First Post Subsidy Oil Cargo Lands Nigeria, Emadeb Calls for Fixed Forex Rate for Oil Imports

On Wednesday, the 20th of July, the first privately owned oil cargo post-subsidy came into the country. Emadeb Energy Services Limited announced that it has successfully imported approximately 27 million litres of petrol into the country. Before this, NNPC Limited was the sole importer of PMS into the country.

In a speech delivered at the company’s jetty in Lagos on Wednesday, Adebowale Olujimi, the CEO of Emadeb Energy Services Limited, noted that the imported product arrived in a cargo with a value exceeding $17 million. Olujimi clarified that the company’s decision to import the goods was driven by the need to strategically position itself and take advantage of the opportunities arising from the new post subsidy regime.

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He noted, “The value of this cargo here, you cannot find it in the market just like that. It is over $17 million and you can’t in any way, with what the FX is today. Today, we have imported 27 million litres of PMS, but local refining is the way forward for us in this country.

“We want to be one of the early comers into this game. In conjunction with some of our trading partners, we decided to source for the licences and that is what has brought us here today.

“Petrol importation is not a sustainable way for a country to run. From what we saw yesterday when PMS price rose to over N600 per litre, it is an indication that the dynamics of the business is a tough one. It requires huge US dollars to bring in this. The way forward is for local refineries to be revived,” he noted.

In commenting on the development, Sadiq Bashir, NMDPRA’s Executive Director of Corporate Services and Administration representing Farouk Ahmed NMDPRA’s CEO, noted, “The significance of this is the fact that deregulation has been embraced and subsidy removal is a thing of the past. Not only that, it showed that by working together as stakeholders in the industry, we can actually diversify the supply of this very important source of energy for the country,

“Actually, the regulation is not just about pricing, it is about opening up the market, and what we are doing in NMDPRA is ensuring that we guarantee supply by licensing people to import the product where necessary or in the case of licensing refining companies in the downstream to make sure this product is produced in the country.”

With the price of PMS hitting N617 across NNPCL retail outlets in Nigeria, the question remains will this development cause a decline in the price of petrol?

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In simple arithmetic terms, importing 27 million litres of petrol for $17 million translates to an average landing cost of approximately N472 per litre for the imported product, considering an exchange rate of N750/$ and accounting for factors such as freight, insurance, government charges, and storage expenses. At CBN’s weighted average exchange rate of N770/$ as of 21st July, the average landing cost is put at N484.

With no import duty and no VAT charged on petrol imports, the formula for calculating the retail price of PMS is quite basic, factoring in the statutory dues, distribution costs, and margins.

In speaking with BusinessDay Newspaper, Olumide Adeosun, the Chairman of the Major Oil Marketers Association of Nigeria (MOMAN) noted, “The international price of crude oil and the exchange rate constitutes the largest components of the cost build-up for Premium Motor Spirit (PMS), accounting for over 80%,

“The remaining 20% includes statutory dues, distribution costs, and margins,”

In a report by BusinessDay, the methodology behind the pricing of petrol was reviewed. It was noted in the report that when petrol arrives in Lagos, the price increases. The price increases are attributed to additional costs, including depot fees (N8), local transport expenses (N6), station margins (N20), and compliance with the Nigerian Midstream and Downstream Petroleum Regulatory Authority (N5).

Based on the N770/$ exchange rate, we expect the wholesale price of Emadeb’s PMS in Lagos to hit N554 per litre, thus bringing the retail price below the N600 level. Nevertheless, this analysis might not provide a complete and accurate picture since we lack information about the rate at which Emadeb acquired Forex. As a result, several factors and discussions come into play.

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Debo Olujimi, Emadeb’s CEO noted “$17 million is not something you can just get from the I&E market,” highlighting the issue of Forex sourcing for PMS importers, considering Nigeria is fully reliant on imports to meet its PMS demand. The current fluctuating nature of the Forex market raises the crucial question of how these importers can secure Forex at a stable rate. Olujinmi called for on the government to allow fuel importers to access foreign currency at a special rate , a demand which runs counter to the recent move by the Central Bank of Nigeria to have a single foreign exchange rate.

After the removal of the petrol subsidy, the NMDPRA announced it had granted petrol importation licenses to 56 oil marketing firms. And with Emadeb leading the charge, the country waits to see what the other 55 firms have up their sleeves.