Fraudulent Diesel Pricing leaves Marketers with N32bn in 2010

Thursday, 01 December 2011 00:00 BY OUR REPORTERS


FG seen encouraging racketeering in diesel trade

Senators probing the management of the controversial petroleum subsidy regime are seeking explanation for the huge arbitrage between the price our refineries sell the diesel they refine locally to marketers and the price which Nigerians have to pay for the product.

The diesel is today retailed at the pump of N155 a litre, but the politically connected marketers are able to obtain supply from (predominantly) the Warri refinery, for about N126 a litre (and was far below this rate six weeks ago when the refinery or depot price was moved to N126 a litre).

At these rates, a marketer which is allocated a vessel of 5,000 metric tonnes of diesel, can make a margin of N168.7 million per vessel, given that one metric tonne is the equivalent of 1,164 litres.

According to the annual oil and gas data provided by the NNPC, a total of 945,295 metric tonnes of diesel or AGO was refined locally last year, 558,647 metric tonnes in 2009, 1,165,961 in 2008 and 622,714 in 2007, when the price of diesel was deregulated.

On an annual basis, the margin made by the elite club of those who get allocation from the refineries, in 2010 alone, was in excess of N31.937 billion or $205 million.

Today’s landing price for diesel is around N136 a litre, but Nigerians, when they go to the petrol station never get the advantage when they purchase locally refined diesel, mainly because of the subsidy bonanza which ensures that marketers do not compete for customers, because prices are ipso facto fixed.

To get an allocation, you must know people in government and then you have to lobby, according to officials who spoke to Business Day on condition of anonymity.

According to the CEO of a leading major oil marketing firm, “there is almost a daily movement in price but the refinery people take months sometimes, to adjust their price. If you run private business that way, it will quickly go under.”

This distortion creates room for overnight contractors working for themselves or for people in government.

Another CEO of a western oil marketing company said: “Once, some people in government came to offer us products which we know came from the local refinery. We simply said to them no, you know our company rules do not allow us to buy products from government people.”

He said: “When people see a big difference between the landing price of imported diesel and the refinery price, you are discouraged from importing and this explains the scarcity which sometimes occurs. You do not want to bring in products when the chances are that you will make a loss.”

According to a senior oil executive, “ideally, immediately there is a price movement on PLATT, the global dashboard for prices, our local refinery or deport prices should automatically be adjusted. But this does not happen and it is deliberate to allow the ‘boys’ to make some more money.”

For the senators, the worry is that the extra income the government should be making from selling locally refined diesel is not properly accounted for, as this could have formed a significant part of funding the over bloated subsidy payment on petrol and kerosene.

The nation’s refineries are perennially down and the cost of importation to the national economy by way of the controversial subsidy payment, keeps rising.

Last year for instance, the Port Harcourt refinery was down for five months. Data by the NNPC put output from the refineries in Kaduna at 20.4 per ce[/font]nt in 2010, Port Harcourt 9.17 and Warri at 43.36 per cent.

For a petroleum product like diesel that is fully deregulated.NNPC officials and their cohorts are still siphoning money from our National treasury by this callous practise.How does Jonathan intend to manage the price variables(between locally refined and imported) when he fully deregulates kerosene and PMS supply.GEJ please sit up and do proper analysis before jumping into deregulation.