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Shrinking Profit Worries Marketers as Crude Prices Rise

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petrol

The rise in crude oil prices coupled with the challenge of difficult access to foreign exchange is bound to reduce petrol imports into Nigeria by marketers.

The gradual rise in crude oil prices and the challenge in the foreign exchange markets do not go down well with marketers of Premium Motor Spirit, popularly known as petrol. They are worried that the development may erode the gains from the partial deregulation of the downstream oil sector.

According to them, the increase in crude prices and the high exchange rate of the United States dollar at the parallel market have almost wiped out the incentive to be enjoyed whenever they import petrol.

This, they say, is despite the recent 67.6 per cent increase in the pump price of the PMS by the Federal Government, as they argued that it would have been better to effect a full deregulation of the downstream sector and allow market forces to determine petroleum products’ prices.

On May 11, 2016 when the Federal Government partially deregulated the downstream oil sector by increasing petrol prices from N86 and N86.5 per litre to between N135 and N145 per litre, the cost of crude oil in the international market was about $44 per barrel.

Around that period, the total cost of petrol, according to the May 11, 2016 official pricing template of the Petroleum Products Pricing Regulatory Agency, was N138.11 per litre, leaving a profit margin of N6.89 per litre for marketers.

But on Saturday, May 21, 2016, the price of crude oil rose to $47.17 per barrel, and had risen to over $48 per barrel a few days earlier.

In its updated template that was posted on Friday, the PPPRA stated that the total cost for PMS had risen to N140.01 per litre, hence, leaving a profit margin of N4.99 per litre for the marketers.

The PPPRA, which is the agency of the Federal Government in charge of fixing petroleum products’ prices, updates its PMS pricing template in accordance with the fluctuations in the global prices of crude oil.

“If you say the upper limit is N145 and I know that my total cost will be around N140, will there be any need for me to bother myself importing the PMS? Definitely there is no way I’ll do that because I won’t be able to recover my cost, and if a businessman cannot recover his cost, then there is no point going into that business,” an executive member of the Reconciliation Committee of the Independent Petroleum Marketers Association of Nigeria, Mr. Dibu Aderibigbe, stated.

He noted that marketers were faced with other operational costs, stressing that it would make no business sense to import petrol if the constraints of accessing forex were not cleared, considering the fact that crude prices were beginning to rise.

Aderibigbe said, “The funniest thing is that when the PPPRA was putting together the template, it seemed to have based the cost of dollar on N285 when sourced at the parallel market, as was stated by the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, when he appeared on the TV to explain how they arrived at the N145 per litre price.

“However, I don’t know if anyone can get the US dollar at that rate at the parallel market. The black market rate that we know is over N320 to a dollar. So, if they now base their calculation on N285, it therefore means that there is a problem already from the beginning.”

On the increase in crude prices, the IPMAN official advised the PPPRA to review its template and petrol price every fortnight.

“From $44 to around $46 or $47 is no mean change. The $2 or $3 increase cannot be overlooked. So, if you say you will be reviewing the price every month, then you might be making a mistake. To make the regime work very well, you must be ready to review the price of the PMS within an interval of two weeks, at most,” Aderibigbe added.

Also speaking on the recent petrol price policy, the Executive Secretary, Major Oil Marketers Association of Nigeria, Mr. Obafemi Olawore, said marketers had always canvassed a fully deregulated downstream oil sector as a result of the challenges they faced with accessing forex and other operational matters.

According to him, market forces like issues of accessing forex, fluctuation in crude oil prices and rising importation cost  should be allowed to determine the cost of petrol as obtained in a truly deregulated sector, adding that this would engender competition among marketers.

Although Olawore commended the Federal Government for partially deregulating the downstream segment of the oil industry, he maintained that marketers would prefer a fully deregulated sector.

The MOMAN secretary, however, noted that the current petrol price regime was a sign that the sector might be fully deregulated in the near future.

“What we have now is a step towards deregulation. Deregulation is actually the end point; we are in the process and we will get there. When we get to deregulation, you will have the refining process included. As it is now, we are looking at only the petrol import side,” he  said.

A senior official of an oil marketing firm, who spoke on condition of anonymity, told our correspondent that the marketers had met with the Minister of Finance, Mrs. Kemi Adeosun, to seek the Federal Government’s assistance in accessing forex, particularly as the cost of crude oil appreciates.

The official said, “Crude oil prices are beginning to rise, although marginally. This is also due to several production shut-ins in Nigeria, which were caused by attacks on oil installations in the Niger Delta by militants. This rise in crude prices does not favour the PMS importers at the moment because the sector has been liberalised and we don’t get subsidy anymore.

“Accessing forex has been a challenge for long, but the recent gain in crude prices is compounding the challenge for marketers because it is eroding our profit margins, particularly if you source your forex from the parallel market. This was actually one of the many reasons why marketers met the Finance minister recently in Abuja. You know we don’t get subsidy anymore; so, facing stiff challenges like the ones we face now may slow the importation of the  PMS by the marketers.”

Olawore stated that the last time oil marketers were paid petrol subsidy was in 2015, adding that all subsidies incurred in 2016 were meant for the Nigerian National Petroleum Corporation.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Government

UK Government Has Approved Pfizer-BioNTech COVID-19 Vaccine

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The United Kingdom on Wednesday Approved Pfizer-BioNTech COVID-19 Vaccine

British government on Wednesday became the first country to approve Pfizer and BioNTech COVID-19 vaccine for use, according to the UK government.

The vaccine will be rolled out from next week and the first dose could be administered as early as December 7th, stated people familiar with the matter.

Last week, the UK government announced it had ordered 40 million doses of Pfizer and BioNTech COVID-19 and appointed Nadhim Zahawi, the current junior business minister, as the minister responsible for the deployment of the vaccines.

British government on Wednesday morning said, “The Government has today accepted the recommendation from the independent Medicines and Healthcare products Regulatory Agency (MHRA) to approve Pfizer-BioNTech’s COVID-19 vaccine for use” 

“The vaccine will be made available across the UK from next week.”

Matt Hancock, Health Secretary, revealed that the programme would commence early next week.

“It is very good news,” Hancock said.

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Government

Zabarmari Massacre: Buhari to Provide More Resources for the Nigerian Military

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President Muhammadu Buhari

President Muhammadu Buhari has promised to provide more resources to the military in the aftermath of the Zabarmari massacre.

On Saturday, Boko Haram killed 43 people with around 70 people still missing in Zabarmari, a village in Borno State.

Reacting to the massacre, Buhari, through his official Twitter handle @MBuhari said “Nothing is more important than ensuring the security of lives and property of Nigerians. Everything is secondary when security is at stake. I will ensure that more resources are made available to the military and other security agencies to prosecute the war against terrorism.

“As we mourn all the lives lost in Zabarmari, the Armed Forces have been given the marching order to take the fight to the insurgents, not on a one-off, but on a continuous basis, until we root out the terrorists.

“We will intensify our cooperation with neighbouring countries on bilateral and multilateral levels, to ensure that there is no hiding place for the terrorists.

“As I noted earlier, the massacre by Boko Haram in Zabarmari is nothing short of senseless, barbaric, gruesome and cowardly. It reinforces our resolve to root out all forms of insurgency and insecurity not just in Borno but everywhere across Nigeria.”

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Government

Boko Haram Kills Rice Farmers in Borno State, Northeast Nigeria

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Rice farmers were killed on Saturday morning in the Northeast Nigeria by suspected Islamist militants, Boko Haram, according to a Reuters Report.

The report also noted that 30 of the people killed were beheaded while over a dozen others were still missing.

However, resident of the Zambarmari Village where the attacks took place said a total of 70 people were feared dead.

Another resident and Amnesty International were quoted as saying at least 10 women were among those missing.

In another statement by Edward Kallon, the United Nations’ humanitarian coordinator in Nigeria, it was armed men on motorcycles that led the brutal attack on civilians harvesting their fields.

Armed men on motorcycles led a brutal attack on civilian men and women who were harvesting their fields,” Edward Kallon stated.

“At least 110 civilians were ruthlessly killed and many others were wounded in this attack,” he added, noting that several women are believed to have been kidnapped.

“The incident is the most violent direct attack against innocent civilians this year. I call for the perpetrators of this heinous and senseless act to be brought to justice,” Kallon said.

On Sunday, Governor Babaganan Umara Zulum of Borno State, who was at the burial told journalists that at least 70 farmers were killed on Saturday.

The Governor, therefore, called on the Federal Government to recruit more Civilian Joint Task Force members, Soldiers and civil defence fighters to protect farmers in the region.

He added that people are facing desperate choices.

In one side, they stay at home they may be killed by hunger and starvation, on the other, they go out to their farmlands and risk getting killed by the insurgents,” he said.

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