PPPRA: How Govt Slashed Petrol Subsidy in 2015

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 The Petroleum Products and Pricing Regulatory Agency (PPPRA) has explained how the federal government was able to cut its expected expenditure on subsiding local consumption of petrol in the 2015 budget.
The federal government had in its 2015 budget earmarked N200 billion on subsidy for petrol against the N971.14 billion it earmarked for same in the 2014 budget.

The 2015 budget christened the “transition budget,” was presented to the National Assembly in December 2014 by the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala.

In an interview with journalist at the weekend in Abuja, the Executive Secretary of PPPRA, Farouk Ahmed, provided lucid explanations on how the government arrived at the current subsidy figure as well as its plan to stay within the proposed expenditure bandwidth.

Ahmed noted that the ministry of finance had in calculating expected subsidy expenditure within the budget, considered extant costs associated with importation of Petrol into the country to arrive at the budgeted figure.
“What the ministry of finance looked at was the cost of importation. For example, in June last year we imported one metric tonne of Petrol for about $1070 per metric tonne. As of yesterday it has come down to about $500 per metric tonne.

So, if the cost of crude has gone down, cost of importation gone down, there is no reason to put a high budget on subsidy when the same volume is costing you half the former valve and  that is what the ministry of finance considered when they were doing their projection for the year,” Ahmed said.
He explained that: “They projected that the cost of this material is going to be halved, and so said let us also half the budget.

The economists in the ministry of finance did their projection because they have their own forecast. Obviously, sometimes you do your forecast and also reverse it if the market changes but by and large, you can see that this is within the band.”

He stated that the budgetary allocation was not low and as expected, government  would ontinue to honour its financial commitment to legitimate petroleum marketers who are approved to bring in products into the country.
“Government has commitments to pay, we issue instruments like the Sovereign Debt Note (SDN) and Sovereign Debt Statement (SDS), and so because of these commitment it guarantees that government will pay.
“There may be delays in payment, but the delays are caused by internal process of ensuring that we follow all the processes before payment so we don’t make mistakes,” he added.

Ahmed also took time to explain why the price of diesel which is deregulated has failed to drop like petrol in the wake of slump in price of crude oil.
According to him, because of the deregulation in sale of diesel, the Central Bank of Nigeria (CBN) is not obliged to sell the United States dollar at official exchange rate to marketers who import diesel. These marketers then resort to interbank or black market currency exchanges to undertake their importation and which the rate is usually higher.

“Diesel as per PPPRA template, the landing cost for yesterday was N108 per litre, but PPPRA template uses the official CBN exchange rate of N168 per dollar, but because it is deregulated, the CBN is not obliged to sell the dollar at the official exchange rate, so the marketers have to buy interbank which is higher than that of CBN rate.

So even if the template says its N108, but by the time they go to interbank to buy at maybe N20 more, while some even buy at the black market which is around N210 to a dollar, so at times it  costs the importer N135 and he puts his own margin and depot cost, you see the incremental value in the price of diesel,” Ahmed explained.

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