New Telegraph

EU sanctions, forex dynamics push up diesel price by 168.26%

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The Russian-Ukraine war and the consequent sanctions against Russia by European countries and foreign exchange challenges have been identified as major contributors to the spiralling prices of Automotive Gas Oil (AGO) popularly called diesel and Premium Motor Spirit, otherwise called petrol or fuel.

The National Bureau of Statistics (NBS) in its AGO price watch for February 2023 had disclosed that the average retail price of diesel, which Nigerian consumers paid, increased by 168.26 per cent on a year-on- year basis from N311.98 per litre recorded in February 2022 to N836.91 per litre in February 2023. Also, NBS in its Petrol Price Watch for February 2023 said the average retail price of a litre of petrol increased by 54.76 per cent from N170.42 in February 2022 to N263.76 in February 2023.
Russia, which has been the largest diesel supplier to Eu- rope with over 600,000 barrels per day and one of the largest crude oil suppliers among the Organisation of Petroleum Ex- porting Countries and its allies (OPEC+), invaded Ukraine on February 24, 2022.

Russia is the world’s third- largest oil producer behind the United States and Saudi Arabia. In January 2022, Russia’s total oil production was 11.3 mb/d, of which 10 mb/d was crude oil, 960 kb/d condensates and 340 kb/d NGLs. By comparison, US total oil production was 17.6 mb/d while Saudi Arabia produced 12 mb/d.

About 60 per cent of Russia’s oil exports go to member coun- tries of the Organisation for Economic Cooperation and Development (OECD) Europe, and another 20 per cent go to China. OECD is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate economic progress and world trade.

The members are the United States of America (USA), United Kingdom (UK), France, Germany, Switzerland, Turkiye, Australia, Austria, Belgium, Canada, Chile, Colombia, Costa Rica, Czech Re- public and Denmark. Others include Estonia, Finland, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan,

Korea, Latvia, Lithuania, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, and Sweden.

In November, OECD Europe imported a total of 4.5 mb/d of oil from Russia (34% of its total imports), of which 3.1 mb/d was crude oil and feedstocks and 1.3 mb/d oil products. OECD Asia Oceania imported 440 kb/d of total oil from Russia in November (5% of total imports), while the OECD Americas imported 625 kb/d (17% of total imports). Roughly 750 kb/d of crude oil is delivered to Europe via the Druzhba pipeline system.

In opposition against Russia for its invasion of Ukraine, European Union member countries, the US and the United Kingdom imposed a number of sanctions against Russia. Another factor is the high cost of freight, vessels and other inter- national logistics associated with the transportation of petroleum products to Nigeria, which contributed to the fallen value of the naira against the dollar.

New Telegraph investigations further revealed that another cause of the high prices of diesel and petrol was the difficulty encountered in ac- cessing foreign exchange of USD for business activities, which became a great hurdle for petroleum marketers.

Currently, the CBN Exchange Rate stands at about N459.89 to $1,while the Parallel exchange rate is about N880 to $1. A marketer told New Telegraph in confidence that to charter a ves- sel to convey 20,000 metric tonnes (M) of petrol within Nigeria for 10 days, has hit over N220 million at an official forex rate of N440 and about a whooping N880 million for petroleum marketers who have to source forex from the parallel market.

Freight charges are denominated in dollars. He further explained that for this same transaction, Jetty fees, again charged in dollars, come to N15.4 million at official forex rates and about N30.8 million; for petroleum marketers who source from the parallel market.

In addition, the Jetty berth is charged in dollars and comes to about N2.4m at the official forex rate and N4.8 million at the parallel market rate. It was also learnt that depot owners also pay port dues (Nigerian Ports Authority (NPA) and Nigerian Maritime Administration and Safety Agency (NIMASA), which are all charged in dollars and amount to about N71.51 million at official forex rate and N142.796 million for marketers who source forex from the parallel market.

It was further gathered that petroleum marketers still must compete with the Nigerian National Petroleum Company (NNPCL) which has access to forex at the CBN ex- change rate and also has the added advantage of getting products through swap arrangements.

Findings also showed that the NNPCL, which historically, serves as the supplier of last re- sort, is now the major oil down- stream company in Nigeria with the acquisition of OVH and has full access to USD at CBN’s official rates.

Petroleum marketers con- tended with sourcing funds from the parallel market to pay for fees and levies that are de- nominated in dollars. These include costs, such as vessel hiring charges in forex as to the NPA and NIMASA. There are also several unauthorised operational levies/fees incurred in the process of distribution of imported products.

Findings showed that sourcing these funds from the parallel market and paying unauthorised levies forced marketers to increase their ex-depot prices which translated to increased pump prices from retail marketers who incurred operational, transportation and logistics costs for the product to be sold in the filling stations.

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