Subsidy Removal: PPPRA Pegs Naira at N298/$ for Fuel Imports

· Currency falls to N341 on parallel market as oil stocks gain on fuel price hike
· NLC to hold emergency meeting today, NANS threatens protest

Goddy Egene, Obinna Chima, Ejiofor Alike in Lagos, Paul Obi and Chineme Okafor in Abuja

Oil marketers have been given the go-ahead to source foreign exchange (forex) to import petrol into the country at an autonomous exchange rate of N298 to the dollar.

According to reliable sources in the Petroleum Products Pricing Regulatory Agency (PPPRA), which released a revised pricing template for petrol on Wednesday night, the forex rate was pegged at N298 to the dollar to limit the challenges associated with sourcing and accessing forex for the importation of petrol by oil marketers.

However, news on the removal of subsidy on petrol exerted downward pressure on the naira on the parallel market yesterday, where it fell sharply in a single day by N18 to close at N341 to the dollar, relative to the N323 at which it sold on Wednesday.

Sources in PPPRA explained to THISDAY yesterday that while the government’s official naira/dollar exchange rate through the Central Bank of Nigeria (CBN) window remains at N199 to the dollar, the decision to adopt a parallel market rate for petrol importation was agreed by all stakeholders in the downstream oil sector during the consultations.
They explained that before arriving at the new pricing template, a comprehensive study of the cost of importation was undertaken and all stakeholders, including oil marketers and independent experts, were consulted to arrive at an appropriate cost reflective regime.

The template, which put the landing cost of petrol at N119.74 per litre and distribution margins as N18.37, meant that the total cost-to-pump price for a litre of petrol rose to N138.11.
The template, however, indicated that marketers could sell petrol within a retail price band of N135 to N145 per litre.

Naira Heads South

However, it was uncertain if the PPPRA template, which pegged the forex rate at N298 to the dollar, was expected to make much of a difference, as the naira plummeted significantly to N341 yesterday, from N323 to the dollar the day before.
‪The sharp decline was blamed on the government’s announcement of the removal of fuel subsidies and the green light given to oil marketers to source their forex requirements from parallel or autonomous market sources.

‪This, according to a source, led to an upsurge in forex demand on the parallel market.
‪Speaking on the development, the CEO, Financial Derivatives Company Limited, Mr. Bismark Rewane, said the parallel market does not have the depth to fund the importation of petroleum products, arguing that the central bank needs to find a way to continue to fund petrol importation.

“If they say they can’t fund the importation of petrol from the official market, then why do we have that market?” Rewane queried.
‪He added: “What they have done was to effectively devalue naira for petrol imports, if you say the CBN cannot supply to that sector.

“But the government cannot push the funding of petrol to the parallel market because the market does not have the depth to fund the importation of petrol.
“What we will see is a situation where the NNPC will be selling petrol at a different price while other marketers would be selling at a different rate, thereby creating a dual exchange rate regime.”

Oil Stocks Gain on Fuel Price Hike

Despite the dichotomy created in the forex market, share prices of oil marketing firms rose on the Nigerian Stock Exchange (NSE) yesterday, as investors reacted positively to the increase in the pump price of petroleum to N145 per litre.
Other than the shares of MRS Oil Nigeria Plc, which remained flat, the shares of other major marketers recorded gains.
Forte Oil Plc appreciated by N10.50 to close at N220.50, followed by Total Nigeria Plc with a gain of N9.19 to close at N159.60.

Mobil Oil Nigeria Plc also chalked up N5.57 to rise to N155.96 per share, while Oando Plc and Conoil Plc advanced by N0.23 and N0.06 to end the day’s trading at N4.80 and N18.16 per share, respectively.
The gains lifted the NSE Oil & Gas Index by 3.78 per cent.
In their reaction, analysts at FBN Capital, an investment firm in Lagos, said: “We believe the likely implications are, firstly, quarterly import allocations by the PPPRA may cease to exist and marketers would be allowed to import products as each firm determines.

“Secondly, the PPPRA’s product pricing template’s forex assumption would now reflect the forex rate at the parallel market. The second point is the real game changer and should see the re-entrance of many industry participants, mainly the independent marketers.

“The policy change also suggests that the PPPRA would have to monitor two variables going forward, crude oil prices and forex rates at the parallel market, as opposed to only oil prices previously.
“We expect increased pressure on parallel market rates to be a major fallout of this decision.”
“Also, we are yet to determine if the forex rate assumption for NNPC imports would also now be at parallel market rates. We do not expect a strong push back from organised labour given that it was carried along and should understand the circumstances that led to this decision,” the investment firm said.

It explained that major marketers posted stellar profits before tax growth in the first quarter of 2016 due to their ability to source forex required for product importation, mostly from international oil companies (IOCs).
“However, we expect more competition in the second half of 2016, given that independent marketers are likely to re-enter the market now that importation is economically viable.

“Nonetheless, if forex supply agreements with the IOCs remain at the official rate, major marketers could have a pricing advantage. Given the supply gap, we still expect pump sale prices within the PPPRA price band on average.
“This could lead to gross margins expanding nicely, especially for the marketers under our coverage, Total and Mobil,” FBN Capital said.

NNPC Depots Suspend Loading

Meanwhile, the Pipelines and Products Marketing Company (PPMC), a subsidiary of the Nigerian National Petroleum Corporation (NNPC), has suspended the sale of petrol at its depots, as well as the private depots that have throughput arrangement with the company.
It has also advised oil marketers that paid the old ex-depot price to pay the difference arising from the hike in the price of petrol.

PPMC also in an internal memorandum issued yesterday to all its depot managers and coordinators at the private depots, directed them to sell at the new ex-depot price of N126.64 per litre, up from N76, the price at which the product was sold at the depots before the removal of subsidy.
The memo signed by A.T. Gwarzo on behalf of PPMC’s executive director in charge of supply and distribution, also reminded the managers that the federal government had increased the ex-depot price and pump price of petrol.
Also in a circular issued to the marketers yesterday, the PPPRA directed depot operators to sell at new ex-depot price of N123.8-N133.28 per litre.

The acting Executive Secretary of PPPRA, Mrs. Sotonye Iyoyo, who signed the letter, informed them that the agency would “continue to monitor market fundamentals in line with the policy of appropriate pricing, with a view to advising marketers on the subsequent guiding price band for petroleum products at the beginning of every month”.
She advised marketers to operate within the indicative price band as issued by the agency to avoid sanctions.

Iyoyo also informed the marketers that the implementation of “this new price mechanism is in line with the PPPRA’s mandate of determining pricing policy and setting benchmark prices of petroleum products in the country”.
However, all PPMC depots and private depots with PPMC products refused to load petrol since the new price regime took effect on Wednesday.

THISDAY gathered that NNPC’s depots at Mosimi in Ogun State, Ejigbo in Lagos, Ibadan, as well as some private depots engaged in a throughput arrangement with the corporation, refused to sell petrol until the marketers who paid the old price paid the difference arising from the current increase.
The development led to long queues of tankers waiting to lift NNPC product at Folawaiyo, Aiteo, AA Rano and Capital Oil and Gas depots in Lagos.

Nonetheless, many other depot owners that imported product sold yesterday at different ex-depot prices.
For instance, NIPCO Plc sold at ex-depot price of N130 per litre; Stallione at N136 per litre; Rahamaniyya Oil and Gas Limited at N130 and Gulf Treasure at N135 per litre.
Some of the marketers, who spoke to THISDAY, said the new pump price was high because the federal government used an exchange rate of N300 to arrive at the figures.
Many filling stations in Lagos and Abuja yesterday adjusted their fuel dispensing machines to reflect the new price approved by PPPRA.

NLC to Hold Emergency Meeting

But as the oil industry operators adjusted to the new price regime, the Nigeria Labour Congress (NLC), which has already expressed its opposition to the subsidy removal, said yesterday that it would hold an emergency National Executive Council (NEC) meeting today to strategise on ways to confront the federal government over the petrol pump price increase.
NLC Secretary General, Dr. Peter Ozo-Eson, told THISDAY that after the NEC meeting scheduled for 2pm today, the resolutions therefrom would be tabled before the National Action Committee (NAC) of the union to decide on the way forward.

Ozo-Eson recalled that “even in 2012 when former President Goodluck Jonathan increased the pump price of petrol, it took time before NEC declared action, so we will still follow that process”.
The National Association of Nigerian Students (NANS), on the other hand, had no bureaucratic bottlenecks to contend with, when it declared that it would mobilise its members across the country to protest against the increment until government reverses the price of petrol.

Speaking with THISDAY, NANS President, Mr. Tijani Usman Shehu, said yesterday: “We condemn it in totality and the leadership of NANS will do everything within its power to ensure that this pump price is reversed to N87.
“When President Muhammadu Buhari came into office, he assured Nigerians that he was going to reduce fuel pump price to N50. So we want to believe that he is a man of integrity and a man of honour.

“Nigerians believed him and it is in view of this that when we got the sudden news yesterday (Wednesday) in the morning that subsidy had been removed, we sat down and had an emergency meeting yesterday (Wednesday) at 12 pm to 2 pm with the executive leadership of NANS and came up with a position that Nigerian students will condemn the price hike in its totality.”
Shehu revealed that by next Tuesday, all zonal structures will embark on a nationwide protest, adding that between Wednesday and Thursday, NANS members would converge in Abuja in continuation of their protest.

“We want to believe on or before Thursday, the pump price of petrol would have been reversed. If it is not done, we shall demand that Mr. President redresses the matter,” the NANS president said.
Also, the President of the Catholic Bishops Conference of Nigeria (CBCN) and Archbishop of Jos, Ignatius Kaigama, in an interview with THISDAY, said: “Nobody is happy with the increase. It means more suffering, so more pain has been added to the already existing pain of Nigerians.”

Security Beefed up in Abuja

However, in anticipation of the protests, the Nigeria Police Force yesterday beefed up security across the Federal Capital Territory (FCT).
THISDAY learnt that armed policemen drawn from the various units of the FCT Command were deployed to strategic government institutions and locations in a bid to pre-empt the breakdown of law and order over the fuel price hike.

Battle-ready police officers and men drawn from the regular, combatant and counter-terrorism units were seen in the Abuja metropolis and it suburbs.
Also, armoured tanks fitted with modern communications gadgets, were rolled out in different parts of the city.
A source in the FCT Command explained that deployment of policemen was done to forestall violent fuel hike protests in and around Abuja.