FG’s oil subsidy drops from N44 to N0.90k per litre

...South Africa cuts petrol price by N16

The Federal Government’s daily spending on petrol subsidy has crashed to N 0.90 per litre as of December 29th 2014, as against N44.94 on November 3 due to the fall in global oil prices.

According to latest data from the Petroleum Products Pricing Regulatory Agency (PPPRA), the landing cost of petrol dropped to N82.41 as of December 29 compared to December 8, 9 and 10 when the cost was N98.15 per litre, and in November 3, 2014 the cost was N127.57.

Subsidy refers to the money paid, usually by government, to keep prices below what they would otherwise be in a free market system.

For example, the Expected Open Market Price (EOMP) of petrol is N 97.90 per litre as of December 29, but the Regulated Price (RP) is N97. The difference of 90 kobo is the subsidy on the Petrol.

The over 50 per cent decline in the price of crude oil since June may have triggered the reduction in subsidy.

The federal government recently unveiled plans to cut subsidies on petroleum products by half this year after sharp falls in global crude prices prompted it to revise its 2015 budget downwards.

According to data from the revised budget President Goodluck Jonathan submitted to lawmakers, the government proposed to spend N458.68 billion on petrol subsidy in 2015, down from N971.14 billion naira presented for 2014.

When implemented, the government will save about N512.46 billion in 2015 for fuel subsidy.

According to the revised budget figures, government also assumed further cuts to petrol subsidy in 2016 to 408.68 billion naira and 371.18 billion naira for 2017.

Petroleum subsidy in 2014 gulped about N971 billion and would have gulped the same amount in 2015 but for the sharp falls in global crude prices which has forced it to revise the figures.

Commenting on the implication the latest subsidy cut, Head of Energy Research at Eco Bank, Mr. Dolapo Oni in an emailed response, said the price of petrol will remain the same until the government deregulates the sector.

He added that the reduction in the subsidy bill means the government will have more funds to deploy to its capital expenditure on infrastructure projects. This will likely be through the SURE-P program.

“However, oil prices are likely to be extremely volatile next year and could rise even higher than $70 at some point in Q3/Q4. This could push the government’s subsidy bill back up to nearly N20/N25 per litre again.

Meanwhile, the price of 93 and 95 octane petrol will decrease by R1.27 (N16) and R1.23 a litre on Wednesday, the South Africa energy department has said.

The price of diesel would decrease by between R1.04 and R1.05 per litre.The price of illuminating paraffin would decrease by R1.44 per litre. Liquefied petroleum gas would decrease by R2.10/kg.

The weakening of the Rand/US dollar exchange rate contributed to an increase in the fuel price. This was however offset by the drop in international oil prices.