leaderone:

@gabby tabby

Have been following this subsidy removal argument for a while now and believe me I have read and heard all sorts, however this particular argument by YOU is by far the most annoying.

ARE YOU seriously giving us such a silly excuse? That do we expect GEJ to go after these corrupt importers and Govt officials?

WHAT Rubbish!!! What then is he doing there? You keep telling me that I have to pay because GEJ is scared of doing his Job? What did he expect when he asked us to vote for him?

That it was going to be a walk in the park? JESUS!!!

He has the Police, EFCC, ICPC, SSS, NIA, DMI etc and he is telling us he cannot fight corruption?

Then we are to sweat and give him an extra 1.3tri to squander away?

It is rather unfortunate that we live in such a nation. In the west, some of this excuses are grounds for speedy impeachment!!!

Let him resign if he does not have the balls to take the bull by the horn and do the needful

Please it is just past 4am, don't post such crap next time as it is capable of messing up ones morning

Actually, going after them will be like standing in front of a fast moving train. Corruption has eaten deep into the fabric of the country such that GEJ will be alone in such venture. You should search for OBJ's comment on Ibori back then and you will get some ideas.

Products subsidized in Nigeria - PMS and Kerosene
Demand
PMS - 35 million litres /day
Kero - 8 million litres/day

Prices
PMS Open market Price (OPM) - N145/L ( this number varied from N125 - 165 in 2011 because of crude oil price in 2011)
Kerosene Open Market price  - N150/L (this also varies)

Subsidy Per Liter
PMS Subsidy per liter = 145-65 = N80/L
Kerosene subsidy per liter = 160-50 = N110/L

Subsidy Per day
PMS = N80/L* 35,000,000 L = 2,800,000,000/day  = 2,800,00,000*365days = 1,022,000,000,000 = N1.022 Trillion/year
Kero= N110/L * 8,000,000 L = 880,000,000/day = 880,000,000*365days = 321,200,000,000 = N321 Billion/Year

Total Subsidy
PMS subsidy + Kerosene Subsidy =N 1,022 billion + N321 Billion = N1.342 Trillion

This is a very good estimate on how 2011 was arrived at.

Why the change of subsidy value from previous years, the average crude price for last year was largely above $100/bl, coupled with exchange rate differentials and  increase in energy demand  due to population growth, GDP growth & increase in smuggled products across Nigerian borders.

I hope this helps

I modified the posting based on questions asked

Example of Subsidy Calculation for August 2011 - A Bit More Detailed

Let me give more clarifications on how the Open Market Price (OPM) which determines the subsidy per liter is arrived at. The OPM is the end price that arises after all the players in the product value chain are being compensated. It is PPPRA that sets the benchmark compensation (margin) for each player in the value chain. Below is actual detail computation of Subsidy for the month of August 2011 for PMS showing the players in the value chain, their margins and thus the Open Market price and finaly the subsidy per liter.

PMS Template August 2011 (from PPPRA Website)

Price Element/Player        Naira/Litre

PMS International Price    123.00
Freight                         3.23
Lightering                           3.94
NPA                                   0.60
Fiancing                           2.91
Jetty                                   0.80
Storage                           3.00
Retailers                           4.60
Transporters                   2.99
Dealers                           1.75
Bridging Fund                   5.85
Marine Transport           0.15
Admin                              0.15
Final price    (OPM)       152.97
Pump Price                  65.00
Subsidy                          152.97-75 = N87.97/L

This implies Subsidy for the month of August for PMS only will be based on 31 days in August with 35 million Litre of PMS per day
= N87.97/L*35,000,000L/day*31 days =  N95,447,450,000 ie N95 Billion Naira for August 2011 for PMS only.

Computations for Kerosene are similar, the major difference will be the international Kerosene price and the Pump price of Kerosene, and volume of 8 million litres per day

Brief Explanations of the Cost Elements/Players

PMS Import Price - this is the international price for PMS for a refinery offshore(mostly Europe) as quoted on Platts. Also includes the traders margin.
Freight - Cost of shipping it to Nigeria
Lightering - Cost of Ship to ship transfer to bring the product to berth at the Jetty. It includes demurrage allowance of 10 days
NPA - Nigerian port authority charges
Financing - Interest incurred by the traders or marketers on money they got from bank to buy the product
Jetty - provides a platform to pipe the product from the ship to the depot on the land
Storage - Cost of storing at the depot
Retailers - This is the person buys bulk from depot and takes to a dealer or his own petrol station
Transporters - sure u know these guys, they drive the truck from the depots to the petrol station
Dealers - the person running the petrol station
Bridging Fund - this pool is created to compensate longer haulage trucks with trucks travelling shorter distances
Marine Transport - provision for marine transport
Admin - administrative charges
Final price - this is the open market price and is the sum of all these on top
Pump Price - this is the regulated price at the pump price which was N65/L.
Subsidy - THis is the difference between the Open market price (real cost of delivering the petrol at the pump) and the pump regulated price of N65/L.


Anwser to a question on Why Smuggling increased over the years from 2009

This is how it works the Higher the difference between the Open market price (OPM) and your regulated official selling price of N65/L, the higher the opportunity/incentive for arbitrage (arbitrage is the practice of taking advantage of a price differentials between two or more markets). So what this means is that the incentive for arbitrage has increased over the years. (an incentive is any factor (financial or non-financial) that enables or motivates a particular course of action (smuggling))

Year          OPM(N/L)      Pump Price   Subsidy(N/L)      Incentive
2009            90             65                   25                    1.0
2010           112            65                   47                    1.9
2011           145            65                   80                    3.2

From the above looking at the subsidy(N/L) column, you can see that the incentive/opportunity for arbitrage has more than tripled from N25/L in 2009 to N80/L in 2011 (320% precisely). As the incentives (rewards) increase more investors (smugglers) take the risk of smuggling to take advantage of the arbitrage, its a Risk/Reward thing. This naturally pushes up the demand volumes that could be diverted to markets of economic advantage. The lower the incentives the lower the investors that will take the risk, the higher the incentives, the more the investors that will take the risk. Its is basic economics.

You can cross check some of these figures from PPPRA, website its public information though they might have removed some of historical numbers due to the change in the pricing regime. You might also need to process the information to make more sense of it.

May God punish whoever is posting this nonsense, please find a link to oil prices fluctuations from 2003 to 2010. http://en.wikipedia.org/wiki/2003_to_2011_world_oil_market_chronology
http://www.wtrg.com/prices.htm
As can be seen we had the highest price in 2008 and yet subsidy was under 500 billion Naira as prices improved towards the end of the year and we were shipping 33 million liters of fuel o (2011 was 35 million liters), abeg tell Dizeani to supply you another set of data, this one don fail. Prices were hitting 130 dollars per barrel in 2008.
Oya find below the prices of oil for the 2000s

http://www.nyse.tv/crude-oil-price-history.htm

Please note that average price of crude in 2008 was $98.24 dollars per barrel while for 2011 was $93.15, abeg make una dey fear God.

Simple Argument No 7 -

Madueke claims that the refineries are now at sixty per cent. Indeed!

If this is the case, then there should not be a subsidy paid on such refined crude.

Is there a subsidy on locally refined crude?

Is locally refined crude sold at a different price?

What I find common with a lot of the point raised in that not a lot provide solutions and suggestions but more like children constantly asking questions and expect someone else to provide the answers. The simple solution with dealing with the level of corruption in the country would be similar to what happened in Ghana with Jerry Rawlins and which of you has the balls to take it on.

If 30 years of military cannot do it what do you expect from a civilian regime.

^^^ There is a simple solution.

Fully Repair Refineries - - -> End PMS importations - - - > Remove all subsidies - - - > Privatize Refineries - - -> Fully deregulate and liberalize the downstream sector.

Deep sight, you will agree with me that this is a medium term 3-5 year plan and while this is ongoing what needs to happen with the current situation on the ground? fold hands and wait for manner from heaven.

With the benefit of hindsight the decision to stop subsidy payment was the immediately necessary one but it needed to be one of the decisions and not the only decision as it is only through doing this right now that they can have any reasonable expectation of being able to do what you have suggested.

gabbytabby:

Deep sight, you will agree with me that this is a medium term 3-5 year plan

It is a medium term plan, and so long as you have the word "plan" in governmnet affairs, virtually everything should be medium or long term. You do not just wake up and implement sweeping measures: planning is critical. Planning is all the difference between the 1st world and the 3rd abi last world.

Now I must yet tell you that such a plan needn't take five years - NO! The last refinery built in Nigeria was built in the 80s and it took just two years. Now if building could take just two years, then repair and mainternance can be done in a far shorter period if the government is serious.

The idea of the removal of the subsidy didnt creep up on 1 Jan 2012. It has been a clear plan of government for several years now. And yet government DID NOTHING to ensure that it is delivered in the sensible medium term plan manner above by dealing with the problems which led to the subsidy regime in the first place! Absolutely nothing. It therefore behoves government to get its act together and start NOW to implement a medium term plan that will deliver the removal in a proper and sensible fashion.

and while this is ongoing what needs to happen with the current situation on the ground? fold hands and wait for manner from heaven.

No: retaining the subsidy in the medium term will not bankrupt Nigeria so long as it is the real subsidy under 300 billion and not the magically corrupt subsidy of 1.3 Tr. For this reason, the bigger issue is to cut government wastage (which is more than ten times the cost of the real subsidy) and address corruption in the oil industry.

Let me just tell you something. Corruption is the core of the problem: If Nigeria receives one zillion dollars today from heaven or subsidy removal, be assured that that money will dissapear before your very eyes.

So corruption is what should be addressed.

^^^
He has been in Government from April 2011 in that time they have been able to come up with all these issues and identified what their action plan needs to be. You might not agree with their decision but a plan be it 30day 100day in office plan has happened.

gabbytabby:

^^^
He has been in Government from April 2011 in that time they have been able to come up with all these issues and identified what their action plan needs to be. You might not agree with their decision but a plan be it 30day 100day in office plan has happened.

Hurrah!! Score one for FG going by the present activity, it seems the Action Plan (Pre/Post-Implementation) was an after-thought. Surely you are not referring to the SURE initiative (Subsidy Reinvestment and Empowerment Programme). chief concern is that it only addresses what the money will be SPENT ON. There is no evidence that shows
1: Feasibility: Still Nigeria is not a unique or sophisticated economy, I would love to see what FG has put in place to ensure SURE works as it should. simply saying it is what FG has been doing for the past 30-50 years. Unless you have forgotten the Ajaoukuta Steel mess. or the $16 billion Bermuda Triangle Power Project during OBJ's tenure
2: Transparency: Saying who and how you will appoint people does not indicate what Institutional Frameworks you have put in place to ensure that these officials act in a manner that does not undermine the SURE initiative. surely you have not forgotten the trend with corrupt ex-governors (now free).
3: Sustainability: FG has not shown how it plans to make SURE a legacy.

Please if you have access to detailed SURE Master-plan covering the themes above, I would sure love to read it. It is a Public Initiative right.