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Naira Devalued For Petrol Import: PPPRA Pegs Naira At N298 For Fuel Imports

 

· Currency falls to N341 on parallel market as oil stocks gain on fuel price hike

Goddy Egene, Obinna Chima, Ejiofor Alike in Lagos, Paul Obi and Chineme Okafor in Abuja

Oil marketers have been given the go-ahead to source foreign exchange (forex) to import petrol into the country at an autonomous exchange rate of N298 to the dollar.

According to reliable sources in the Petroleum Products Pricing Regulatory Agency (PPPRA), which released a revised pricing template for petrol on Wednesday night, the forex rate was pegged at N298 to the dollar to limit the challenges associated with sourcing and accessing forex for the importation of petrol by oil marketers.

However, news on the removal of subsidy on petrol exerted downward pressure on the naira on the parallel market yesterday, where it fell sharply in a single day by N18 to close at N341 to the dollar, relative to the N323 at which it sold on Wednesday.

Sources in PPPRA explained to THISDAY yesterday that while the government’s official naira/dollar exchange rate through the Central Bank of Nigeria (CBN) window remains at N199 to the dollar, the decision to adopt a parallel market rate for petrol importation was agreed by all stakeholders in the downstream oil sector during the consultations.
They explained that before arriving at the new pricing template, a comprehensive study of the cost of importation was undertaken and all stakeholders, including oil marketers and independent experts, were consulted to arrive at an appropriate cost reflective regime.

The template, which put the landing cost of petrol at N119.74 per litre and distribution margins as N18.37, meant that the total cost-to-pump price for a litre of petrol rose to N138.11.
The template, however, indicated that marketers could sell petrol within a retail price band of N135 to N145 per litre.

Naira Heads South

However, it was uncertain if the PPPRA template, which pegged the forex rate at N298 to the dollar, was expected to make much of a difference, as the naira plummeted significantly to N341 yesterday, from N323 to the dollar the day before.
‪The sharp decline was blamed on the government’s announcement of the removal of fuel subsidies and the green light given to oil marketers to source their forex requirements from parallel or autonomous market sources.

‪This, according to a source, led to an upsurge in forex demand on the parallel market.
‪Speaking on the development, the CEO, Financial Derivatives Company Limited, Mr. Bismark Rewane, said the parallel market does not have the depth to fund the importation of petroleum products, arguing that the central bank needs to find a way to continue to fund petrol importation.

“If they say they can’t fund the importation of petrol from the official market, then why do we have that market?” Rewane queried.
‪He added: “What they have done was to effectively devalue naira for petrol imports, if you say the CBN cannot supply to that sector.

“But the government cannot push the funding of petrol to the parallel market because the market does not have the depth to fund the importation of petrol.
“What we will see is a situation where the NNPC will be selling petrol at a different price while other marketers would be selling at a different rate, thereby creating a dual exchange rate regime.”

Oil Stocks Gain on Fuel Price Hike

Despite the dichotomy created in the forex market, share prices of oil marketing firms rose on the Nigerian Stock Exchange (NSE) yesterday, as investors reacted positively to the increase in the pump price of petroleum to N145 per litre.
Other than the shares of MRS Oil Nigeria Plc, which remained flat, the shares of other major marketers recorded gains.
Forte Oil Plc appreciated by N10.50 to close at N220.50, followed by Total Nigeria Plc with a gain of N9.19 to close at N159.60.

Mobil Oil Nigeria Plc also chalked up N5.57 to rise to N155.96 per share, while Oando Plc and Conoil Plc advanced by N0.23 and N0.06 to end the day’s trading at N4.80 and N18.16 per share, respectively.
The gains lifted the NSE Oil & Gas Index by 3.78 per cent.
In their reaction, analysts at FBN Capital, an investment firm in Lagos, said: “We believe the likely implications are, firstly, quarterly import allocations by the PPPRA may cease to exist and marketers would be allowed to import products as each firm determines.

“Secondly, the PPPRA’s product pricing template’s forex assumption would now reflect the forex rate at the parallel market. The second point is the real game changer and should see the re-entrance of many industry participants, mainly the independent marketers.

“The policy change also suggests that the PPPRA would have to monitor two variables going forward, crude oil prices and forex rates at the parallel market, as opposed to only oil prices previously.
“We expect increased pressure on parallel market rates to be a major fallout of this decision.”
“Also, we are yet to determine if the forex rate assumption for NNPC imports would also now be at parallel market rates. We do not expect a strong push back from organised labour given that it was carried along and should understand the circumstances that led to this decision,” the investment firm said.

It explained that major marketers posted stellar profits before tax growth in the first quarter of 2016 due to their ability to source forex required for product importation, mostly from international oil companies (IOCs).
“However, we expect more competition in the second half of 2016, given that independent marketers are likely to re-enter the market now that importation is economically viable.

“Nonetheless, if forex supply agreements with the IOCs remain at the official rate, major marketers could have a pricing advantage. Given the supply gap, we still expect pump sale prices within the PPPRA price band on average.
“This could lead to gross margins expanding nicely, especially for the marketers under our coverage, Total and Mobil,” FBN Capital said.   ThisDaylive

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