Patrick Ugeh
7 January 2009
Abuja — Hopes that the pump prices of petroleum products may soon be reviewed downward in the face of lower crude oil prices may not materialise soon afterall, THISDAY has learnt.
Indications emerged yesterday that the Federal Government was considering various options, including reintroducing the fuel tax, in order to address issues surrounding the uncertainly in the international crude oil market.
The proposal to reintroduce the tax, THISDAY was told by a competent source, was intended to help the government recover its cost when the crude oil prices are falling.
Also, the government can pass the benefits of a rise in crude prices by cutting the fuel tax, thereby maintaining some stability in the pricing.
If this proposal is approved by the government, the price of petrol, which is currently N70 per litre, is not expected to rise sharply when crude oil prices go up and will also not be expected to drop dramatically if crude oil prices fall.
The rate being proposed now is N3 per litre.
Fuel tax was initially introduced in 2003 as a "price modulator" by the government of former President Olusegun Obasanjo to keep the prices within a certain range through upward and downward adjustments of the tax in response to the prices of crude oil in the international market.
Following public outcry, however, the former president resorted to an outright price increase without implementing it as a tax.
A highly placed source at Petroleum Products Price Regulatory Agency (PPPRA) confirmed the new proposal, explaining, however, that "a concrete decision has not been taken yet" especially as there is a raging controversy over the issue of subsidy which practically no longer exists in the current circumstance.
Minister of Petroleum Resources, Dr. Rilwanu Lukman, had on Tuesday said discussions were on with marketers to review the price of petrol, although he said no consensus had been reached.
THISDAY findings at PPPRA also showed that the middle of this month is when the average cost of importing a litre of petrol can be determined to enable the government know if there is over-recovery or under-recovery by marketers.
The highly placed source explained that it was wrong to pick the prevailing price of importation to determine the true market price, as some analysts did last month when they argued that the market price should be N43.
According to him, such can only be arrived at after studying the price trend over at least three months beginning from when the price slump started.
"Considering when the downward trend in prices commenced," the source said, "the market price can become apparent only by the middle of January. It is only after then that government can decide through policy to bring down the pump price or otherwise. If it is to reduce the price it will then be in a position to know by how much."
The source at PPPRA explained that it was difficult to know the actual market price without subjecting it to the price trend because when the price hovers around a particular price in a month, it may go up or come down by an indeterminate percentage, which would make nonsense of any attempt to intervene without a proper study of the situation.
Furthermore, he said it takes at least two weeks for orders placed by importers to arrive Nigeria's high seas. Thereafter, he stated, smaller boats would convey the consignment to the loading jetty in two or more weeks.
The source also argued that it may not be appropriate for the government to review the price because if the price goes up in the near future, it may then be difficult to raise the price again.
"One of the options being considered by government is whether to retain the status quo so that when the price rises, government may just continue to bear the cost seamlessly," he said.
Lukman had told the National Assembly that government was considering a review of the pump prices - despite earlier denials of such moves by government officials.
Lukman had acknowledged that the slide in the price of crude oil had indeed led to a shift in the price of refined products as well as a reduction in the landing cost for imported products.
He, however, said while discussions were on, no consensus had been reached on the issue of price review.
According to him, the Petroleum Support Fund (PSF) provides the mechanism to deal with the issue and gave assurance that the right thing would be done on the matter.
He had also declined comments on the observation that there was no provision for the usual petroleum subsidy in the 2009 Appropriation Bill currently before the National Assembly.
"We are still discussing. The Petroleum Support Fund provides for how to deal with that issue and that is what we are working on now," he said.
THISDAY had last month quoted the Special Adviser to the President on Petroleum, Dr. Emmanuel Egbogah, as saying the prices of petroleum products would be reduced by not less 25 per cent, but the the Group General Manager (Public Affairs) of the Nigeria National Petroleum Corporation (NNPC), Levi Ajuonuma, had denied the story, saying no such decision had been taken.
Egbogah had also said the reduction would gradually move from 25 per cent to 40 per cent to reflect the spate of the current fall in global prices of oil.
But Ajuonumah said Egboga was quoted out of context, maintaining that "since the Federal Government has subsidised the pump price heavily recently, the government is not in a hurry to tinker with the current domestic pump price. The subsidy has always been very heavy on the government, costing at times N500 million in one month. Any way the government can recover a little bit of the subsidy cost in view of the global market price of the crude, will be welcome."
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