Daviddson:
At least Buhari can now see that fuel subsidies payment is not a fraud, like he used to tell us before he became president. This man was and is still very uninformed about a lot of things.

I still have a lot of reservations about it though, one of which is: Why should the price of PMS always remain stagnant even when the price of crude oil crumbles at the international market? But whenever crude oil prices rise, the marketers approach the FG to demand for extra payment?

Who has an answer, because I really feel this is a big corruption?

Fashola has an answer for you.

Oil slump: Bring down fuel price immediately, Fashola tells FG
DECEMBER 7, 2014


Read more at: https://www.vanguardngr.com/2014/12/oil-slump-bring-fuel-price-immediately-fashola-tells-fg-2/

www.nairaland.com/attachments/3356469_screenshot20160131120000_jpeg639beaec46d4ced684f639998a489af2

freeze001:


I am sure this is the post you meant to quote...

Yeah!
Sorry about that.

Daviddson:
At least Buhari can now see that fuel subsidies payment is not a fraud, like he used to tell us before he became president. This man was and is still very uninformed about a lot of things.

I still have a lot of reservations about it though, one of which is: Why should the price of PMS always remain stagnant even when the price of crude oil crumbles at the international market? But whenever crude oil prices rise, the marketers approach the FG to demand for extra payment?

Who has an answer, because I really feel this is a big corruption?

1.It is big corruption

2.I should note that government has solely been in charge of importing fuel since 2017 at least..

3.Basically, when the oil price remains low, the price remains stagnant because the government is also reliant on oil prices....to pay for maintaining the subsidy. Therefore reducing price of petrol when oil prices are low...means that the amount of money on subsidy has to be increased...which government cannot do because the revenue is falling...due to low oil prices.

4. Continuing from the low oil price angle, reduced revenues means that the value of the naira falls relative to the dollar because there isn't enough forex to buffer the value of the naira.As a result....the price rises. (in reality N145 today is equal to what N65 was in 2010 in value because the oil revenue we earned in 2010 was higher than what we are earning now ).

5.Add the fact that we import as much as 60% of our petrol(because subsides potentially would prevent any domestic refiner from making a profit IF he or she refined oil at home)...which adds to the expense of the subsidy. At the moment it costs N200 to import one liter of fuel. NNPC sells to marketers at N137....and then marketers sell at N145 (ROUGHLY SPEAKING)....while the N63 deficit is covered by subsidy).

6.If prices increase...ie oil prices increase...because of the debts we accumulate when oil prices are low...much of that money goes into debt servicing...meaning that monies available for subsides aren't enough. In the bad old days when everyone imported fuel....that could mean reduced profits...so either prices go up, or many marketers operate at a loss...

As an example...in 2016...fuel was selling at N87, WHILE landing costs was at N132 PER LITER. (This was back when everyone was importing fuel...and at the same time oil prices were at an all time low of $30 per barrel). Government increased prices to N145, thus (temporalily) ending the subsidy...and allowing marketers to make enough of a profit to import adequately(In 2012, GEJ tried the same thing...increasing prices from N65 to N140, while landing costs were N99 per liter...before protests forced the price to N97...meaning that government paid subsides of N2 per liter. We could 'afford' it as oil was at $120 then , now we can't as oil is at $59....and even then, it still hurt our econonmy then, as at now).

Thus it was sustained till landing costs shot up above N170 IN 2017...at which point government stopped everyone from importing, and made NNPC the sole importer, while paying NNPC a subsidy. Marketers sell fuel at N145...while making a low profit of at least N5 per liter (and some smuggle fuel to Niger and Benin where they can make profits of N163 per liter as fuel sells there at N300 and above..).


7.The solution would be for government to

a) STOP PAYING SUBSIDES
B) ALLOW MARKETERS TO SET THEIR PRICES AT WHAT THEY WANT
C) PRIVATISE NNPC....
D) Provide concessions /enabling environemnt to refinery owners to build and refine fuel and sell at whatever.

The reason why government does not want to do that is because there would be riots across the country(see Ecuador where the government was forced tobacktrack from removing oil subsides because of protests...shades of 2012 Nigeria)...so we keep on sustaining a corrupt and ineffieicnt subsidy system in the name of 'the people', while looting continues.

As demonstrated in the article OP published.

PoliticalWitch:


1.It is big corruption

2.I should note that government has solely been in charge of importing fuel since 2017 at least..

3.Basically, when the oil price remains low, the price remains stagnant because the government is also reliant on oil prices....to pay for maintaining the subsidy. Therefore reducing price of petrol when oil prices are low...means that the amount of money on subsidy has to be increased...which government cannot do because the revenue is falling...due to low oil prices.

4. Continuing from the low oil price angle, reduced revenues means that the value of the naira falls relative to the dollar because there isn't enough forex to buffer the value of the naira.As a result....the price rises. (in reality N145 today is equal to what N65 was in 2010 in value because the oil revenue we earned in 2010 was higher than what we are earning now ).

5.Add the fact that we import as much as 60% of our petrol(because subsides potentially would prevent any domestic refiner from making a profit IF he or she refined oil at home)...which adds to the expense of the subsidy. At the moment it costs N200 to import one liter of fuel. NNPC sells to marketers at N137....and then marketers sell at N145 (ROUGHLY SPEAKING)....while the N63 deficit is covered by subsidy).

6.If prices increase...ie oil prices increase...because of the debts we accumulate when oil prices are low...much of that money goes into debt servicing...meaning that monies available for subsides aren't enough. In the bad old days when everyone imported fuel....that could mean reduced profits...so either prices go up, or many marketers operate at a loss...

As an example...in 2016...fuel was selling at N87, WHILE landing costs was at N132 PER LITER. (This was back when everyone was importing fuel...and at the same time oil prices were at an all time low of $30 per barrel). Government increased prices to N145, thus (temporalily) ending the subsidy...and allowing marketers to make enough of a profit to import adequately(In 2012, GEJ tried the same thing...increasing prices from N65 to N140, while landing costs were N99 per liter...before protests forced the price to N97...meaning that government paid subsides of N2 per liter. We could 'afford' it as oil was at $120 then , now we can't as oil is at $59....and even then, it still hurt our econonmy then, as at now).

Thus it was sustained till landing costs shot up above N170 IN 2017...at which point government stopped everyone from importing, and made NNPC the sole importer, while paying NNPC a subsidy. Marketers sell fuel at N145...while making a low profit of at least N5 per liter (and some smuggle fuel to Niger and Benin where they can make profits of N163 per liter as fuel sells there at N300 and above..).


7.The solution would be for government to

a) STOP PAYING SUBSIDES
B) ALLOW MARKETERS TO SET THEIR PRICES AT WHAT THEY WANT
C) PRIVATISE NNPC....
D) Provide concessions /enabling environemnt to refinery owners to build and refine fuel and sell at whatever.

The reason why government does not want to do that is because there would be riots across the country(see Ecuador where the government was forced tobacktrack from removing oil subsides because of protests...shades of 2012 Nigeria)...so we keep on sustaining a corrupt and ineffieicnt subsidy system in the name of 'the people', while looting continues.

As demonstrated in the article OP published.

Thanks a lot; this is quite comprehensive and understandable.

maxiuc:


Jonathan government paid fuel subsidy and fuel was bought on a cheap price

Buhari government is paying more fuel subsidy more than the amount Jonathan paid for subsidy yet fuel is still bought at an expensive price

Someone should please explain this theory to me

In layman’s term it’s called the theory of the more you look the less you see.