HRT 2010:

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.

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).

jp philips:



The truth is that jonathan thought he can play around corruption to make Nigeria great!!! What a misconception

OMM: Operations, Maintenance & Management
A public partner (federal, state, or local government agency or authority) contracts with a private partner to operate, maintain, and manage a facility or system proving a service. Under this contract option, the public partner retains ownership of the public facility or system, but the private party may invest its own capital in the facility or system. Any private investment is carefully calculated in relation to its contributions to operational efficiencies and savings over the term of the contract. Generally, the longer the contract term, the greater the opportunity for increased private investment because there is more time available in which to recoup any investment and earn a reasonable return. Many local governments use this contractual partnership to provide wastewater treatment services.

DBM: Design-Build-Maintain
A DBM is similar to a DB except the maintenance of the facility for some period of time becomes the responsibility of the private sector partner. The benefits are similar to the DB with maintenance risk being allocated to the private sector partner and the guarantee expanded to include maintenance. The public sector partner owns and operates the assets.

BOT: Build-Operate-Transfer
The private partner builds a facility to the specifications agreed to by the public agency, operates the facility for a specified time period under a contract or franchise agreement with the agency, and then transfers the facility to the agency at the end of the specified period of time. In most cases, the private partner will also provide some, or all, of the financing for the facility, so the length of the contract or franchise must be sufficient to enable the private partner to realize a reasonable return on its investment through user charges.

jp philips:


The truth is that jonathan thought he can play around corruption to make Nigeria great!!! What a misconception

the biggest problem bedevilling us is CORRUPTION and jonathan is not the Man to fight it

Gbawe:

(3) Under what circumstances should subsidy be removed?


Let us remember that subsidy, or subvention, was first suggested as a solution to how ,'apparently', we could not refine enough petrol to meet the demand of the nation. Well, the ambitious Nigerian, with an eye on nation building, would posit that we must also consider export ASAP as well because of the badly needed income that can be derived from it. We saw Dubai gain world class infrastructure through its oil wealth.

jp philips:

@ fork addict

Im sorry to inform you that your analysis above lacks merit,

I understand you erroneously think that local refining will translate to increase in pump price, it is not completely true for the following reasons:

Nigerian govt is in joint venture with all oil producing companies in other words, Nigerian Govt is entitled to an average of 51% of the 2.5million barells produced daily which amounts to 1.275m barells daily

The point other posters are making is that Nigeria can afford to refine a part of that locally and sell it as by products not necessarily as crude at 96usd per barell, they can get petrol,diesel,wax,ethanol,polythene,tar,bitumen etc which in turn has real market value that will still be profitable. Dont forget other petrochemicals that come with crude refining.

Secondly, you inferred that 1bbl of crude equals 1bbl of petrol thereby adding the cost of refining 1bbl directly to the cost of 1bbl of crude, that is wrong.

1bbl of crude gives about 30% of petrol and other derivatives depending on the catalyst,additives and other refining conditions. These derivatives have great market value that the govt can export to make more than that 96usd crude price per barell, dont forget benzene,bitumen and imidazole which are great raw materials for foreign manufacturers.

That was the strategy buhari used and pump price remained low throughout his regime.

The truth is that jonathan thought he can play around corruption to make Nigeria great!!! What a misconception

I urge every Nigerian to stand up and fight this evil called PDP they are poised to destroy us. Enlighten the law enforcement agents because that is their only strength

Even if the govt should subsidize local production,it is not a bad idea because it will encourage the local refineries to expand their refining capacity creating more jobs and encourage export.

Imagine a situation where 7 refineries get 200billion as subsidy grant?

I wept the day Buhari lost that election but i am glad that Nigerians have woken up to realise that the biggest problem bedevilling us is CORRUPTION and jonathan is not the Man to fight it

Jonathan must leave aso rock at all cost, for every blood shed in the struggle will amount to his own blood and his cronies.

ayusco:

i'm no oil expert but from the reasons given by FG for 'subsidy' removal i can't just fail to come to the conclusion that they are making the poor masses of nigeria pay for their inefficiencies. light(though improved) has not gotten to a stage where we do not need generators which means paying more to fuel them. i have this question if our refinaries are working optimally can they meet our daily demand? cus i'v heard there will still be a huge shortfall of btw 50-60% hence the need to import

If i get you right, are you saying that it is possible to refine crude oil into petrol and other distillates, and sell petrol at N65/litre and still make profit? This question requires a yes or no answer and i need your answer.

Next, you got the joint venture ratio wrong. It is roughly 60%:40% in favor of the Federal government.

Nigerian Govt is entitled to an average of 51% of the 2.5million barells produced daily which amounts to 1.275m barells daily

Third, you posited that from 1 barrel of crude oil, we will get at best 30% of petrol. My initial analysis assumed that 159 litres of crude equals 159 litres of petrol and yet i arrived at a pump price that was higher than the N65/litre that we buy at presently. If i were to do the analysis again with the assumption that 159 litres of petrol equals 73 litres of petrol, will our final pump price not be approaching N200/litre? Please remember other factors such as energy, remuneration, tax and profit margin that will come into the euqtion.

Fourth, i stated in my initial post that before deregulation and the benefits therefrom can be fully achieved, corruption MUST be fought to a standstill and we both know that that is a near impossible feat to achieve. Not with the present crop of possessed, blood sucking, greedy kleptomaniacs with insatiable appetites. Deregulation without fighting corruptiong is only making life harsher and more unbearable for the average nigerian.

FYI, i voted for Buhari in the last election. Not because if elected he would give us power, good roads, nice hospitals, standard education? NO. I voted  for him because i knew he would fight corruption head on. Even if everything else comes to a standstll and we record tremendous wins in the fight against corruption, guy I'm cool with that. We can not and we will never progress as a nation unless we fight corruption. The earlier nigerians got that the better for us all.

jp philips:

YES, with more refineries and right operating conditions at worst if the cost of refining it soars the sale of distillates can be used to subsidize the more demanded ones, with local refining we will look beyond the price and profit from not just petrol but other distillates put together, yes again the profit will be higher

jp philips:


please read this extract from my post again;

from the above i said "AVERAGE" of 51%, the NNPC JV with SPDC is not the same as that of chevron, Exxon etc, using 60:40 as a sacrosanct ratio is unsafe that is why i used an average if you put all the JV's together

jp philips:


you made a mistake when you quantified the market price of crude with the price in Nigeria, it is far less. if crude gets to the international market it sells for 96usd but the cost of producing 1bbl of crude in Nigeria is far less than 96usd so it is obnoxious for you to be quantifying the price of crude in Nigeria, produced in Nigeria at 96usd per bbl

i can modify your analysis thus;

1bbl = 159l
1bbl outside naija = 96usd (ave)
1bbl inside naija (cost of production, labour etc) = less than 96usd, in other words, the crude in our refineries are less than 96usd in price do u get? now use this figure to run your analysis again, u will see that the pump price will be less than N65.
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jp philips:





I think we are on the same page here, on the bolded, you are an exceptional Nigerian keep it up

You are joking right? If you are then I'm cool with it but if not then i cant help you. I have done all i think possible. Another way out for you is if you know any informed staff of Kaduna refining and petrochemical company or warri refining and petrochemical company or Portharcourt refinery. call them up and ask them maybe they will do a better job than i have in trying to make you understand that even if you have 1000 refineries, and as long as you sell a litre of petrolfor N65, then the government will continue to subsidise. Now the subsidy may not be as much as the figure the government quotes right now but subsidise, the government must.

Moral of my story, you cant refine crude oil, incure the FULL costs associated therewith, sell at N65/litre and still make a profit.

Moral of my story, you cant refine crude oil, incure the FULL costs associated therewith, sell at N65/litre and still make a profit.

With Shell, the ratio is 55%:45% in favor of FG. With Exxon, it is 60%:40%, with Total it is 60% to 40% with Chevron, it is 60%:40% with Agip, it is 60%:40% all in favor of FG. The average of that isn't 51% in FG's favor. It is much more like 60%. That is arithmetic not even mathematics.

Now to the big one. Please be humble enough to go back to my first post on this thread. In my attempt to prove that the pump price of refined petrol is higher than the N65 we buy at right now, i didnt use the price of crude at the international market in my analysis. I used 65USD and not 96USD that you said i used. It really pays to calm down first and get one's facts right before attempting to critique one's opinion.

With that said, i feel using 65USD as against 96USD per barrel of crude oil in my analysis is enough compensation to us for producing the crude oil. Further more, i didn't factor in energy, remuneration, tax , Distribution and marketing costs and profit into the analysis. By the time i factor in all these costs, do you still think that we will arrive at a pump price of N65 per litre

jp philips:

No need to call anyone we still operate the process flow column of PRCN, guess i should call my cell, nobody is ruling out subsidy totally refer to my post above to see how

GenBuhari:

Experts in Nigerian oil industry have stated that it cost Nigeria less than N65/litre to produce fuel. Which means that government is already making profit from fuel, the idea that they are removing some sort od subsidy is pure fiction.

These experts are:

General Buhari

Tam David West.


Who shall I believe? some self proclaimed know-it-all on Nairaland or the above 2 experts who know the Nigerian oil industry like the back of their hand?

So why is government claiming that it is removing a subsidy that does not exist?


I believe it is because they do not want to have to account to us for how they hare going to spend the revenue
they raise from the price increases.

Buhari says that we are going to be subsidizing the lifestyles of the corrupt elite -and the whole scam is sheer corruption!

My preyers are with all of you!

God bless us.

kj_hova:

It is true that N65/L PMS pump price in Nigeria is joint 14th cheapest in the world along with Algeria. However, it is still more expensive here in comparism to Iran, Venezuela & Saudi Arabia. These countries with considerably higher GDP per capita to Nigeria also heavily subsidize the product price. Again a difference btw them and us is that indigenous participation in production/refining value chain is more entrenched than in Nigeria. For shorts, they are better positioned to withstand the pressures of subsidy than we are. All over the world, from NWE to NEA to GME, the average ex-refinery price of PMS is between N106.26 to N117.45 per litre. Nigeria cannot refine PMS at a cost of less than N65/L even if she wanted to. Considering this fact and the realization that the economy will soon atrophy if we go on this way, I support the complete liberalization of the sector. But do I support the removal of subsidy? Not at all! Every government since the days of the Pharaohs subsidize one thing or the other to assist the citizens. Therefore my proposal is that we transfer the exact amount FGN has calculated as fuel subsidy costs for this year, N1Trillion plus, from PMS importation to the production of grains, poultry, food etc in Nigeria. A portion should go also to subsidizing the rising school fees in the country. It should also finance R& programs in our tertiary institution. Anything we decide, it must never go back into the general Federations Account only to be shared and looted outright by this same cabal we are being wary of.

fork adict:

^^^^ What even qualifies General Buhari as an epert in the oil industry if i may ask you?

kj_hova:

Hi guys, I just gleaned this information. Find below the pump price (in Naira estimates as at October) of PMS in countries around Nigeria.

Cote D'Ivoire N184
Niger & Chad N164
Cameroon & Liberia N136
Egypt N64
Ghana N49

(Note that the global average pump price of PMS is N147.72/Litre. Also note that Cote D'Ivoire is currently the country of choice for importers who divert PMS products imported under the PSF scheme and meant for the Nigerian market)

The question that immediately jump to ones mind after viewing the list above is don't we have more crude reserve than Ghana, why should petrol price be cheaper there? They also import a large chunk of their petroleum products requirement. Maybe they are on an unsustainable subsidy programme too. I really don't know about them. Maybe someone who knows about the Ghanaian model can school us on how it's done over there. It will be nice to know.