Weak naira, fraud shoot up diesel price

The continued fall in value of the naira against the United States dollar and alleged racketeering by some petroleum product marketers are responsible for the high cost of diesel despite the global drop in crude oil prices, the Petroleum Products Pricing Regulatory Agency has said.

This indication emerged on Friday as industry experts accused some marketers of forming a cartel that had kept the price of the product high since June last year when the free fall in oil prices started.

According to the PPPRA, the depot price of diesel as of February 11, 2015 was N99.51, while its pump price was N108.85.

The Executive Secretary, PPPRA, Mr. Farouk Ahmed, however, told our correspondent on Friday that the product was not sold at N108.85 in any of the retail outlets across the country because diesel dealers were paying more to get the US dollar at the interbank market.

He also noted many of the dealers were finding it difficult to get the dollar at the official exchange rate of N168/$ at the Central Bank of Nigeria.

He explained diesel was still being sold between N155 and N157 per litre at filling stations because the difference between the exchange rate of the dollar at the CBN and its value at the interbank market was about N20.

This amount, according to him, is always added to whatever is given by the PPPRA template as the MIBOM price and the cost is passed on to consumers.

He said, “Diesel has a peculiar template. The landing cost is around N108 per litre. But because we are using the official CBN exchange rate of N168 per dollar, and is deregulated, the CBN is obliged to sell the dollar at the official exchange rate. So the marketers have to go and buy at the interbank market.

“And the interbank rate is approximately N20 higher than the CBN rate. So, if you look at it, even though the template says it is N108, by the time they go to the interbank to buy at maybe N20 more, some of them will have to go and buy at the black market, which is around N210. So it is costlier and by the time it costs the importer N130 or N135 to bring in the product, the price moves up.”

Ahmed also said the activities of fraudulent dealers also warranted the increase in the price of the product, adding that some forms of racketeering of the product were contributing to the rise in cost.

While the agency blamed the high diesel cost on the current exchange rate, industry experts condemned the development, as they argued that deregulation of the product had not benefitted Nigerians.

The Chairman, Oil Trading Logistics Africa Downstream, Mr. Emeka Akabogu, said it was befuddling that more than the 50 per cent drop in crude oil prices had not reflected on the cost of diesel in Nigeria.

He said, “The bigger concern is that diesel is a deregulated product, and I have been one of the fiercest advocates for deregulation of petroleum prices in the last few years. Is there now cause to question the argument for deregulation?”

Figures from the PPPRA also showed that in January 2015, the international price of diesel averaged $445 per metric tonnes. A metric tonne of diesel could yield an average of 1,120 litres of the product, depending on the density of the particular specification.

The naira equivalent of this amount shows that the international price of diesel per litre was about N74 in the period under review.

When other costs like foreign exchange, freight, port and storage were factored, the landing cost of diesel in Nigeria per litre was between N85 and N90, while actual ex-depot price as of January averaged N95.50k.

Akabogu, therefore, noted that diesel was being sold at a minimum premium of N50 per litre in Nigeria.

He explained that this thrived in Nigeria because petroleum product marketers were often seen as a cartel of rampaging shylocks that would stop at nothing to make profit.

Akabogu said, “Competition seems meaningless in this context as obvious pricing agreements amongst retailers ensure that consumers are robbed of the benefits of a deregulated and potentially competitive market. Profiteering is the name of the game, and consumers seem helplessly at the mercy of its hard-nosed players.”

He faulted the Act establishing the PPPRA, stressing that it did not confer powers on the agency to rein in anti-competitive practices.

The Executive Secretary, Major Oil Marketers Association of Nigeria, Mr. Obafemi Olawore, also said the significant factor that had kept the price of diesel high in Nigeria was the exchange rate.

In a telephone interview with our correspondent, Olawore refuted the allegation that marketers were conniving to profiteer by exploiting consumers.

He said the value of the dollar against the naira had not been favourable to marketers.