Jimoh Sule IF u can't prove this wrong and u are supporting the removal of what doesnt exist, then u are a FOOL and should remain silent. . , THE REAL COST OF PETROL , On Dec 10, 2011, if u stopped at d Mobil filling statn on Old, Aba Road in PHC, you would be able to buy a litre of petrol for 65 naira or $1.66 per gallon at an exchange rate of $1/N157 and 4 litres per gallon. This is the official price. D govt claims that this price would have been subsidized at N73/litre and that the true price of a litre of petrol in PHC is N138/litre or $3.52 per gallon.
They are there4 determined to remove their subsidy and sell d gallon at $3.52. But, On Dec 10, 2011, if u stopped at the Mobil Gas statn on E83rd St and Flatlands Avenue in Brooklyn, New York, USA, you would be a able to buy a gallon of petrol for $3.52/gallon. Both gallons of petrol would have bn refined from Nign crude oil. D only diff would be that the gallon in New York was refined in a US North East refinery from Nign crude exported from the Qua Iboe Crude Terminal in Nig while the Port Harcourt gallon was either refined in Port Harcourt or imported.
The Nign govt has earmarked 445000 barrel per day 4 meetin domestic refinery products demands. These volumes are not 4 export. They are public goods reserved 4 internal consumptn. We will limit our analysis to this volume of crude oil. At d refinery gate in PHC, d cost of a barrel of Qua Iboe crude oil is made up of d finding /development cost ($3.5/bbl) and a productn/storage /transportatn cost of $1.50 per barrel.
Thus, at $5 per barrel, we can get Nign Qua Iboe crude to d refining gates at PHC and Warri. One barrel is 42 gallons or 168 litres. D price of 1 barrel of petrol at the Depot gate is d sum of d cost of crude oil, the refining cost and d pipeline transportatn cost. Refining costs are at $12.6 per barrel and pipeline distributn cost are $1.50 per barrel. The Distributn Margins (Retailers, Transporters, Dealers, Bridging Funds, Administrative charges etc) are N15.49/litre or $16.58 per barrel. The true cost of 1 litre of petrol at the Mobil filling statn in Port Harcourt or anywhere else in Nigeria is therefore ($5 +$12.6+$1.5+$16.6) or $35.7 per barrel . This is equal to N33.36 per litre compared to the official price of N65 per litre. Prof. Tam David West is right. There is no petrol subsidy in Nigeria . Rather the current official prices are too high. Let us continue with some basic energy economics.
The govt claims we are currently operating our refineries at 38.2% efficiency. When we refine a barrel of crude oil, we get more than just petrol. If we refine 1 barrel (42 gallons) of crude oil, we will get 45 gallons of petroleum products. The 45 gallons of petroleum products consist of 4 gallons of LPG, 19.5 gallons of Gasoline, 10 gallons of Diesel, 4 gallons of Jet Fuel/Kerosene, 2.5 gallons of Fuel Oil and 5 gallons of Bottoms. Thus, at 38.2% of refining capacity, we have about 170000 bbls of throughput refined for about 13.26 million litres of petrol, 6.8 million litres of diesel and 2.72 million litres of kerosene/jet fuel.
This is not enough to meet internal national demand. So, we send d remaining of our non-export crude oil volume (275000 barrels per day) to be refined abroad and import the petroleum product back into d country. We will just pay 4 shipping and refining. The Nign govt exchanges the 275000 barrels per day with commodity traders (90000 barrels per day to Duke Oil, 60000 barrels per day to Trafigura (Puma Energy), 60000 barrels per day to Societe Ivoirienne de Raffinage (SIR) in Abidjan, Ivory Coast and 65000 barrels per days to unknown sources) in a swap deal. The landin cost of a litre of petrol is N123.32 and the distributn margins are N15.49 according to the govt. The cost of a litre is there4 (N123.32+N15.49) or N138.81 . This is equivalent to $3.54 per gallon or $148.54 per barrel. In technical terms, one barrel of Nign crude oil has a volume yield of 6.6% of AGO, 20.7% of Gasoline, 9.5% of Kerosene/Jet fuel, 30.6% of Diesel, 32.6% of Fuel oil / Bottoms when it is refined.
Using a netback calculatn method, we can easily calculate d true cost of a litre of imported petrol from swapped oil. The gross product revenue of a refined barrel of crude oil is the sum of the volume of each refined product multiplied by its price. Domestic prices are $174.48/barrel for AGO, $69.55/barrel for Gasoline (PMS or petrol), $172.22/barrel for Diesel Oil, $53.5/barrel for Kerosene and $129.68/barrel for Fuel Oil. Let us substitute the govt imported PMS price of $148.54 per barrel 4 d domestic price of petrol/gasoline. Our gross product revenue per swapped barrel would be (174.48*0.066 +148.54*0.207+172.22*0.306+ 53.5*0.095+129.68*0.326) or $142.32 per barrel. We have to remove the int'l cost of a barrel of Nign crude oil ($107 per barrel) from this to get the net cost of imported swapped petroleum products to Nign consumers. The net cost of swapped petroleum products would therefore be $142.32 -$107 or $35.32 per barrel of swapped crude oil. This comes out to be a net of $36.86 per barrel of petrol or N34.45 per litre.
This is d true cost of a litre of imported swapped petrol and not d landing cost of N138 per litre claimed by the govt. The pro-subsidy Nign govt pretends the price of swapped crude oil is $0 per barrel (N0 per litre) while the resulting petroleum products is $148.54 per barrel (N138 per litre). The govt there4 argues that d “subsidy” is N138.81-N65 or N73.81 per litre. But, if landing cost of d petroleum products is at int'l price ($148.54 per barrel), then the take-off price of d swapped crude oil should be at int'l price ($107 per barrel). This is basic economic logic outside d ideological prisms of d World Bank. The traders/petroleum products importers and the Nign govt are charging Nigns for the crude oil while they are getting it free.
So let us conclude this basic economic exercise. If d true price of 38.2% of our petrol supply from our local refinery is N33.36/litre and the remaining 61.8% has a true price of N34.45 per litre, then the average true price is (0.382*33.36+0.618*34.45) or N34.03 per litre. The official price is N65 per litre and the true price wit govt figures is about N34 per litre (even with our moribund refineries).
There is there4 no petrol subsidy. Rather, there is a high sales tax of 91.2% at current prices of N65 per litre. The labor leaders meeting the President should go with their economists. They should send economists and political scientists as representatives to the Senate Committee investigating the petroleum subsidy issue. There are many expert economists and political scientists in ASUU who will gladly represent the view of the majority. The labor leaders should not let anyone get away with the economic fallacy that the swapped oil is free while its refined products must be sold at int'l prices in the Nign domestic market.
The govt should explain at wat price d swapped crude oil was sold n where the money accruing from these sales have been kept. We hav done this simple economic analysis of the Nign petroleum products market to show that there is no petrol subsidy what so ever. In the end, this debate on petrol subsidy and the attempt of the govt to transfer wealth from the Nign masses to a petrol cabal will be decided in the streets. Nign workers, farmers, students, market women, youths, unemployed, NGO and civil society as a whole should prepare for a long harmattan season of protracted struggle. They should not just embark on 3 days strike/protests after which the govt reduces the hiked petroleum prices by a few Nairas. They must embark upon in a sustainable struggle that will lead to fundamental changes. Let us remove our entire political subsidy from the govt and end this petrol products subsidy debate once n 4 all. It is time 2 bring d Arab Spring south.
Izielen Agbon Izielen Agbon writes from Dallas, Texas. izielenagbon@yahoo.comSee more
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