analysed based on data published by the Petroleum Products Pricing Regulatory Agency, PPPRA, an agency charged with pricing of petroleum products nationwide.
According to the 2017 PPPRA annual report obtained by PREMIUM TIMES, the national supply of PMS for 2017––which includes local production and import––was 18.86 billion litres. Of that figure, local production accounted for 1.02 billion litres, representing about 8.2 per cent. The report added that the annual average daily national supply of PMS for the same year was 51.7 million litres.
Meanwhile, throughout 2017, Nigerians on average bought 50.17 million litres of petrol each day, according to PPPRA data. Over the course of 2017, therefore, Nigerians consumed 18,312 billion litres. On each litre, the Nigerian authorities charged N10.71k to ensure prices are sold equally nationwide.
For the litres bought by every Nigerian who consumed petrol in 2017, Nigerians were made to pay N183 billion from the N10.71k per litre.
According to the PPPRA pricing template seen by PREMIUM TIMES, the N10.71 covers Bridging Allowance, National Transportation Average and Marine Transportation Average.
For the 18,312 billion litres consumed in 2017, therefore, a total of N183 billion (183,120,000,000 at N10 per litre) was paid by every Nigerian who bought petrol across the country to ensure that prices were equal.
Mr Garuba confirms that the unequal price regime thrives in spite of the PEF arrangement. He adds, however, that some independent marketers are responsible for the practice.
“It is true that prices of petroleum products have remained largely unequal across Nigeria, in spite of the PEF regime,” he said. “What we know is that prices of non-deregulated petroleum products have not changed. Most major marketers still sell products, especially PMS, at officially approved prices. Those who go outside the approved official prices are largely independent marketers, who adduce flimsy and diverse reasons to justify their actions.”
The PPPRA Petroleum Pricing Template
The PPPRA template was unveiled and took effect from May 11, 2016, to reflect the new pump price of N145. Prior to the date, the agency operated a template that reflected the hitherto N86.50 petrol pump price.
The review followed the announcement in 2016 by the Nigerian government of the formal take-off of ‘full deregulation’ of the downstream sector of the petroleum industry, which pushed petrol price from N86.50 to N145 per litre.
The PPPRA had explained that the review of the fuel price became necessary in view of the difficulties petroleum products marketers usually encountered in sourcing for foreign exchange to import products.
The new pricing template featured several adjustments to most of the components, including various cost items as well as marketers’ and distributors’ margins, including increased littering expenses and charges for the Nigerian Ports Authority.
The only component that remained unchanged was the charge for marine transport average, MTA, which would still be getting N0.15k per litre.
The three items on the template which go to PEF include the NTA, MTA and the bridging allowances, put at N3.36, N0.15 and N7.20, respectively––the sum of which is N10.71k.
Unequal Prices
Contrary to the mandate of the PEF which explains the reasons why the N10.71 amount is paid on every litre of petrol, PREMIUM TIMES’ analysis revealed that prices of petrol were never equal in the 12 months of 2017.
Residents of states across Nigeria paid grossly unequal prices for petrol at different periods in 2017, according to NBS data.
In February for instance, data showed that some states paid as high as N200 for a litre of petrol, even when official price remained N145. The Nigerian statistics bureau said states with the highest average price of petrol were Plateau (N206.82), Osun (N201.29) and Edo (N200.83). Meanwhile, in the same months, states with the lowest average price of premium motor spirit (petrol) were Katsina (N145.00), Abuja (N145.00) and Kogi (N147.06).
In March of the same year, the NBS figures showed that residents of Yobe, Bayelsa and Enugu paid N161.7, N161.3 and N154.5 for petrol, respectively. The inequality also persisted as states like Oyo, Osun, Kwara, Kano, Gombe, Ekiti, Delta and others paid between N144 and N145 on same petrol product in the same month.
The trend of wide disparity in prices Nigerians bought petrol persisted through the months of April, May, June and July, with little changes in the price movements across states. The same applied in August, September and October.
For November, the states with the highest average price of according to the statistics bureau were Bayelsa (N150.5), Akwa Ibom, (N 150.33) and Ebonyi (N148.57). States with the lowest average price, however, were Plateau (N143.6), Nasarawa (N144) and Katsina (N144.08).
Beginning gradually in November through December, the nation was hit by a fuel scarcity crisis that shot up the prices of petrol in the few gas stations that sold to buyers across the country. Although the statistics bureau quoted official figures for the two yuletide months, PREMIUM TIMES reports for the periods showed that petrol was sold at far higher prices as most buyers could only buy from ‘black market’ vendors.
On December 25, the day Nigerians joined the rest of the World to celebrate Christmas, many were left stranded at filling stations as the fuel scarcity bite harder across the country. PREMIUM TIMES’ report shows that thousands of motorists were on the fuel queues till early hours of Christmas day, as many filling stations did not sell petrol and the few that sold did so at exorbitant prices––between N180 and N250.
Motorists, commuters, traders and other Nigerians whose businesses were affected by the scarcity decried the situation.
Mr Nnadi explained however that the situation was peculiar to the season of scarcity, adding that it was not the norm outside of those periods.
He said, “During the times of scarcity, things are not normal. First, it’s a question of demand and supply; once the demand is high prices will usually go up and especially when you don’t have it on the other side.”
Data analysed by PREMIUM TIMES, however, showed otherwise as the prices were grossly unequal in most months, like March, that the nation witnessed no major scarcity.
PEF Operations
While funds realised from the N10.71k paid on each litre of petrol feeds into a subsidy mechanism managed by PEF, the agency, supervised by the ministry of petroleum resources, also get funds for its operation from the Nigerian government.
Although PREMIUM TIMES’ checks of Nigeria’s 2016 and 2017 budget documents showed that the budgetary releases for PEF’s operation remain hidden, sources at the agency told this newspaper that it presents its budget to the petroleum downstream committees of the Nigerian legislature and gets its budgetary allocation approved by the same committee.
Earlier in September, President Muhammadu Buhari declined to assent to the much publicised Petroleum Industry Governance Bill (PIGB). The PIGB, industry experts argue, would ensure complete overhaul of the Nigerian petroleum industry.
Adeoye Adefulu, an oil and gas lawyer, argued that one of the reasons the bill was not assented to by the president was the retention of PEF in the bill.
Experts and industry players have consistently called for its (PEF) removal from the bill.
“The first thing is a lot of people are aware of the challenges. In fact, if you look at the government’s petroleum policy that was adopted last year, the plan for PEF is not to operate in the same role,” the lawyer explained.
“There is no expectation that going forward, PEF would continue to derive equalisation prices across Nigeria. If you recall, one of the issues that the president raised when he objected to the passage of the PIGB was that PEF was still in the PIGB as an equalisation mechanism.
“He did not say what he thought it should be but he did say that he felt that it didn’t go with the policy thrust of the government. Clearly, something needs to be done about it.”
While analysts like Mr Adefulu have suggested that PEF would need to be abolished, Mr Nnadi, PEF spokesperson, in his reaction said the agency is doing its best to ensure that it fulfils its mandate.
He said, “As much as possible, we pay bridging claim almost every week, across the country. And marketers have no complaints anymore, ranging from bridging claims. Now, some of them buy from second-hand handlers; there are some marketers that are not even registered with PEF and they run their filling station. What they do is that they buy from somebody else, knowing there will be a demand.
“What we do by our rules (is) if you (marketers) don’t sell within the price regime, we do not reimburse. We have what we call guidelines on infractions and one of such points is that if you sell above pump price, PEF will not reimburse on cost of transportation.
“So we have inspectorate (team) that goes around with security agencies who monitor the activities of marketers. Once we discover marketers sold above pump price, we will discountenance the reimbursement and sanction them. The maximum is three months and penalty of 250 thousand naira, at the moment.
Many of them are complying. Recently there have been products all around so I will be surprised if anybody sells above pump prices.”
The PEF spokesperson also explained some of the success stories of PEF and its future prospect.
He said, “There are sometimes some marketers sell below pump price; that tells you that the environment is wet and they have enough. But still, major marketing companies sell at N145. The only area you (marketers) sometimes have issues is in the Niger Delta because of the multiple handling system.
“There is riverine equalisation programme that will take care of that ––in addition to places in mountainous areas. We have a new regime that will take of the multiple handing because if you bring in a product to, let’s say, Igbokoda in Ondo, you have to first move it by road to the seaside. Then put into a badge and use boat then get a machine to suck it out.
“By the time you put these costs together, it increases the selling price so we are analyzing all of these and together with NNPC, we (will) make sure that all their coastal reservoir will be used in making sure products are available to these people rather than them using trucks and badging. It will reduce the multiple handlings and then the cost.”
Has PEF Fulfilled Its Mandate?
Analysts have expressed diverse opinions on whether PEF should be scrapped and what needs to be done about the arrangement. As PREMIUM TIMES analysis has shown, the PEF arrangement as it currently operates does not fulfil its mandate of ensuring equalization in prices of petrol as Nigerians still buy petrol at grossly unequal prices despite the arrangement.
Mr Garba explained that if the nation must get its act together in the downstream sector of its petroleum industry, the PEF arrangement must be abolished. He added that revelations contained in the probe reports by various committees and panels set up by the government after the January 2012 nationwide subsidy protests suggest that serious steps should be taken to fix the nation’s oil, but this has not been the case.
“The retention of PEF in the Petroleum Industry Governance Bill (PIGB) is a clear indication that subsidy, in whatever name it is couched (under-recovery), is going to be with us for a long time,” he explained.
“I say this because none of the reasons offered by Mr President suggests that PEF should not be retained. Price modulation has neither replaced nor reformed subsidy impasse.”
PEF spokesperson, Mr Nnadi, on his part does not think the arrangement is doing poorly and should be abolished. He explained some of the development engendered by the operation of PEF and what it plans to do to tackle future challenges.
“The Petroleum Equalisation (arrangement) is contributing immensely to the socio-economic development of the nation by ensuring the availability of petroleum products in all parts of the country, at same prices,” he told PREMIUM TIMES. “By so doing we help accelerate microeconomic development of all parts of the country, narrow disparities in economic indices and propel national growth.”
Mr Adefulu, the oil and gas lawyer, argued that one major problem that may be encountered in doing away with PEF would be in the area of legislation.
“I think part of the challenge of PEF is that it was created by legislation and so if you want to change or alter the objective of the thrust of that organisation, it really is something that can and must be done by legislation,” he said.
He added however that the legislature can work on other modalities of effecting change and suggested other areas the nation could strengthen and commit resources.
He said, “I think national assembly is currently working on making changes to the petroleum industry governance bill (PIGB) and those changes, among other things, focus on PEF – not on equalization across the country but on ensuring that things like natural gas; ensuring that you facilitate the investment in natural gas infrastructure, which is more clean energy as opposed to focusing on equalizing petrol prices across the nation.”
For Mr Garba, beyond abolishing PEF, the way out is for the government to invest in other palliatives that would cushion the effect of its immediate cancellation and ease movement across the country.
“The government should, in place of subsidy, invest in mass transit programme, including rail and inland waterways infrastructure. This will be more effective since it will meet the real target of the policy,” he said.
SOURCE: premiumtimes.com
