Pricing Template – PMS
Posted on December 25, 2015 by pppra in Pricing Templates // 0 Comments
PPPRA PRODUCT PRICING TEMPLATE -PMS |
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Based on Average Platts’ Prices for 24th December, 2015 |
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Average Exchange Rate of the NGN =N= to US$ for 24th December, 2015 |
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PMS |
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Cost Elements: |
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$/MT |
Naira/Litre |
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1 |
C + F |
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458.41 |
67.34 |
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2 |
Trader’s Margin |
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10.00 |
1.47 |
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3 |
Lightering Expenses (SVH) |
27.72 |
4.07 |
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4 |
NPA |
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5.25 |
0.77 |
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5 |
Financing (SVH) |
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3.44 |
0.51 |
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6 |
Jetty Depot Thru’ Put Charge |
5.45 |
0.80 |
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7 |
Storage Charge |
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20.42 |
3.00 |
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8 |
Landing Cost |
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530.69 |
77.96 |
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9 |
Distribution Margins: |
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10 |
Retailers |
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31.31 |
4.60 |
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11 |
Transporters |
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20.35 |
2.99 |
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12 |
Dealers |
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11.91 |
1.75 |
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13 |
Bridging Fund |
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39.82 |
5.85 |
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14 |
Marine Transport Average (MTA) |
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1.02 |
0.15 |
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15 |
Admin Charge |
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1.02 |
0.15 |
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16 |
Subtotal Margins |
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105.44 |
15.49 |
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17 |
Highway Maintenance |
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0.00 |
0.00 |
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18 |
Government Tax |
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– |
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0.00 |
0.00 |
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19 |
Import Tax |
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– |
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0.00 |
0.00 |
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20 |
Fuel Tax |
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– |
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0.00 |
0.00 |
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21 |
Subtotal Taxes |
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0.00 |
0.00 |
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22 |
Total Cost |
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636.13 |
93.45 |
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23 |
** Ex-Depot (for collection) |
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528.64 |
77.66 |
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24 |
** Under/Over Recovery |
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43.91 |
6.45 |
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25 |
Retail Price |
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592.22 |
87.00 |
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Expected Open Market Price (OMP) (Naira/litre) is Landing cost +Margins |
93.45 |
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* C+F price is Offshore Nigeria |
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Conversion Rate (MT to Litres): |
1341 |
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Exchange Rate (N to $): |
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197.00 |
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* Official Ex Depot is exclusive of Bridging Fund, Marine Transport Average (MTA) & Admin. Charge |
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* *Ex Depot includes Bridging Fund, Marine Transport Average (MTA) & Admin. Charge |
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Data is as at 24/12/15 |
2. FREIGHT ($/MT)
This is the average clean tanker freight rate (World Scale (WS) 100) as quoted on Platts. It is the Cost of transporting 30, 000mt (30kt) of product from NWE to West Africa (WAF). Trader’s margin of $10/MT is also factored into the Freight cost.
3. LIGHTERING EXPENSES ($/MT)
STS/Local Freight charge is the cost incurred on the transshipment of imported petroleum products from the mother vessel into daughter vessel to allow for the onward movement of the vessel into the Jetty. This charge includes receipt losses of 0.3% in the process of products movement from the high sea to the Jetty and then to the depot. The mother vessels expenses are based on the allowable 10 days demurrage exposure at the rate of $28,000 per day.
The Lightering Expenses also includes the Shuttle vessel’s chartering rates from Offshore Lagos to Lagos and Port Harcourt which currently stands at N2.00 per litre and N2.50 per litre respectively. Transshipment (STS) process is as a result of peculiar draught situation and inadequate berthing facilities at the Ports.
4. NIGERIA PORT AUTHORITY (NPA) CHARGE ($/MT
It is the cargo dues (harbor handling charge) charged by the NPA for use of Port facilities. The charge includes VAT and Agency expenses.
Currently, NPA charge attracts $10.50/MT on the pricing template.
5. FINANCING
It refers to stock finance (cost of fund) for the imported product. It includes the cargo financing based on the International London Inter bank Offered Rates (LIBOR) rates+5% premium for 30 days (for Annual Libor rate of 2.07%, LIBOR cost would be 7.07%). Also included in the Finance cost is the inertest charge on the subsidy element being awaited for an allowable 60 days period at Nigerian Inter Bank Offered Rate (NIBOR) rate of 22%.
6. JETTY DEPOT THRU PUT
This is the tariff paid for use of facilities at the Jetty by the marketers to move products to the storage depots. The value is currently N0.80/litre.
7. STORAGE CHARGE
Storage Margin is for depot operations covering storage charges and other services rendered by the depot owners. The charge is currently N3.00/litre.
8. LANDING COST
It is the cost of imported products delivered into the Jetty depots. It is made up of components highlighted above (1, 2, 3, 4, 5, 6 and 7).
9. DISTRIBUTION MARGINS
These include Retailers (N4.60 per litre), Transporters margins (N2.99 per litre), Dealers margin (N1.75 per litre), Bridging Fund (plus Marine Transport Average) (N6.00 per litre) and Administrative charge (N0.15 per litre). This amounts to N15.49 per liter on the template. The overhead cost and other running costs have been considered in the determination of these margins.
10. TAXES
These include highway maintenance, government, import and fuel taxes. It has the overall objectives of revenue generation, social infrastructure investment and servicing and efficient fuel usage. Presently, all these attract zero taxes.
11. RETAIL PRICE
This is the expected pump price of petroleum product at retail outlet. It is made up of landing cost of imported product plus reasonable distribution margins.
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The Federal Government would on January 1 next year reduce the pump price of the Premium Motor Spirit (PMS) to N85 per litre, reports PR Nigeria.
The Minister of State for Petroleum, Dr. Emmanuel Ibe Kachikwu [image above] broke the news to journalists in the Port Harcourt Refinery Company (PHRC), where he spent Christmas inspecting the plant.
Asked when the Federal Government would release the new price template of the Petroleum Product Pricing Regulation Agency (PPPRA), he said that he approved the new price for the agency on Thursday.
Pressed to reveal when the new price will become effective, Kachikwu, who is also the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) said "like I said, we have done a modulation calculation and it is showing us below N87. I imagine that if PPPRA publishes it today, it will become effective immediately. But the 1st of January that is when we are looking at."
According to him, the new price is below the current N87 per litre and it would now convince Nigerians that the pricing modulation that the Federal Government promised to embark on a few days ago was not a trick.
He noted that following government's analysis and research, it has been realized that the country can fluctuate the fuel market in accordance with the crude oil market fundamentals.
Justifying government's reasons for scrapping the Petroleum Support Fund otherwise known as oil subsidy, Kachikwu explained that government can no longer afford to subsidize the product following the fraud that has attended its operation.
He added that it has become clear that government earnings are dipping on daily basis.
His words: "It is out; I signed off on it yesterday (Thursday). I imagined that in the next couple of days the marketers would get advice on that. The nice thing about the PPPRA, where I signed up on it yesterday is that the price will be far below N87.
So for the first time people will understand that the pricing modulation I was talking about is not a gimmick. It is for real. We have gone to find out how we will be able fluctuate this market to reflect what the reality of crude market is. The objective is that one, we cannot afford to continue to subsidize.
We can't even understand where those subsidies were going to. There are a lot of fraud elements in it so we need to cut that of.
The second is the earning capacity of the Federal Government is deteriorating by the day with lower prices of crude and come out more."
He submitted that from the application market realities for the pricing modulation, government has discovered that petrol would sell for either N85 or N86 per litre.
The minister recalled that it was from this axiom that President Muhammadu Buhari announced that the price of petrol remains N87 at the moment.
Kachikwu said: "But in applying that where we landed when we did the analysis for the very first time was about N85 or N86 so it is below N87.
And maybe the first price that will come will reflect it. That was why Mr. President said that prices will be N87 for now. And that is what we have in mind."
On the security of the pipelines, he said that government had tried stopping the menace with military intervention to no avail before it engaged some private contractors who had worked with the majors for the crude pipeline management.
According to him, the private contractors have taken over Atlas Cove, Mosimi and they would be extending the surveillance to Ilorin between yesterday and today.
They will also look at the Port Harcourt and Aba axis, he stressed.
The minister said that government is now beginning to have a clue of how to tackle pipeline insecurity, adding that it is far more expensive to convey petroleum and products through pipelines than trucking them by road.
He said from the briefing he got from the inspection of the refineries, they are close to re-opening.
"In the next one week, we are ready to see products out of here", he disclosed.
Kachikwu said that a lot of the rehabilitation of the refinery was being done with intensive manual labour of the staff since paucity of fund affected the holistic change that is required in the factory.
He said that the refinery is now aging so one fault comes up after the other even after repair but that would stop when government repairs the plant holistically early next year.
According to him, about 5.5 million litres daily of PMS is expected from the refinery in the next few days. Other products to come from the plants, said Kachikwu "are AGO, Kero and others. Where we love to be is to have half of the consumption of this country at the refineries at the minimum, which is about 20million litres. But where we are with the sleepless night I have had in the last few weeks any molecule is significant.
Kaduna will still be doing 2.3million. Let's start from there. And that is doing 60 per cent performance. This is still an assumption. I will like to see them getting closer to 80 or 90. By the time they time they do that we will be getting 11 to 12million litres out of this place."
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On this fuel subsidy business, I like President Buhari's earlier position better than the one to which he has apparently been converted by his minister of state for petroleum, Ibe Kachikwu. Buhari had echoed my own skepticism about the existence of genuine subsidy on petroleum resources, a position I articulated in 2012 in a newspaper oped during the debate over the withdrawal of fuel subsidy.
Subsidy as we know it is overblown and largely fraudulent. It seems to me then that if true subsidy does not exist or only exists minimally in the form of the small differential between the pump price of petrol and the total cost of importing and transporting the said petrol to stations, then the thing to do is simply to pay this difference and nothing more as a way to maintain the set price of N87 per liter.
With the price of crude at almost a ten year low, this difference has become negligible--N6.50 per liter, according to the NNPC, which is a far cry from subsidy amounts/rates the importers claim and collect. Buhari's earlier position in an interview during the campaigns was that the government should accurately calculate the difference between the pump price and the total cost of bringing fuel from foreign suppliers to petrol stations plus a small, fair margin or commission for importers and marketers, pay that difference, and nothing more. If the NNPC does the importation the additional margin/commission is eliminated, further reducing the differential. That was a sound analysis, and I remember telling a friend that this was the most lucid ameliorative analysis of the problem I had heard from any candidate or government official.
But Buhari advanced this approach only as a stop-gap, temporary solution. For the long term, Buhari acknowledged that the solution is to get our refineries working again and wean us off dependence on import fuel.
I loved Buhari's position. Unfortunately, Buhari has realized that that position is unrealistic at this time, given the apparent inability of the new NNPC management to get the refineries working at full capacity. He has also realized that, given the unfortunate but, for now, inescapable dependence on fuel importation and the power of blackmail that it gives the importers (they can refuse to import and cause politically unpopular and economically crippling scarcity), he has to decapitate the fuel importation cartel sooner than planned, hence the decision to deregulate the market, essentially allowing market forces, the cost of crude, freight charges, landing, and transportation costs to dictate the pump price.
The big unknown is how the importation cartel will react and whether the NNPC's cost calculation accurately reflects what the importers and marketers believe to be their actual costs. These actors may claim legitimately or otherwise that N85 does not adequately cover their costs, including the profit margin that makes the business worth their while.
Deregulation/subsidy withdrawal is a courageous move and was forced upon Buhari by the skyrocketing and increasingly unsustainable subsidy payments, payments that are based on inflated claims that hardly reflect the true costs associated with the importation and transportation of fuel. Given the financial strain Nigeria is under, the low price of crude, and the inability of government to accurately account for what constitutes true subsidy amounts, this is an auspicious moment to deregulate the sector. Politically, it is the best time too, because, thanks to cheap crude, it will result in no unpopular fuel price increase.
Nonetheless this major policy shift raises several questions that Mr. Kachikwu has not addressed:
1. If this is true deregulation, or surrendering the price of fuel to market forces or market dynamics, why is the government reducing the price of fuel to, or more appropriately, fixing it at, N85. How does a policy of deregulation coexist with a policy of price fixing?
2. What if the fuel importers (and marketers) resent and protest this contradictory policy of deregulation and price fixing and refuse to go along with it? Deregulation is something the importers and marketers should welcome, but price fixing is something they will resent for the obvious reason that the fixed price lacks the flexibility to respond to fluctuations in the price of crude and in the costs associated with fuel importation.
3. Crude is cheap now, but it will not be that way forever. For now, as long as crude remains cheap, the N85 official price may stick without resistance or serious repercussions, but when crude prices go up, which is inevitable, the pump price will have to go up to reflect that. What will the government do then? If the price is adjusted upward as it should to make importation worth while for the importers, how will such an increase in the pump price of petrol be explained by the government or received by Nigerians?
4. What is the government's endgame regarding domestic refining of petroleum products, which is the permanent, most cost-efficient solution to this problem--a solution that keeps fuel prices affordable and extricates control over fuel supply and prices from the grip of nefarious and shady importers?
These are all questions and issues that Mr. Kachikwu's glib rhetoric is silent on. Talk is cheap and reality can bite. I hope that the government has thought about these issues and has contingency plans to address them if/when they threaten the new deregulation regime and/or become a political fallout of the new approach to fuel pricing.