Good morning. I have read many views on this issue of fuel subsidy removal and right now I am not sure which will work better for Nigeria as there are many convincing arguements on both sides.

I see however that there are also a lot of emotions on both sides of the divide. So I'd love those Nairalanders that understand the economic and political issues involved at play here to please offer their views. I'd especially like to read the views of Gbawe, Katsumoto, Texazzpete, Beaf, ekt_bear and the many other NLers who have a key understanding of the issues at play.

My key questions are (1) Is there really a fuel subsidy? (2) Should Nigerians not enjoy subsidy since we are an oil-producing country (3) Under what circumstances should subsidy be removed? (4) What will be the short and long term benefits or woes of removing the subsidy? (5) Can we trust that Jonathan means well for us with his fuel subsidy removal proposal or is this a proposal to serve the interests of a few people within and outside Nigeria?

I shall answer your 5 questions before narrating to you how this Subsidy thing works.

1) YES. There is a subsidy on PMS (petrol) & HHK (kerosene) but not on AGO (diesel) and other petroleum products.
2) NOT NECESSARILLY. Subsidizing any product/service is dependent only on a nation's long term macro-economic principles and not on the fact that the product is there.
3) Petroleum subsidy should be removed only when it is proven that its retention will damage the economy and/or that its removal will truly engender growth and development of Nigeria's downstream Oil & Gas sector.
4) Shortly after removal of subsidy, PMS pump price will likely double. Artificial scarcity may prelude the commencement of deregulation too as scrupulous marketers attempt to take advantage of increased price to mark up margins on old cargoes. On the long run, there should be stability in the supply-demand chain. I do not think however that it will necessarily lead to increase in local refining capacity nor do I foresee any sizable decrease in pump price of PMS subsequently.

Let me now attempt to outline my views on the subject.

INTRODUCTION
What you know as petroleum subsidy in Nigeria is officially referred to as the Petroleum Support Funds (PSF) Scheme. PSF was established in 2006 to replace the previous subsidy program which had become bogged down by glaring inefficiencies. The sole aim of the PSF was to stabilize the domestic price of pet products against volatility in international crude & products prices. PSF is funded (supposedly) from 2 sources, namely; government budget and accruals realized during the period of over recovery. Since “Over-recovery” here refers to the period at which the PPPRA (petroleum products pricing regulatory agency) approved price is higher than the market price of products, and this situation has never happened before in the lifetime of this scheme, government budget has effectively become the sole source of financing fuel subsidy.

HOW THE PSF SCHEME WORK
• PPPRA, previously mentioned above, releases a quarterly allocation of import quota to the various marketers in the industry based upon each marketer’s storage capacity (own tank depot or with a throughput agreement), past trading record amongst other indices.
• Marketers import PMS product into Nigeria. Discharge of this cargo to depot is jointly attended by agents of PPPRA, DPR (Directorate of Petroleum Resources), Auditors for the Ministry of Finance and an independent Inspection Agent. The Shoreline Measurement document specifying quantity & quality of the discharged cargo is then executed by all parties present. The cost of the PMS at this point referred to as the Landing Cost is currently N128 to N136 per liter.
• Marketers sell product at not more than the recommended ex-depot price of N55.50/L. Many depot owners actually accept as low as N52.50/L from bulk buyers or due to stiff competition. Retailers’ margin is N65 less ex-depot price less carriage cost to the station and sundry charges.
• Marketer apply to PPPRA for refund of “under-recovery” (KNOWN AS FUEL SUBSIDY) submitting the shoreline measurements as evidence of shipment. Under-recovery here refers to the difference between Landing Cost and Ex-depot cost plus profit margin granted the marketers on the shipment. PPPRA is currently paying N78.45/L as under-recovery.
• Upon acceptance of the marketers’ claims, PPPRA issues a Sovereign Debt Statement (SDS) in triplicate to the marketer, Ministry of Finance and the Debt Management Office (DMO).
• DMO releases a Sovereign Debt Note (SDN) to the marketer with a 45 days maturity period.
• Marketer can discount this note with a deposit money bank prior to maturity or upon maturity, present it to CBN who must then pay face value within 3 working days of submission.

SAMPLE SEQUENCE FOR PSF
• If you import 45m liters of PMS and landing cost is USD1,092/MT, your total cost will be N5,753Billion.
• And you sell at Ex-depot price of N55/L, you will have proceeds of N2,475Billion leaving a shortage of N3,278Billion.
• When PPPRA pay you under-recovery at N78.45/L amounting to N3,530.25Billion, your final margin will be  2,475+3,530.25=6,005.25;  -5,753=252.25 N252.25million

WHAT IS WRONG WITH THIS SUBSIDY
As you can see, you are left with a 4% margin on almost N6Billion trade. Slight alteration to any variable like exchange rates, sales price, lending rates, under-recovery rates etc will quickly leave the marketer in serious financial straights. Plus there are numerous bribes to pay too. E.g. to get quarterly allocations, to confirm shoreline measures, to hasten processing of SDN and to effect redemption of SDN from CBN. The marketers will rather be free from these encumbrances and will prefer to import freely and price their products at market rates.

There is also massive corruption on-going in the PSF scheme. Currently, politicians and government cohorts get import allocations from PPPRA despite that they have no wherewithal to run such transaction. There is also round tripping in which the marketers take shoreline measurements in Nigeria, quickly reload the product to the vessel and sell off at market rate in Ivory Coast or Togo yet claim refund on the same cargo. It is not just a handful of scrupulous marketers here, it has become a massive jamboree which is useful for financing political elections and enriching political camps! The man who heads the board of PPPRA as we speak is ex-senator Ahmadu Alli, former Chairman of the PDP! I haven’t accused him of anything, but you can draw your conclusions from the Nigeria you know.

CONCLUSION
I am not promoting General Buhari as a preference, but the man once said that the only problem with Nigeria is corruption. Once you solve that, there is nothing wrong with this country really. Somehow, I believe this. Personally I do not support subsidy in any way. My politico-economic principle is right pricing. I believe that this is how the USA or China got to the heights they have achieved today. However, it is clear that the main problem with the PSF is corruption. It is corruption that has ballooned the costs to the point it is beginning to rip the government purse. We cannot fund PSF for too long before FGN go broke and this is the simple truth. Subsidy should be scrapped but only after our government have mustered enough strength and will to scrap corruption too.

Thank you.
You can reach me on kjdadon@rocketmail.com

The case of nigeria and fuel importation giving rise to subsidy is similar to:

A coconut farmer who harvests coconut,sells the whole coconut fruit to buyers and then buys coconut water from the coconut buyer,now the coconut water seller, simply because he lacks cutlass to break the coconut to extract the water..
How pathetic!

Since we ban the importation of so many things in this country,
why cant we ban the importation of refined petroleum products and fix our refineries?

@KJ_hova: Great insights you have shared here. So in other words, even if we remove subsidy, without dealing with corruption, the people who are benefitting from subsidy will still exploit the system post-subsidy.

I'd like to ask you though, "will the removal of subsidy not reduce the corruption in the process? If there's no subsidy, I guess ther'll be no need for the PPPRA. What are your thoughts?

I will take each question individually so as to not create one over-long read.


(1) Is there really a fuel subsidy?

There is a very good possibility that the answer is no. Let us not forget that no less than a former petroleum Minister (Tam David West) revealed that fuel subsidy is a glorified scam !!!! It is important we know the rudiments of fuel subsidy. The Nigerian Government claim it must import refined oil to satisfy need since our refineries cannot work optimally to deal with the demand at home. They argue that, naturally, the refined oil will be sold to us at a price that would make "Nigeria's natural endowment" very expensive to purchase for Nigerians.

The "charitable" solution from our 'wonderful' leaders is for refined oil to be purchased at market rate and the FG then sells it cheaper , to Nigerians, than they bought it . Selling cheaper than the purchase cost is the subsidy applied. The only problem is that David West and many expert commentators raise doubt about what led to subsidy in the first place. Insanely , and in defiance of logic, many years after they proposed subsidy, they still have not managed to make our refineries work optimally !!! Coincidence? Or is it that 'insiders' are enjoying the 'loophole' scam they created too much to ever support our refineries working? Let us even look at GEJ who prefers to entrust our refineries into the hands of the NNPC i.e the biggest clearing house of corruption? what motivated that crazy directive? Can we not conclude everything is being done to keep things "business as usual"?

Many oil sector/finance experts posit that our leaders , because of wanton greed, deliberately sabotaged refineries , some deemed amongst the best in the world at the time, to justify importing oil and then appending a phantom subsidy to make 'insiders' very rich. Everything is cloaked in secrecy. De we even know what they pay for a litre of refined oil for us to even attempt to discern the subsidy element?

In essence, they could simply be passing on refined oil to us at purchase price and pulling out 'free money' from our coffers they claim as the subsidy element !!!! No one would know better in the face of Government refusing to be transparent and publish pertinent figures !!! Let us not forget that the call has grown deafening lately, even if unanswered, for GEJ to reveal the beneficiaries of subsidy and accurate figures regarding subsidy. These request do not affect security so why the refusal to comply if there is nothing to hide? What subsidy is in place when , as the 7th largest producer of oil in the world, we pay more , per litre, than other nations with smaller reserves than we have? There is a very likely possibility that this is all about crudely jacking up the price of fuel to make more money available without first doing the obvious i.e reducing profligacy , waste and the hideous cost of running our democracy.

It even becomes more imperative that the extra funds required must not come from the pocket of the 'establishment' if there is a tacit understanding amongst them that the funds raised is to be 'chopulated' !!!! This may explain their insistence on subsidy "removal" (punitive to average Nigerians) while many areas of governances ripe and long overdue for cuts (salaries, allowances, duplicated/uneccessary positions etc) remain untouched. What they are doing does not make sense at all. We cannot dismiss this consideration as GEJ grows in duplicity and deciet daily. How many of the odious policies , he now chases vociferously and ardently, did he intimate the masses of before the election? Instead, the things he did mention as urgent are now all but forgotten !!!!

Who can tell me that GEJ means well when he would rather make Nigerians 'sacrifice' when it is easier for him and his overfed AGIPs to drastically cut their allowances? This is why many of us posit that this subsidy removal reeks of duplicity and deciet. David West comments below.

http://www.seeknaija.com/news.php?id=5771

In 1996, I wrote that a few selfish Nigerians sabotaged our refineries so they can continue to import fuel. This theory has been confirmed by Aret Adams, a former GMD of NNPC. Ask yourself who are gaining from fuel importation? Wealthy people. I’d challenged the NNPC and government more than 17 years ago to publish the list of names of fuel importers; they’ve not done so, because the county will go on fire. We were not importing during Buhari’s time. We were exporting. Soon after Buhari, we started importing fuel, why? Lack of patriotism, empathy and greed. During Buhari’s regime, we were operating three refineries, and exporting; now, we have four and we are importing. The total capacity of the refineries, if they are all working properly, is 445,000 barrels per day. In 1995, NNPC imported fuel worth $800 million, yet the Minister of Petroleum, Dan Etete said they needed just $250 million to revive and perfect the operation of the refineries. How come government could not appropriate the $250 million and fix the refineries?

Is there actually fuel subsidy?
There is no fuel subsidy. It’s all fraud. The finance minister was recently quoted as saying that there is subsidy, but that it does not go to the common people. That argument is convoluted. It’s intrinsically contradictory. NNPC said if it (removal) were not done in 1995, the economy would collapse. This is 2011, it has not and we’re all still here. They promised fuel importation would stop in 2000. This is 2011, it is still in full throttle; you see how unserious they can be? Subsidy removal is IMF/World Bank dangerous suicidal conditionality for oil producing countries. The minister of finance is hand in glove with them. She should not bring their script.

Thanks Gbawe. While I await your response to the other questions, what would then be a viable alternative since the key issue here is that if we have working refineries, we won't even be talking of importation. How long does it take to build a refinery? I really think we shouldn't even involve govt in the ownership and running of refineries. Between now and when either new refineries are built or existing refineries are sold to investors, what are our options?

Beaf, if you are reading this thread, why did GEJ not mention fuel subsidy removal as part of his pre-election campaign plans for Nigeria? Did he just think this up (meaning that he didn't have any concrete agenda while campaigning) or did he intentionally hide this policy proposal from us when asking Nigerians for their votes?

Nice thread , A̶̲̥̅♏ gonna glue with this thread , gbawe we re waiting .

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Like TB Joshua,let me make an obvious prophecy:
After 5 or 6 pages, this thread will end in the usual destination;

CORRUPTION AND LACK OF POLITICAL AND MORAL WILL TO TACKLE THE CORRUPTION

I am ready to discuss this issue.

I'm ready to prove that it's silly.

I am ready to disect the issue/lies about this 'subsidy.'

I am ready to discuss the economics of it - this includes the so-called deregulation, market mechanism and why Nigerians will eventually pay more than what the product costs in America, the UK, etc.

Buhari who is the most qualified to comment on the issue believes that fuel price being charged is already higher than what it cost Nigeria to produce fuel, therefore the fuel price increases is to generate money for the corrupt elite to loot.

In effect it is us the masses that would be subsidising the lavish lifestyles of the corrupt elite.

But, they don't care, anyway.

They want more money for their cronies and they don't effing care!


Eff the masses.

mbulela:

Like TB Joshua,let me make an obvious prophecy:
After 5 or 6 pages, this thread will end in the usual destination;

CORRUPTION AND LACK OF POLITICAL AND MORAL WILL TO TACKLE THE CORRUPTION

^

What he said.

Lets just see how this subsidy will turn out to be

This article will also come handy in this discussion. It is very expository!


Good for our consumption.by Simon kolawole on naijamix.net.wahala dey o.which way naija

I am a notorious profuel subsidy activist. Ive done this all my life. My reasons are twofold. One, as citizens of a petroleumrich country, why should Nigerians not enjoy the privilege of paying lower prices for fuel? Two, in a country where over 70 percent are classified as living below the poverty line, I believe fuel subsidy is the only social security or dole that the masses enjoy. All my arguments for fuel subsidy over the years hang on these two threads. Many readers often agreed with me, while industry experts always disagreed. Ive been involved in countless arguments over the subsidy issue. Ive even made enemies in the process.

However, my prosubsidy resolve was badly damaged in December 2009 following the confidential briefing I received from an industry player who was pushing for full deregulation of the downstream sector. In one of the most frightening briefings I have ever received on the economy, the man took me through the sordid details of how a few people milk the treasury in the name of subsidy. Whenever you hear that the government has spent N500 billion on fuel subsidy, discount it by at least 60 per cent, he said. Fuel subsidy is the biggest fraud in the history of Nigeria.

He listed three aspects of the subsidy fraud. One, he said a fuel importer could bring in 2000 metric tonnes and claim subsidy for 8,000 metric tonnes. The markup will be shared down the line, he said. Even if you are a pastor, you will fall for it. The money is just too much. Imagine the billions of naira available to be shared on a regular basis. So the regulatory system is compromised and weakened. Two, he said NNPC always imports more than it has storage facility for. So the product is stored at private tank farms. If NNPC stores 30 million litres with your farm, you dont have to account for 10 million litres. There is a process by which you can account for only 5 million litres as long as you know how to share the proceeds of the remaining 5 million litres with those who matter.

I jumped up, transfixed, mouth agape, arms akimbo. Relax, Simon, relax, he said, sarcastically. I enjoy reading your column, but your problem is that you write too much about ideals. Nigeria is not an ideal country. There are many things that are unheard of all over the world that you will find in Nigeria. What works perfectly in Saudi Arabia and Norway will not work here. Ask yourself: how come our refineries have not been working for ages? Name another country that has four refineries that hardly work. Do you know how many emergency billionaires we have produced through turnaround maintenance contracts in the last 20 years?

He finally listed the third aspect of the fraud. Listen to him: When they tell you the landing cost of petrol is N100 and the pump price is N65, it means the importer will get subsidy payment of a little over N35 per litre. Now, that is another fraud. There are different grades of PMS (petrol). They do not go for the same price. In the UK, for instance, the price of leaded petrol is different from that of unleaded. In Nigeria, we dont distinguish between grades. We pay the same price. So the landing cost of the lowest grade may be N75, but the importer still gets a subsidy payment of about N35 instead of N10 per litre. Do the math. Multiply that by millions of litres everyday and you will understand the fraud. Remember too that the importers get paid for demurrage even if they dont incur it. I can go on and on.

To cap it all, he said: Simon, I can tell you authoritatively that our daily PMS consumption is not as high as officially quoted. It is the biggest fraud ever. We keep calculating subsidy on the assumption that we consume 40 million litres a day. Remember to always discount the official figures. It is good for your health.

I had never been that sober in my life. The fear of God gripped me. But I gradually summoned courage and asked: But cant government do something about these fraudsters? Cant they be thrown into jail? Why should Nigerians be punished with higher fuel prices because a few people are abusing the subsidy regime?

He sighed. What government? In a country where you can actually swear to an affidavit that you are President Barack Obama and, with a N200 bribe, the document will be stamped in court? You think these people are stealing this subsidy money without the involvement of government officials? And you think one government official will turn down N50 million just to sign a document that says youve brought in 10,000 metric tonnes of PMS? Are you kidding me, Simon? Are you saying you dont know that fuel subsidy is the easiest way for government to fund patronage and reward its friends and loyalists?

Sensing that he had subdued me, he declared: The way forward is total deregulation. Free the market. Let anybody who wants to bring in fuel bring it in at his own cost and charge the market price. The money government is spending on fake subsidy should go somewhere else that will help develop the country. That is what you should be fighting for. Unfortunately, those of you who keep fighting for the retention of fuel subsidy dont know that you are playing into the hands of the cabal that milks the treasury of billions and billions of naira every year.

After the encounter, I began to meditate on the way around this scandal. I came up with a twopart series entitled: Time to Rethink Fuel Subsidy published in February 2010, when President Umaru Musa YarAdua was away in Saudi Arabia receiving medical attention. I reshaped my longheld position on fuel subsidy and argued that it should be paid directly into the salary package of workers. I said there should be an item called fuel subsidy on the pay slip. This is like a direct transfer to the citizens. That way, the money would reach the people while fuel pricing would be left to the market. But my amended position was weak on many counts: what of Nigerians who dont have jobs? How would they benefit? What of the private sector? Wont ghost workers begin to surface to claim fuel subsidy? The major problem with my proposal is that we dont have a national ID system where every citizen will have a social security number. So any attempt to transfer money directly to Nigerians will be massively abused.

Obviously, wethe diehard fuel subsidy activistsare losing the argument. But does that mean the government is winning the argument? The answer is no. To start with, I find it very bemusing the way government is handling the issue. We just woke up one day to learn that the government had written to the National Assembly saying fuel subsidy would be removed from January. The lawmakerswho are very important in the whole gameheard of it, just like any other Nigerian, when the letter was read on the floor of the National Assembly. That is terrible. I am also not aware that the labour unions were consulted in the first place, even if they would oppose it.

And, up till now, I am not aware of an articulated government presentation to Nigerians on the issue. What is the problem? What is the solution? What is the message for Nigerians? How are Nigerians going to be sure that the benefits would reach them at all after decades of failed promises? The impression Im getting is that we are only discussing the removal of subsidy so that the governors would be able to pay the new minimum wage. If that is the case, government has already missed the road. Already, there is a wide communication gap between the government and the people on this fuel subsidy issue, which we all know is highly inflammable (no pun intended).

As for me, the only condition that can make the removal of subsidy attractive is for us to be cocksure of how we would enjoy the benefits. When Gen. Sani Abacha increased fuel prices in 1994, he set up the Petroleum (Special) Trust Fund (PTF), under the leadership of Gen. Muhammadu Buhari, to spend the savings on infrastructural development. We all saw what PTF did. It remains the best public works programme the country has embarked upon in ages. Anything short of this landmark will be a massive failure.

Here is a graphic understanding of what subsidy means to a common man:

http://234next.com/csp/cms/sites/Next/Home/5746467-182/fuel_subsidy_the_true_story.csp

Chioma earns N18, 000:00k in a month at the factory where she works.

They pay only N17,100:00k into her account after tax.

She spends N11, 000:00k every month buying Gari, Rice, Beans and other food stuff.

She buys a lot of Gari because she takes some to work to soak in the afternoons.

Getting to work and coming back home every day, in addition to going to church on Sunday (N1,800:00k tithe) costs her about N1, 440:00k i.e. N60:00k to and fro.

This leaves her N 2,860:00k which she uses to pay back some of the money she borrowed from her sister to make the down payment of her 2-year rent. She also contributes N1000:00k to the staff cooperative.

On the last Saturday in January 2012 she spends N12, 600:00k on food and by the end of February she has had to spend N2,880:00k on transport. She is left with N1, 620:00k.

She opts out of the cooperative. She does not pay her tithe. She does not pick her sister's phone calls,

Crude Oil and Petrol are two different products. Prof. Aluko seems to conveniently overlook this fact.

Nigeria exports Crude Oil and imports Petrol.

Of course, some Crude Oil is refined in Nigeria to produce Petrol.

Therefore, we can say that the Petrol used by Nigerians comes from two sources:

Locally refined
Imports

An important question to ask is how much Petrol do Nigerians consume daily?

On the average 294,000 barrels.

The four local refineries are operating at, again on the average, 21% of their capacities.

This means they provide, at most, only 93,450 barrels every day.

If they run at only 66% of full capacity, they would meet the need of all Nigerians and the pump price of fuel would be about N30:00 only.

What has the Government done to ensure that the four refineries run at full capacity?

What about the private operators who were given licenses to run refineries?

Anyway, since the locally refined Petrol does not meet the need of Nigerians, at least 200,550 barrels need to be imported.

What then is the cost of imported Petrol per litre?

It costs N115:74k to get to the Nigerian ports.

Because the Nigerian ports are not as efficient as the ports of, say, Ghana or even Togo an additional cost of N6:25k per litre is incurred at the Nigerian ports.

What has the Government done to increase the capacity of our ports and improve their efficiencies?

So, the cost of Petrol per litre increases to N121:99k

The Petrol is not transferred directly from the ships to trucks.

The Petrol is usually first stored in depots, which charge N3:00k

Then there is an Administrative cost of 15kobo

There is a Bridging Fund of N3.95k

Then the dealers add their margin of N1.75k

The transporters add their own margin of N2.75k

Finally, the Petrol stations generally add their margin of N4.60k

So, the cost of Petrol at the station ought to be N138:19k per litre, approximately N140:00k.

Why then is Petrol sold for N65:00k (when there's no Fuel Scarcity, Black market)?

Because the Government pays the remaining N75:00k, more or less, on every litre that is bought.

This N75:00k is the subsidy which the government wishes to stop paying because:

They say they cannot continue to give Nigerians money forever; Government says it would become broke.
They say they need the money to build roads, fund health services and education etc.

Therefore, as from next year Nigerians would have to start paying about N140:00k per litre of Petrol.

What would be the effects of this?

N140:00k is about 215% of N65:00k therefore the cost of Petrol will more than double.

What does this mean?

Generally, Nigerians spend about 63.8% of their monthly income on food and about 4.2% of that income on transportation.

Therefore when all transport fares double, at the very least, and assuming a 10% increase in percentage of income spent on food due to increasing food prices, Nigerians would then spend 73.8% on food and about 8.4% of their incomes on transport.

This leaves only 17.8% of incomes to spend on Housing, Water, Electricity, School fees, and Hospital Bills.

But because the Landlords have to increase rents in order to be able to feed their families, and PHCN, Schools and Hospitals are going to have to increase their bills in order to be able to pay their staffs that also have families to feed, 17.8% won't only be too small, it would be grossly inadequate:

more families will receive quit notices by the end of 2012

more people will die in the hospitals for lack of treatment in 2012

more children will have to stop going to school, 2012

People have to eat first and that would leave almost nothing left over.

The Government says it would offset some of this burden by increasing the minimum wage.

An increase in minimum wage is also an increase in the salaries of Senators, Special Advisers, Political Aides and so on.

The rise in prices is also called Inflation.

One of the major aims of the Central Bank is to combat inflation, but all efforts to achieve that end would be undermined by the subsidy removal. The Central Bank is going to fail in one of its major functions.

Usually, a reduction in Inflation is opposed by an increase in Unemployment: if Inflation goes down Unemployment increases and if Inflation goes up Unemployment reduces. In many situations and in advanced economies, the people usually get compensated with the creation of new jobs for more people as a direct consequence of inflationary policies, but this does not apply to all inflationary policies.

The removal of the fuel subsidy in and of itself is not tied to job creation in any way therefore there would be no compensation for Nigerians in terms of Unemployment reduction.

Calculations based on numbers sourced from:

BudgIT; http://www.flickr.com/photos/68891946@N06/6263971530/sizes/l/in/photostream/

Petroleum Products Pricing Regulatory Agency (PPPRA); http://pppra-nigeria.org/pricingtemplate.asp

National Bureau of Statistics; http://www.nigerianstat.gov.ng</

Kx has in a few sentences, summarised how subsidy should be tackled.

Kj_hova, you are speaking too much grammar.

The government of Nigeria has enough money to build a new refinery in each state. Refineries do not need to be mega refineries. Even 3 LGAs can form a cooperative to refine just enough petroleum products for their own use.

I do not know why we are making such a simple solution so complicated with SO MUCH GRAMMAR.

I have done petroleum business for some time and frankly as a player in the industry, I can say that there is absolutely nothing stopping us from refining our own crude here for domestic use and cutting off importation. Militants in the creeks with their limited knowledge refine crude oil.

I refined crude oil in the Chemistry lab of my secondary school as far back as 1991. It is not rocket science. The problem is that we have a government that is not ready to do what is right. Imagine the country rep of the World bank coming to say that subsidy is an anomaly, and that in the European Union, people pay tax on petroleum products. What an aggravated insult!

Do they produce crude oil in the EU, apart from the countries of the North Sea region that produce Brent Crude whose quality is much lower than Nigeria's Light Sweet?

I will cap it up by publishing what other OPEC member states are paying for crude.

People like Kh_Jova are the problem in the petroleum industry. They distort the facts and come up with solutions that are not feasible and workable.

NIGERIA CAN CUT OFF IMPORTATION OF CRUDE AND STOP SPENDING THE SO-CALLED SUBSIDY. Believe me, heads will roll in this country if subsidy is removed. People think Nigerians will pay N150 per litre on fuel with all the attendant cost implications. We will see how it all plays out.

Instead of subsidy removal, this is what we need to do:

THE GOVERNMENT (not private individuals) should as a matter of SOCIAL RESPONSIBILITY TO ITS CITIZENS, build at least 10 new refineries. THE MONEY IS THERE. IT IS POLITICIANS AND THEIR CRONIES THAT ARE EATING IT ALL IN ABUJA!

Come up with renewable energy replacements in 2-3 years. A serious government will deliver.

Reduce the demand on petrol by fixing our rail system with immediate effect, and providing power so people do not have to spend money buying petrol for generators. Allowing the CG of Customs to still roam around a free man after his agency committed ECONOMIC SABOTAGE by auctioning the equipment for the National Integrated Power Projects is a crime against Nigerians and humanity.

These are the issues that should be addressed, not chasing shadows talking about subsidy removal or not. Read this:

Cheapest at the Pump
It's not that way everywhere. In fact, in some countries gas is given away or downright cheap. The countries where you can find the cheapest gas at the pump, in U.S. dollars per gallon (2010):

1. Venezuela (7.6 cents)
2. Iran (37.9 cents)
3. Saudi Arabia (60.6 cents)
4. Libya (64.4 cents)
5. Qatar (71.9 cents)
6. Bahrain (79.5 cents)
7. Turkmenistan (83.3 cents)
8. Kuwait (87.1 cents)
9. Oman ($1.173)
10. Algeria ($1.211)

You may notice some similarities between these countries. First, none of these countries are considered to have developed economies. Second, none are considered to be full democracies. Third, they are all countries where you might expect to find oil.



Read more: http://financialedge.investopedia.com/financial-edge/1011/10-Countries-With-The-Cheapest-Gas-At-The-Pump.aspx#ixzz1bzWlGfbB

There has been so much clamoring from the government and her agents that the removal of fuel subsidy is long overdue. I would like us to review their reasons and see the wisdom or folly therein; below are their justifications:
1. A cartel profits from it: If the federal government knows of the existence of a cartel that is milking away the subsidy and cannot take measures to stop them or put controls in place to mitigate such leakages, then the federal government has failed. Many allude to the fact that the cabal is very powerful; but there is only one Commander-in-Chief of the Armed Forces of Nigeria! The president should wield this power given to him by the constitution; Obasanjo, in all his errors, was a C-in-C indeed. Why punish the generality of Nigerians to stop a small cartel?
2. Nigeria is subsidizing almost the whole of West Africa Fuel: They say that since our fuel is always being smuggled out of Nigeria, we are wasting our subsidy on other nations. This is laughable because fuel is not being smuggled out of Nigeria, it is being “SHIPPED” out of Nigeria! I worked at Maiduguri for a while and I know that people use tankers to ship fuel out of Nigeria; that is not smuggling but shipping. But here is the question: whose duty is it to stop this smuggling, sorry shipping? Why should the govt use the excuse of its failure as justification to remove subsidy.
3. Fuel is comparably too cheap in Nigeria: Well, this depends on which country we are comparing Nigeria with (we must also compare the minimum wage in those countries and their per capital income with Nigeria). If we are to compare Nigeria with any country, it should be an OPEC or some other major oil producing nation. Is there any OPEC nation that imports refined fuel? Is there any OPEC nation whose refineries are comatose? How much do these OPEC nations sell fuel to their citizens?
4. It will free up money for infrastructural development: What has happened to all the monies budgeted for infrastructural development in the past? What about the monies that had been freed up in the past when subsidy was reduced? The Lagos-Ore-Benin road has been in a sorry state for more than a decade and there have been budgets year after year for road maintenance and construction. By the way, since Diezalen Allison Madueke wept on that road and said “The Fed Govt owes Nigerians an apology”, it has been almost 5 years now and the road has even grown worse.
5. The subsidy removed will be used to provide cushioning measures to the masses so that the effect will not be felt: Question (maybe to Lagosians): Is there any way you will beautify a road that will make the bus driver not to increase his fare if fuel is increased from 65 naira to 142 naira? After such increase in transport cost, what do you think the food stuff sellers and landlords will do? I do not think any cushioning measure exists that will prevent the bus driver that plies Ikotun to CMS not to increase his fare from 500 naira to 1000 naira id fuel is increased from 65 naira to 142 naira.
My conclusion is that the govt must never punish its citizenry to make up for its inefficiencies; if our leaders need to go take a refresher course from Venezuela or some other similar OPEC countries, then so be it.
Suggestions
• Fix our refineries and build new ones, preferably in partnership with the private sector on a BOT scheme. Added to the above, a better alternative in building refineries will be a PPP (private - public partnership); this will definitely reduce the start up costs for the investors and will go a long way in keeping down the prices of the finished products.
• Effectively police our borders to curtail the shipping of our refined products to neighbouring countries. The fed govt could even enter into agreement with those countries such that we supply them fuel officially at an agreed price (Gaius Obaseki started something like that).
• Cut the wings of all such cartels, if at all they exist.

If ordinary Nigerians have an idea what is going on subsidy, they would be begging government to remove it.

His advisers need to be frank with him.

How does he intend to survive what its removal will throw his way?

This is a man that's battling with northern oligarchs, BK, MEND, Egbesu, OPC and he's now about to lose the mass of people that make up southern Nigeria as a result of this 'subsidy.'

To me, he's a goner.

He's simply sill.y!

Akanbi_edu:

If ordinary Nigerians have an idea what is going on subsidy, they would be begging government to remove it.

Reason(s) please.

(2) Should Nigerians not enjoy subsidy since we are an oil-producing country

Are we really enjoying subsidy as per relative measurable natural endowment to poverty quotient ? When will it become clear to Nigerians that we deserve far more than we are deceptively given?

FUEL SUBSIDY MESS
Nigeria sells most expensive fuel among oil producing nations – Survey reveals
By OBIDIKE JERRY and CHIOMA IGBOKWE
Saturday October 22, 2011

At N65 per litre of petrol, Nigeria is the second oil producing country selling fuel at such a higher price. The other country is Dubai, which sells at N76.56. Indeed, a comparative analysis of oil politics in Nigeria and other oil producing countries in Africa, Europe, and Asia gives a proper perspective to the right pricing of fuel.

In the latest global survey (sourced from Emirate 24/7 News), Nigeria is the second major oil-producing nation not selling cheapest petrol among the 10 top countries. In the chart of countries selling cheap fuel, Saudi Arabia occupies the first position with a price of £0.08 (N21.12) per litre. It is closely followed by war-ravaged Libya with 0.09 (N23.76) per litre. The rest of the countries are as follows: Bahrain £0.13 (N34.32), Kuwait £0.14 (N36.96), Qatar £0.15 (N39.60), Egypt £0.19 (50.16), Algeria £0.20 (N52. 80), Dubai £0.29 (N76.56).

The report, knowing the sensitivity of fuel price hike, highlighted the need for governments to apply caution. It said: “Governments understand that raising fuel prices is a double-edged sword. While it increases government revenues, the impact on overall inflation cannot be written off, especially if the price is significant.”
Interesting, other some of these countries sell fuel at a lower price than Nigeria, they also have better infrastructure, better-managed social institutions and better-funded educational system.

One fact that is clear is that these listed oil-producing countries have functional refineries and, therefore, do not import fuel. In the case of Saudi Arabia, the parastatal giant, Saudi ARAMCO, produces more than 95% of fuel. Similar parastatal companies produce the remaining five per cent.
In June 1993, Saudi ARAMCO absorbed the state’s marketing and refining company (SAMAREC) to become world’s largest fully integrated oil company.

Nigeria has four refineries, with installed capacity of 450 barrels per day. The country uses about 32 million litres of petrol in a day. This quantity is supposed to be refined locally but the four refineries are performing below installed capacity, hence the shortfall is imported, with government claiming to be subsidizing the local consumption up to the tune of N1.2 trillion a year.

The survey, as below, indicated that only non-oil producing countries, which import the product, are price of fuel higher than Nigeria’s. They include: Asmara, Eritrea ($9.59); Oslo, Norway ($7.41); Copenhagen, Denmark ($6.89); Hong Kong ($6.87); Berlin, Germany, and Monaco, Monte Carlo ($6.82); London, U.K. ($6.60); Rome, Italy ($6.44); Paris, France ($6.04); Sao Paulo, Brazil ($5.69) and Seoul, Korea ($5.55).
Others are: Tokyo, Japan ($5.40); Dubai City, United Arab Emirates ($1.57); Kuwait, City, Kuwait (85 cents); Riyadh, Saudi Arabia (45 cents); Tehran, Iran (32 cents) and Caracas, Venezuela (6 cents).

the truth is subsidy can and should be sustained. what should be removed is corruption!!!
my reasons are

kj_hova:

I shall answer your 5 questions before narrating to you how this Subsidy thing works.

1) YES. There is a subsidy on PMS (petrol) & HHK (kerosene) but not on AGO (diesel) and other petroleum products.
2) NOT NECESSARILLY. Subsidizing any product/service is dependent only on a nation's long term macro-economic principles and not on the fact that the product is there.
3) Petroleum subsidy should be removed only when it is proven that its retention will damage the economy and/or that its removal will truly engender growth and development of Nigeria's downstream Oil & Gas sector.
4) Shortly after removal of subsidy, PMS pump price will likely double. Artificial scarcity may prelude the commencement of deregulation too as scrupulous marketers attempt to take advantage of increased price to mark up margins on old cargoes. On the long run, there should be stability in the supply-demand chain. I do not think however that it will necessarily lead to increase in local refining capacity nor do I foresee any sizable decrease in pump price of PMS subsequently.

Let me now attempt to outline my views on the subject.

INTRODUCTION
What you know as petroleum subsidy in Nigeria is officially referred to as the Petroleum Support Funds (PSF) Scheme. PSF was established in 2006 to replace the previous subsidy program which had become bogged down by glaring inefficiencies. The sole aim of the PSF was to stabilize the domestic price of pet products against volatility in international crude & products prices. PSF is funded (supposedly) from 2 sources, namely; government budget and accruals realized during the period of over recovery. Since “Over-recovery” here refers to the period at which the PPPRA (petroleum products pricing regulatory agency) approved price is higher than the market price of products, and this situation has never happened before in the lifetime of this scheme, government budget has effectively become the sole source of financing fuel subsidy.

HOW THE PSF SCHEME WORK
• PPPRA, previously mentioned above, releases a quarterly allocation of import quota to the various marketers in the industry based upon each marketer’s storage capacity (own tank depot or with a throughput agreement), past trading record amongst other indices.
• Marketers import PMS product into Nigeria. Discharge of this cargo to depot is jointly attended by agents of PPPRA, DPR (Directorate of Petroleum Resources), Auditors for the Ministry of Finance and an independent Inspection Agent. The Shoreline Measurement document specifying quantity & quality of the discharged cargo is then executed by all parties present. The cost of the PMS at this point referred to as the Landing Cost is currently N128 to N136 per liter.
• Marketers sell product at not more than the recommended ex-depot price of N55.50/L. Many depot owners actually accept as low as N52.50/L from bulk buyers or due to stiff competition. Retailers’ margin is N65 less ex-depot price less carriage cost to the station and sundry charges.
• Marketer apply to PPPRA for refund of “under-recovery” (KNOWN AS FUEL SUBSIDY) submitting the shoreline measurements as evidence of shipment. Under-recovery here refers to the difference between Landing Cost and Ex-depot cost plus profit margin granted the marketers on the shipment. PPPRA is currently paying N78.45/L as under-recovery.
• Upon acceptance of the marketers’ claims, PPPRA issues a Sovereign Debt Statement (SDS) in triplicate to the marketer, Ministry of Finance and the Debt Management Office (DMO).
• DMO releases a Sovereign Debt Note (SDN) to the marketer with a 45 days maturity period.
• Marketer can discount this note with a deposit money bank prior to maturity or upon maturity, present it to CBN who must then pay face value within 3 working days of submission.

SAMPLE SEQUENCE FOR PSF
• If you import 45m liters of PMS and landing cost is USD1,092/MT, your total cost will be N5,753Billion.
• And you sell at Ex-depot price of N55/L, you will have proceeds of N2,475Billion leaving a shortage of N3,278Billion.
• When PPPRA pay you under-recovery at N78.45/L amounting to N3,530.25Billion, your final margin will be  2,475+3,530.25=6,005.25;  -5,753=252.25 N252.25million

WHAT IS WRONG WITH THIS SUBSIDY
As you can see, you are left with a 4% margin on almost N6Billion trade. Slight alteration to any variable like exchange rates, sales price, lending rates, under-recovery rates etc will quickly leave the marketer in serious financial straights. Plus there are numerous bribes to pay too. E.g. to get quarterly allocations, to confirm shoreline measures, to hasten processing of SDN and to effect redemption of SDN from CBN. The marketers will rather be free from these encumbrances and will prefer to import freely and price their products at market rates.

There is also massive corruption on-going in the PSF scheme. Currently, politicians and government cohorts get import allocations from PPPRA despite that they have no wherewithal to run such transaction. There is also round tripping in which the marketers take shoreline measurements in Nigeria, quickly reload the product to the vessel and sell off at market rate in Ivory Coast or Togo yet claim refund on the same cargo. It is not just a handful of scrupulous marketers here, it has become a massive jamboree which is useful for financing political elections and enriching political camps! The man who heads the board of PPPRA as we speak is ex-senator Ahmadu Alli, former Chairman of the PDP! I haven’t accused him of anything, but you can draw your conclusions from the Nigeria you know.

CONCLUSION
I am not promoting General Buhari as a preference, but the man once said that the only problem with Nigeria is corruption. Once you solve that, there is nothing wrong with this country really. Somehow, I believe this. Personally I do not support subsidy in any way. My politico-economic principle is right pricing. I believe that this is how the USA or China got to the heights they have achieved today. However, it is clear that the main problem with the PSF is corruption. It is corruption that has ballooned the costs to the point it is beginning to rip the government purse. We cannot fund PSF for too long before FGN go broke and this is the simple truth. Subsidy should be scrapped but only after our government have mustered enough strength a


now are you telling me that such loopholes cannot be plugged? can there not be proper monitoring of this by a dept directly under the prez?
they say they want to build roads, how many people will be able to fuel their cars enough to ply those roads?
build new schools? people can barely send their children to school with subsidy of the fuel they consume
new hospitals? to run on generator? increasing the cost of medical aid? who will go to such hospitals?
as i said subsidy is not what should be removed. corruption is. at least in that sector and get us refineries. if Jonathan cannot do that, he has no right to inflict hardship on any nigerian. it is not our fault that the govt is inefficient or he is a coward or that some of his friends (eg femi otedola) make their money from importation of petroleum products!

Damn, how many times are we going to flog this same issue?

(1) Is there really a fuel subsidy? There is subsidy "on its face" i.e. in the books, there is subsidy, in actual realization, there's subsidy to the common Nigerian; however, the subsidy as claimed "on its face" is grossly overstated. Due to inappropriate internal control measures, poor accountability and statistics and above all glorified corruption in ALL forms of government, the subsidy issue tends to be the "god of all things" where as it shouldn't.


(2) Should Nigerians not enjoy subsidy since we are an oil-producing country? NO! I say this because in a corrupt-free society and environment, given this reasons, (abundance in oil, and working refineries), the by-products of oil should be "affordable".  Nigeria, is oil-producing state, there are other goods and services that require subsidy. Following my own rule-of-thumb, subsidies should apply to less competitive goods/services, goods/services that are expensive on per-capita basis et al.

(3) Under what circumstances should subsidy be removed? Only when we have other alternatives such as building other refineries, removing restrictions on fuel, encouraging small scale refining along with provision of capital and supporting them with tax benefits and the list goes on,

(4) What will be the short and long term benefits or woes of removing the subsidy? Short term benefit of removing subsidies is that govt gets to save the billions it spends on the program, same will apply in the long run. However, the people will most likely suffer the woes as well; the shock effect on the people and the economy largely depends on how well the govt has setup other alternatives prior to the removal. In addition, the effect depends on the process - a quick, instant approach will cause a shock but a gradual introduction of the removal going through phases, that will help less the effect.

(5) Can we trust that Jonathan means well for us with his fuel subsidy removal proposal or is this a proposal to serve the interests of a few people within and outside Nigeria? I can trust Jonathan; however, I'm with mixed feeling on this one. Removal of subsidy comes with already in-place alternative, that alternative I sure don't see unless if it's "TOP SECRET". Then again, I have to give him benefit of the doubt before assumption that there are no alternatives.

i thought the government is to make life better for us, pls let someone explain to me how subsidy removal does that, who care about corruption with subsidy, why should i pay for it, thats their shit let them handle it. besides when was the last time i benefited anything from Nigeria

i thought the government is to make life better for us, pls let someone explain to me how subsidy removal does that, who care about corruption with subsidy, why should i pay for it, thats their poo let them handle it. besides when was the last time i benefited anything from Nigeria

am really enjoying this, but have few questions for both the opposers of fuell subsidy and supporters,
how on earth do this govt think nigerians can afford fuell at double the price now, there is no nepa, most business and homes are powered by generatr. transport increases by 100%.

can we survive this hardship for 6MONTHS BEFORE PPL START GIVING WAY TO DEATH,
THEN WHY DOES GOVT REFUSED TO PUBLISH THE NAMES OF IMPORTERS OF CRUDE OIL FOR THE PUBLIC TO SEE, DOES IT MEAN THEY ARE HIDING SOMETHING,
THEN WHY THE SUDDEN URGENCY TO IMPLEMENT THIS POLICY ,

why cant the govt fix our power supply and our refinery before implementing this policy, why cant they borrow money from the so called sovereign wealth fund swf to fix this two all important before implementing this po licy

Even if we are going to remove subsidy.This is not the time