The devaluation of the naira from N379/$ to N411/$ will increase landing cost of petrol and push daily subsidy payment to N7.1 billion, Managing Director, Financial Derivatives Company Limited, Bismarck Rewane has said.
In an economic report released at the weekend, Rewane said the landing cost of petrol has increased by 61.6 per cent to N231.98/ liter from an average of N143.6/liter in December 2020.
He explained that with Nigeria’s daily consumption of petrol up by 60.9 per cent to 93 million liters from an average of 57.8 million last year, subsidy payments could still rise to N7.1 billion daily from N5.5 billion in June.
This, he said, was largely due to the rally in global oil prices ($76 per barrel) and currency adjustment – N410/N411 (Investors and Exporters Forex Window -IEFX) from previous N379 to dollar, leading to an increase in landing costs for imported refined products.
“Based on this new template, the expected price of Premium Motor Spirit (PMS) will increase to N254.90/liter from N239/liter estimated in April. Meanwhile, the NNPC has said that the price of petrol will remain at N162-N165/liter in Jul,” he said.
Rewane disclosed the daily consumption of petrol previously stood at an average of 57.8 million in the first quarter of 2020 with N5.5 billion daily subsidy payment in June.
He said that going forward, the new subsidy payment target will also be exacerbated by the impact of smuggling as an increase in subsidy payments diverts funds from critical capital projects.
“This will lead to a further increase in petrol prices. Furthermore, higher energy costs coupled with rising food prices will continue to erode consumer disposable income,” he said.
He said the Oil & Gas industry of Nigeria last week received some respite as the National Assembly broke a 14-year jinx to pass the petroleum industry bill (PIB) .
This bold move is expected to help recoup revenue losses, stop subsidy payments and encourage investments in the down- stream petroleum sector.
Rewane said Brent crude is trading at its highest level in over a year ($75pb) as global demand continues to pick up in the US and Asia. On the other, Nigeria’s oil output fell by 2.82 per cent to 1.38mbpd in May from 1.46mbpd recorded in April despite the ease in OPEC output cuts.
The fall in Nigeria’s crude production can be attributed to disruptions from pipeline vandalism and force majeure imposed by the international oil companies.
He said the good news is that OPEC and its allies are looking to further in- crease supply as from August.
“This implies a further increase in Nigeria’s production quota from 1.58mbpd in the near term. A rise in production coupled with higher oil prices would boost government revenue and increase the states’ ability to meet its obligations. It could also lead to an increase in the Federal Accounts Allocation Committee (FAAC) allocations that fell by 1.8 per cent to N605.96 billion in June.
