Petroleum Products Prices and Subsidies in the Country

Note: The analysis applies only to the cost of crude refined in Nigeria.  What is the true cost of imported refined fuel – which constitutes most of fuel used in Nigeria because of the limited production from local refineries?

Daily Trust

22 December 2011

Petroleum Products Prices and Subsidies in the Country

Emmanuel O. Soyoye

The prices of petroleum products in Nigeria have been a source of contention and controversy. This paper proposes to clarify the actual total cost by adding the costs of all components in retail supply of Premium Motor Spirit (PMS aka Petrol or Gasoline) the most widely demanded and utilized petroleum product.

The cost components are finding, developing, producing, refining, distributing and marketing. The amount of subsidy on the retail price is then determined by the difference between the actual cost and the retail price.

The method adopted for this cost determination is similar to that used by the American Petroleum Institute (API) for the analysis of the actual total cost of gasoline (PMS) in the U.S. It splits the retail cost into the major components: cost of crude oil, the cost of refining and marketing and the sum of all taxes. This method is simple and accurate.

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we can confidently conclude that government makes a profit of 33.50 N/Litre on PMS (Petrol) at the current price of 65 N/Litre. This translates to a very high 106% profit per litre.

In addition the government benefits from royalties, taxes and fees which were not factored in this simplified analysis. When factored, the actual crude cost per barrel to government is significantly less and its profit correspondingly higher.

The claim of subsidies on petroleum products is clearly incorrect.