N150bn Petroleum Support Fund Depleted

Wednesday, August 9th 2006

THE N150 billion set aside this year by the Federal Government as take-off fund for the Petroleum Support Fund (PSF) to subsidise the cost of imported fuel and provide succour for the consuming public has been depleted on account of the unusual high cost of crude oil and petroleum products in the international market since the beginning of the year.

Following the prevailing high cost of imported petroleum products, government incurs N28.48 subsidy per litre on Premium Motor Spirit (PMS) and another N29.31 subsidy per litre on Dual Purpose Kerosene (DPK).

Vanguard’s investigation revealed that since the takeoff of the PSF, the pressure triggered by prevailing international market pricing has not eased, resulting in the depletion of the fund by about N132 billion.

The PSF is a pool of funds budgeted by government to stabilise the domestic prices of petroleum products against volatility in international crude and products prices.

It is expected that the PSF will be financed from two sources including government’s allocation and accruals realised during the period of ‘over recovery’ (that is, periods at which the PPPRA recommended price is higher than the market determined price).

In January, however, subsidy on PMS stood at N5.95, February, N1.24; March, N5.0; April, N15.97; May, N18.95; June, N20.29; July, N25.34k while that of August, as at last Saturday, stood at N28.48 per litre.

The trend in the subsidy incurred on DPK from the beginning of the year to date has not been significantly different from that of PMS, making it impossible for any form of accruals as there was no period of ‘over recovery’.

While projections for subsidy on PMS for September and the rest of the year are predicated on the prevailing international market prices, there are indications that request may have already been made for supplementary appropriation to replenish the PSF.

A senior official of the Petroleum Products Pricing and Regulatory Agency (PPPRA) who pleaded anonymity said the PSF might require another N100 billion to discharge its statutory functions.

The officer said petroleum products pricing in the international market since the beginning of the year had been most unusual, adding that the expectation was that the initial vote for the PSF would have been sufficient for the year.

Last year, when price volatility in the international market was not this severe, the Nigerian National Petroleum Corporation (NNPC) claimed that it expended over N300 billion on subsidising importation of petroleum products.

Asked to comment on the seeming disparity, the PPPRA official declined and advised that the issue be addressed by the NNPC.

The current landing cost of PMS is N83.54 per litre; AGO, N80.51 and DPK N84.37k, while a fixed margin of N9.94 per litre brings the total expected price to N93.48, N90.45 and N94.31 per litre respectively.

Prior to the introduction of the deregulation policy, Nigerians had to contend with intermittent products shortages which gave rise to perennial queues at the petrol stations nationwide.

In the last two years, the upward movement in the international prices of crude oil and petroleum products has added to the continued pressure on the prices of domestic petroleum products.

For the purpose of transparency and accountability the various stakeholders and operators were involved in its implementation.

Despite the involvement of various stakeholders and operators in the implementation of the PSF, however, the NNPC remains the main importer of petroleum products, while major downstream marketing companies engage in profiteering, preferring to wait and lift products from the NNPC. Members of the Depot and Petroleum Products Marketing Association (DAPPMA) have, however, been importing petroleum products and like the NNPC, making claims on the PSF.

A look at the prevailing prices of crude oil in the international market, weekend, revealed that Bonny Light attracted $78.40 per barrel, Brent crude, $77.98 p/b; WTI, $76.16 p/b while the OPEC basket price was pegged at $69.97p/b.
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