tete7000:


Diesel is not the only derivative of crude oil and as such deregulating diesel alone won't bring needed investment into the refining industry. How can people refine and derive multiple products, sold one of those products in a competitive market while others are regulated? If we want investments in our refineries, we need to have a total deregulation.
To say diesel didn't benefit at all from deregulation is far from truth. Diesel doesn't suffer regular scarcity as petrol and kerosene do. Although I wouldn't know if price of diesel responds to international price fluctuation as I am not a user of diesel but I expects it should. However for now it is going to be difficult for us to have diesel price drop yet as we still heavily depend on product importation and also because its importation is still somehow linked with importation of other products.

jpphilips:


Every year, Ignorant people like you make this argument, as the years roll by, it becomes clear how unrealistic your position is, who knows, I may have been ignorant at some point but what has changed now is the fact that I kept an open mind and talked to some people, played with them and understood what is going on, Joehunt is telling you the truth, you can either take it or leave it.
I wont be suprised by next year you come and say this over and over when all the products are deregulated, 90% of Nigerians dont have any idea what is going on, Jonathan is the biggest scammer in Nigeria's history.
his scam can be likened to Bill gate's Y2K compliant scam.
Be wise, keep an open mind to learn, recycling 2012 lies in 2015 doesnt sound intelligent.

TheGoodJoe:


Stop buying into GEJ and NOI's lies and propaganda. They make it look as if the Subsidy is the reason why the country is losing Billions. The truth is that we are losing money because of their monumental looting.

They stopped NNPC officials from paying money into the Federation Account. This hindered CBN under Emir Sanusi to monitor their wastage.

Billions of dollars are missing because of GEJ's wastage, not Subsidy. If they did not loot this money for their wastage lifestyle and election, there would be money for governors to work and pay salaries.

rolchi:


Boss, whether GEJ and NOI is lying and 'propagandaring' or not...whether billions of dollars are missing because of GEJ's wastage or not...whether someone looted this country for their waste lifestyle or not...the truth is very glaring to our faces NOW!

Governments across Nigeria is sinking and the FUEL SUBSIDY MUST BE REMOVED ' "8 YEARS AGO" '. We must do it now or SINK!

tete7000:


And what point have you made with this post? Can you explain what you have learnt from opening your mind?

Billyonaire:


Built by who ? Who should build the refinery ? Government is unable, world over to manage businesses. Nationalism is a wrong economic model; Capitalism with government holding minor equity in the consortium for regulatory mandate has been the successful model globally. Then, if Capitalism is the way forward, who is a Capitalist ? Majorly private investors or foreign direct investors in JV partnership with local enterpreneurs. Good, that takes us to profiteering. The sole aim of doing business, for a capitalist is profit, and so, if the Government of Nigeria is paying subsidy, only a mad man will put his money where there is government subsidy cos at the end of the day, its like building a restaurant close to the welfare foodstamp place. Who wants to come and buy your food, when there is free good food served on the same location.

Listen, I didnt make money being ignorant, I didnt make money being emotional. I study every model and module and research before I make statements on this issue. Unless and until the Government stops subsidy, not even Dangote will start building refineries. Why should I build refinery in Nigeria under government subsidy when other countries are begging me to build it there and sell at higher price regime ?

This is not about politics, this is business.

jpphilips:


Truth is; I don't owe you any knowledge/point because I have nothing to loose if you remain ignorant.
Most of you come here just to argue what you have no clue about, if you really want to learn, ask nicely.
Go back to the guy you were arguing with, read his posts again, where you are confused, ask questions.
That is the right thing to do.

You cant imagine how ridiculous your posts sound.

tete7000:


I have hope that you know the person you re talking to but no need. Having an anonymous forum enables some of you high on weed to come and talk and feel you can insult others. Enjoy and reel in your stupidity. Bye

VolvoS60:



^^^^


That fellow ruined the thread. It was a fairly civil exchange in which opposing sides tried to state their positions clearly without rancour until that fellow barged in violently, cursing other posters out for no reason at all. The worst part of it is that he is all over the place - I really can't place him or what exactly he is trying to say.

As to the thrust of your argument about the need to remove 'subsidies'... my argument is that there will be no need for subsidies on imported fuel if local refining capacity is built. A few posters here claim that there is no subsidy on locally produced fuel. Then why are we having this discussion? Build refineries here in Nigeria and the need to import disappears.

Or could it be that you are against the idea of the government building refineries? You don't think that these refineries would qualify to be called public goods of some sort?

tete7000:


Diesel is not the only derivative of crude oil and as such deregulating diesel alone won't bring needed investment into the refining industry. How can people refine and derive multiple products, sold one of those products in a competitive market while others are regulated? If we want investments in our refineries, we need to have a total deregulation.
To say diesel didn't benefit at all from deregulation is far from truth. Diesel doesn't suffer regular scarcity as petrol and kerosene do. Although I wouldn't know if price of diesel responds to international price fluctuation as I am not a user of diesel but I expects it should. However for now it is going to be difficult for us to have diesel price drop yet as we still heavily depend on product importation and also because its importation is still somehow linked with importation of other products.

VolvoS60:



^^^^
You have raised some interesting points. I'm no geologist or pet. engineer but this link (http://www.thisdaylive.com/articles/first-private-refinery-begins-operation-in-rivers-state/103803/) seems to support the idea that the deregulation of diesel has attracted investment into the sector without any adverse effects from regulated pricing of PMS. Unfortunately, I have no way of independently verifying NDPR's claims. I also always thought that PMS is a guaranteed product of fractional distillation - if it is so, then what does NDPR do with its PMS and DPK/AGO? Perhaps the experts could shed more light on this?

A key point from your post is that investment in local refining capacity is constrained because of the partial deregulation of the downstream sector. Is this really so?

It would be good for those with access to diesel pumphead prices to upload details on here to see if diesel pumphead prices in Nigeria have declined since the fall in global crude prices. (Lets leave out the exchange rate dilemma for now...)

tete7000:


Don't mind the e_diot. People like him are the ones who make social forum a difficult place to converse. They always work to derail topic no matter how educative it is; they are probably high on weeds I guess.
Back to your question, I am never opposed to govt building refining capacity. My argument is that subsidy makes that difficult. Before I explain why I think so, we need to first clarify what subsidy is. To do that I give this scenario: You are a producer of cup, you produced your cup and realised that to make profit you need to sell at N20 but govt has pegged the price at N18. So you sold at N18 and govt refunded your N2 so that you can recover your profit. That N2 is the subsidy. As for the people who said local production doesn't have subsidy on it, I can't affirm or disprove until we know how much their cost of production per litre is. If they make a litre for less the current market price, their is no subsidy else there is. However in the long run what we want is active participation of private sector in our downstream sector just like we are witnessing in the telecom industry now. We create competition and hope that over time competition drives the prices down. While government refineries might be able to survive in current climate, it might be difficult to have private participation we desire. No sensible private investor would want to put his money where he can't look at his cost and determine how much he needs to sell and make profit. Many will argue 'but the shortfall will be reimbursed?'. The question that however follows is 'after how many months?' We see the war currently going on. Marketers have imported long ago but they are currently just being paid, that is even after a protest. Money has lost its value since, exchange rate has gone up, loans taken have accrued interests. It is a tough environment for private participation. As per the issue of govt refineries, those who hold the money down will always ensure govt refineries don't work and we thus need to import. I am really looking forward to how Gen. Buhari will tackle the imbroglio.

VolvoS60:



^^^^
The parts of your post in bold type are the key issues for me.

There is no disputing the fact that there is a subsidy on imported petroleum products in Nigeria. What is less clear is whether there is a subsidy on locally drilled and refined fuel. For ages I have requested for the cost of producing and refining a litre of fuel in Nigeria. Not surprisingly, that information has grown wings and fled to the sky. Despite the information overload in government circles on the need for 'subsidy removal', there is zero information on the cost profile of domestic oil production and refining. The government has refused to provide this information in a clear and unambiguous manner, despite running 4 refineries. Why? Isn't this information central to the discussion?

Licenses were granted to oil producers to refine petroleum products locally. The public has not been told why these licencees failed to deliver. What were their reasons for failing to commence operations?

I have a question: if indeed the 'subsidy' on imported fuel were to be removed today 2nd May 2015, what would be the effects on the oil sector and the larger economy? If you were the president or oil minister, how would you execute this policy and what would you do? Can you state how you expect things to play out in the short to long term?

tete7000:


Corruption is the reason why we never have the real profile of costs in our local refining. There is so much lack of transparency that many things are shrouded in secrecy, you are probably aware of the last audit of Pwc and the issues raised within it. Petroleum Industry Bill (PIB) is meant to address some of these hiccups and make the industry open but both of us are aware our legislators have ensured the bill was not passed.
On why the licenced refineries never operated there are four reasons I am aware of:
1. The subsidy as already highlighted already.
2. The issue of crude theft: Pipeline is the cheapest means of transporting crude in the world but it is almost impossible to get crude from one point to another in Nigeria. Even (as reported be Gauis Obaseke then) the govt refineries have to resort to using ships to supply p/h refinery while warri refinery was incapacitated at one time because of this problem. Any other means adds to the cost of transportation and thus to the overall cost of production per litre. If refineries are to compete with those abroad and have to incur all the excessive cost that eventually makes it cheaper to import than produce, how many can come onboard?
3. Hostility of the host community too has not helped. I once spoke to a man who claim he has interest in one the lincenced refineries and he told me how the community walked them out and they couldn't return to do any assessment for more than one year.
4. Non passage of PIB too doesn't help. No one wants to invest in uncertain political environment.
As per what the effect of subsidy would be like. No matter how it is done we initially going to have prices going up since we will be importing and buying at the prevailing international prices but if things are well done and with appropriate control on the part of govt, the operators should be expected to consolidate (like we have in banks) pool resources together and build local refining capacity. If these is done, with time, just like we witnessed in telecom prices are expected to come down.
The work of the minister will be to remove some of the hiccups mentioned above and provide appropriate control and legislation to ensure consumers are not ripped off (we have such in the early days of telecom privatisation). Of course govt must use freed resources and invest in other ammenities to bring succuor to people and provide alternatives to petrol. Finally government have to provide power or else cost of power alone can drive up the cost of production per litre if these operators to generate their own power.
These are tough but with will power, it can be achieved.

VolvoS60:


^^^^
Good. We are getting somewhere. You have up here a laundry list of issues (other than 'subsidy') that deserve whole chapters of their own. To me - those issues are the elephant in the room.

Unfortunately for us, 'subsidy removal' has attracted the most attention because it is the path of least resistance for government. It is still not clear to me how local refinery licencees can cite downstream sector regulation as a disincentive to investment without Nigerians being told what their operating costs are. Let me repeat again - what does it cost the 4 government refineries (or any of the private operators) to produce a litre of PMS in Nigeria? As things stand, it is possible for me to get the weighted average cost of funds for deposit money banks in Nigeria today from industry reports or the media. Why is it that no one on nairaland boards can get similar operating cost information for oil companies in Nigeria today?

You have listed at least 5 critical reasons why local refining capacity is constrained. Will 'removal of subsidy' take care of these problems? I do not believe so. If the so-called subsidy is removed today, inflation will put severe pressure on this economy. We are importing expensive dollar priced petrol at a time when the Naira is under pressure - if the Naira is devalued (as I suspect it will soon be) then you can imagine what'll happen to the pump price of petrol and the prices of goods and services. Are we ready for that?

Even if we accept the short term pain that comes with subsidy removal - there are no cast-iron guarantees that deregulation will lead to downstream sector investment. This is the area that gives me the most cause for concern. We have been told that the demand for petrol in Nigeria far exceeds local capacity - a textbook case for encouraging investment in local capacity (once 'distortions' like 'subsidies' are eliminated ). However, I believe oil marketers are likely to continue importing expensive fuel even if the 'subsidy' is removed - the cost will simply be passed on to Nigerians. I do not foresee any major investment in local refining capacity - at least in the short to medium term. Oil marketers will forgo the relatively easy business of importation (despite Naira depreciation) for the hard graft of setting up refining plants in Nigeria - in the face of all the problems you listed up here? I doubt it.

You stated your expectation that if the 'subsidy' is removed, operators will consolidate (just like the banks did). Remember though - the banking consolidation was driven by regulation and not market or commercial pressure. Whether oil marketers will consolidate on their own is something that only time will tell.

Summary: if I were the PDP led government I would have started building refineries long ago and slowly started phasing out the so called 'subsidy' on imported fuel once the refineries came on stream. Once the new refineries become fully operational and able to cover local demand (and export) importation would cease. To allay the fears of those who believe the new refineries would collapse like the ones before them, I would contract out the management to private managers. However, because I believe Nigeria's refineries are in a sense, public goods - I would also have adopted a pricing regime for PMS in which pump head prices run within a range or band (somewhat similar to a dirty float exchange rate regime). Crucially, pumphead prices must cover all costs plus a mark up for profit.

How would I have funded this? From excess oil revenues earned during the boom years. Unfortunately, the opportunity was squandered and we are all going to pay the price.

tete7000:


This issue is really a complex one and one that often makes me shiver anytime I thing about how we are heading. Buhari is coming in and have another four years to give his try. We will wait and see how far he can take us. However at one point in time, someone has to do the right things one of which (though not the only things) is subsidy removal, else we really might continue to dance around the circle, dealing with the same issues year in year out.

VolvoS60:


^^^^
At least we agree on the part of your post in bold type. It is hard not to imagine that extremely trying times lie ahead of us.

kaboninc:


That is exactly what it is. The government foots the fill on subsidy on imported fuel ONLY! Public records have shown that. MOMAN, NNPC and some Independent Oil Marketing companies all Import fuel.



There is no subsidy on locally refined fuel. The local refineries refine their fuel and sell at the market price (I think same as the aggregate price) NNPC claims that they buy crude at international market price and hence must sell at same price. Why has successive government failed to re-position the local refineries? It is because as it stands, importing petroleum products is more profitable to these businessmen and hence will do everything possible to frustrate government's effort at re positioning the refineries - including the labour. Why would people enjoy sabotaging crude oil pipelines? They just don't do it because selling stolen crude oil is lucrative but also destroying the plants that refine the crude oil. A contract will be given to repair the pipelines and money gets wings. I strongly believe all these criminal activities are linked in one way or the other. Focus has always been on the imports segment because the state of the local refineries cannot meet the local demand of PMS. It is believed that kerosene (a commodity that must be seriously looked into) and PMS are products that the Nigerian people can say, yes we are getting a share of the National Cake. Look at kerosene, how can you buy it at 40.90k and sell at over 130 per liter? The excuse is that the aviation companies use this fuel and hence the 'scarcity'. Mind you, these aviation companies were supposed to buy at the current market price. You see, all these contribute to the rot in that industry.

Also, there is the local refinery like the Niger Delta Petroleum Resources (target commodity is diesel) and hopefully, Orient Petroleum which I believe should be working towards establishing one. Then the Dangote Refinery which hopefully, will be coming on stream in 2017. Then Forte Oil, Oando I hope will continue pushing their interest in establishing a refinery in Nigeria.



The current capacity of all refineries is 445,000 barrels per day. NNPC gets this crude at the current international price, and because the refineries are in a comatose state, a fragment is sent to some of these local refineries while the remaining is swapped for other petroleum derivatives from refineries outside the country.

The previous government did try by selling the refineries (at the last minute but was revoked by the incoming government) and this government wanted to curb the rot by removing subsidy. What attracts the continued rot is the subsidy - you can claim to import but never did and get paid for product never purchased in the first place. Have you also observed that the AGO market has not attracted the scandal as with the PMS and Kerosene?


Another issue is the Labour unions.


My advice for the incoming government is to SELL all public refineries, restructure the NNPC and completely remove subsidy as with the recommendations of the Senate Committee and PwC reports. We have the raw products, we have the capability to refine the raw products. We must develop the will to do the job!

VolvoS60:


^^^^
Before I comment on your posts I would like to confirm if you are the kaboninc I was sparring with before the elections?

kaboninc:


Lool.

Yeah. Same kaboninc...

VolvoS60:


^^^^
When did your conversion on the road to Damascus take place?

On those threads, you defended to the very end the awful things being done in high places - what finally made you change your mind?

For some reason I'm going to go easy on you - my first instinct was to dredge up those threads and force you to recant. I actually did post on those threads after the PwC report was released but for some reason, you and your friends refused to say a word.

What made you change your mind about how GEJ and previous PDP governments have thoroughly mismanaged things? You were ready to die for GEJ back then...

jpphilips:


Another Ignorant dumb fvck! what is Dangote building at the Lekki FTZ?
Orient's second module is arriving by the end of this year, to believe you said you made money with your level of over whelming ignorance is worrisome.

You must be a thief to have made money with an empty brain.
Continue recycling Jonathan's lies that nobody will build refinery if subsidy is not removed.

kaboninc:



Hahahaha...

My colleagues are asking why I am laughing....

Well, I've always supported GEJ and his government. My support doesn't mean I take everything hook, line and sinker. I criticize when needed. But my problem with most people (including you ) is when we do not look at the issues PROPERLY and CONSTRUCTIVELY!

If you check my stand here, I've always advocated a complete removal of fuel subsidy. I've never liked it but some of us have unfortunately misunderstood the entire concept of subsidy. My siggy has always been: it is not sustainable to subsidize what we consume but rather what we produce. Expenses are like the gas. You just do not see it and when it escapes, it never returns.

That has been my take.

Personally, with the available information I'm disposed to, and putting one and one together, I think GEJ's government happens to be the best administration in the past 16 years. Please, lets talk about this some other time.... Thanks!

I read some arguments (especially from you) on government building refineries. I strongly disagree with that idea because past experiences have show us that it has never worked. I think Government should provide an enabling environment for companies to flourish. Take a look at major State Oil Corporations - Petrobas, Gazprom, these companies are known to be really corrupt and honestly, we do not need that in Nigeria at the moment. Even with the power plants, government had to source for funds to speed up the construction of these plants up to a level that can attract buyers. Now look at the mess we've got ourselves into by allowing a small group of persons (The Cartel) import a commodity that we can EASILY produce? Or do you think that government has not tried to convince these marketers to consider investing (especially building refineries) here in Nigeria? You may say the government shot itself in the leg but going tough on The Cartel would result in a ripple effect on the economy as tampering with the dynamics of fuel (especially PMS and Kerosene) can cost a government so much.

Take a look at the Telecommunication sector - The Government has tried competing in the industry (NITEL) and also act as regulator (NCC). Now compare that to the oil industry where in most cases, NNPC is a self-regulating entity. Imagine that had been the case for NITEL, do you thing we would have witnessed this growth in the Telecom industry?

Same with the Finance Industry....and Power too.

I saw your comment on the PwC report but like I said, we just do not look at the issues with our eyes open but with our emotions guiding us. So, I've refrained from commenting on the PwC report for now pending when I come across an unbiased mind.

****
Modified

Why also do you think the first independent publicly owned refinery to be constructed was a diesel refinery?

VolvoS60:


^^^^


I notice the introduction of qualifiers in your support for GEJ. It was unconditional then but it is conditional now...

I will accept your request that the battle for the verdict on GEJ's administration should be postponed till some other time.

It is interesting that you advocate subsidies for production and not consumption. I can imagine most governments would agree with you - subsidizing production alone would mean less strain on public finances. What I find intriguing is that these same governments have no problem with taxing both consumption AND production - they would gladly impose taxes on anything and everything - as long as it raises government revenue.

To an extent I agree with you that subsidies targeted towards production are better than subsidies on consumption. After all, the aim is to produce to compete, not to consume. But I disagree with your broad claim that consumption subsidies are unsustainable. It is very possible to subsidize consumption on a sustainable basis - it simply depends on the state's resource capacity, what product is being subsidized and which social group is being subsidized. Food stamps for the poor would fall into the category of a consumption subsidy wouldn't they? Scholarships for indigent students would fall into the class of consumption subsidies, wouldn't they? They have been successfully run in several countries for years.

You disagree with my views that the government should build refineries, and you support your stand with the cliche about government "providing an enabling environment for companies to flourish". I guess you and I disagree fundamentally on public goods and market failure. Whenever people cite failed state owned enterprises as a reason for governments to forego participation in any economic sector, I ask them if they support privatization and deregulation of the armed forces and the police. They usually have no answer.

I ask you: if you consider your government incapable of running any kind of enterprise (be it in the oil sector or whatever) then why would you consider it competent enough to administer the civil service, ministries, departments, agencies, universities, the armed forces and the various regulatory agencies? Is it not the same high level administrative and management capabilities required? Nigerian governments cannot stamp out corruption in the NNPC and you think they will be able to stamp out corruption in the CBN, army and the police? Or PENCOM, SEC and NAICOM?

We have to make up their minds on the kind of society we want. You mention Petrobras and Gazprom. I mention Statoil. How was Norway able to turn its state owned oil company into a giant with a billion dollar balance sheet guaranteeing the future prospects of Norway's unborn children? Do the Norwegians each have 2 heads and hearts with 10 chambers?

You talk about the power plants - I ask you - what is the current situation? Despite the so-called privatization and sale of the Gencos and Discos the state had to intervene with a new multibillion Naira bailout package - for firms that had supposedly been privatized and sold in a deregulated market. Is this not a subsidy of sorts? (and a moral hazard too!) So what are we talking about here?

a sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low.

“Government is not bailing out the power sector. This is not a bail out and NERC is against any bailout. A bailout suggests that the market is in terrible crisis and even the optimisation of market processes may not stave off a looming collapse. That is not the case of the Nigerian electricity market.

“This market is not about to collapse. We have conducted a stress test of this market and we can say its fundamentals are still robust. It is said that what does not kill you makes you stronger. We went through a crisis and survived hence we are stronger.

“What remains now is to enter into a stage of the market that is wholly based on bilateral contracts. The fact of the matter is that in making such transition, it is expected that there will be significant shortfalls in the revenue of the market.

“This happened when India privatised its electricity assets. It happened also in Chile and Mexico and the rest of the reforming electricity markets. So, an effective regulator will seek a way to redress the revenue shortfall in other to improve investment in the sector and enhance capacity and reliability. This is the idea of the intervention fund,” Amadi said.

He further explained: “This $213 billion is not coming from tax payer or from crude oil revenue. This is the CBN providing financial support to the electricity market through the deposit management banks with clear guarantee of full repayment.

“This facility will be used for two things, firstly, to pay debts owed gas suppliers and secondly, to pay for the revenue shortfall in the power industry.

“These are not government funds. These are private sector funds. So the lenders will do everything to ensure that it is well utilised and paid back. Furthermore, NERC and CBN are there to act as the regulators that facilitated the release of these funds and that will ensure they are paid back.
“Therefore, it is only fair and sensible that this initiative be judged entirely on its own merit.”

Source: http://www.thisdaylive.com/articles/power-nerc-issues-disbursement-terms-for-n213bn-cbn-fund/190730/

If there is one thing I agree with, it is that we are in a huge mess. The so-called cartel has us all by the short hairs - we have spineless governments that won't build refineries (to drill and sell fuel locally) and at the same time won't go after marketers who swindled Nigerians of trillions. The whole thing is incredible - the money spent on this phantom subsidy would have built several refineries several times over but our governments refused to build refineries AND yet at the same time refused to hold fuel importers accountable in any way. What kind of hell is this?

You mention our telecommunications sector experience versus our petroleum sector. While I am not necessarily advocating that NITEL should have been both a regulator and player - I want to ask you: is there no country in the world where the Norwegian oil sector model has been replicated in the telecomms sector?

On a parting note: before you call me an armchair theorist, let me tell you how your so-called subsidy removal is likely to play out:

Government removes 'subsidy' on fuel

PMS prices immediately rise to anything between 130 Naira to 170 Naira. Cost price inflation puts severe pressure on the economy, particularly low income earners. Prices rise. Nigerians groan.

Two months after subsidy removal, importers continue to import PMS cargo from foreign refineries for sale in Nigeria. Government assures Nigerians that investors are finally going to build new refineries in Nigeria since they are assured of profitable investments in a fully deregulated market.

Six months after subsidy removal, not one refinery has progressed beyond blueprint and technical drawing stage. Nigerians complain bitterly but government assures them that the investors are fine-tuning their plants, ready to launch "in the nearest future". Meanwhile, importers continue to import PMS cargo for sale in Nigeria at healthy margins. Privately, importers confide that they are not prepared to forgo the highly profitable, relatively smooth business of importing PMS for the high risk business of setting up refineries in Nigeria.

12 months after subsidy removal, not one refinery has been built - importation of refined petroleum products is still in force. Exchange rate pressures force another devaluation of the Naira. Pumphead prices shoot through the roof to 300 Naira per litre. Nigerians groan and tension rises in the streets.

16 months after subsidy removal, still not one refinery has been built. The delay is blamed on 'technical problems'. The subsidy removal advocates suddenly are nowhere to be found.

Fade to black...


^^^
I hope for all our sakes that I'm wrong.

kaboninc:


I see you as one who's well versed on issues relating to the Petroleum Industry.

However, I think there are issues we must have to consider especially with operations of these 'marginal' companies unless you have another idea:

1. Refined crude (PMS) from private refineries would (or may) be sold to NNPC who would be in the best position to pay at prices above or within the international price. NNPC will also claim subsidy payment because they would not be able to sell at pump stations at the price they were bought not to talk of adjusting for other associated cost and profit.

2. If NNPC agrees to buy PMS, there would be problem associated with payment as even NNPC cannot meet most of its JV calls and other obligations and then again there is this ambiguity on NNPC spending money without approval. There is also the high probability of FRAUD! Subsidy scam should come to our mind here.

3. Should NNPC not buy the PMS, these private refineries would not be able to sell locally as the price of commodity itself is REGULATED by the government. Hence they may consider markets off Nigeria and that my friend is not good.

These are the major issues I feel for which there is an urgent need for government to completely hands off PRICE FIXING of PMS.

kaboninc:

Yeah, thanks.

Government needs to raise revenue. Taxing is just one of the various ways government uses in generating revenue to meet certain obligations. Problem would be what should be taxed and what shouldn't and for that which should be taxed, at what rate? Also the implications of taxing across a large spread of wealth distribution.

kaboninc:

I never made any broad claim "that consumption subsidies are unsustainable" but it just doesn't make sense to to continue subsidizing commodities that are very costly. Remember, our commodity in focus in this discus is PMS and Kerosene. I am of the view that it makes more economic sense to apply the funds used in subsidizing such commodities (which we currently import) in building industries that can produce these commodities locally. However, because of our experience with running public enterprises, the funds should be either used to support investors (probably through guarantees) who are willing to come in or concentrate on other critical infrastructural needs.

kaboninc:

I still disagree that government should build refineries but rather provide "an enabling environment for companies to flourish". And yes, I do have an answer to if I support privatization and deregulation of the armed forces and the police. My answer is simple. NO! The Armed Forces and Police are not public enterprises in the sense that they are not business entities and so questions about privatization and deregulation shouldn't arise.

kaboninc:

The government is having problem running efficiently the Civil Service, Ministries, Departments and Agencies. So how then can it run efficiently public enterprises? Corruption cannot be stamped out in any government institution but it can be controlled and minimized. NNPC is just a fat cash cow. Fatter than the CBN, Army and the Police combined.

kaboninc:

Good you mentioned Statoil and Norway. Norway, Denmark are some of the countries with the least cases of corruption why? Not because they are saintly or angelic but because the government put in place measures to PREVENT fraud. Same with other countries and that is the same thing this administration is doing. Remember the Ghost Workers Syndrome?

I won’t even go into the contradictions of the CBN having to bail out (yes, because that’s what it is: a bail out ) privately held commercial interests who just acquired state-owned assets in a so-called privatization exercise.

kaboninc:

I'll make more research on Statoil and Norway's petroleum industry regulator. But am very sure that Statoil is only a player and not a regulator.

kaboninc:


The energy needs of most or all major/large manufacturing companies in Nigeria, from the Consumer Goods, Plastic, Health, Automobile, Steel, Oil and even banks are powered by diesel or gas not even PMS. So is their logistics. Taking a way subsidy will only increase cost of doing business in the retail distribution sector and other informal business. However, the effect will be strongly felt within a short while but later on, with time, prices will adjust to a true-like value. Note that diesel is deregulated.