ekt_bear:

For me, the way things should work:

1) I buy crude from Nigeria at market price
2) I sell my refined crude to the Nigerian government at market price
3) Nigerian government then decides to do whatever it wants with the refined, selling it out at subsidized rates if it likes to Nigerians

Of course, there is then heavy temptation at stage #3 for connected people to divert the subsidized refined oil away to their own pocket. But that is just the nature of the world when you have things subsidized; corruption is natural when things are being given away for less than they are worth.

Only way to eliminate corruption at stage #3 is to eventually remove the gap between how much the petrol costs (N65) and how much it is really worth (N130)

Why is it NOT easy for US farmers to divert thheir subsidized wheat?

Also, if I may ask you, why can't the govt run refineries?

And, if I may add this, the govt is not prepared to allow private refineries just like that.

If you want to deregulate it this way, don't give it to cronies alone. Let their be a honest bidding process.


Then, eventually, people will not pay 130.


The govt just wants to charge 130 and trust me, we will continue to import this product.


We can't run anything without corruption. We can't run refineries as a govt

ola olabiy:

Also, if I may ask you, why can't the govt run refineries?

Why shouldn't it run the okada driver unions too? Restaurants? Bakeries? Construction companies? IT firms? Why shouldn't it run everything?

It isn't governments place to run most of these things; government is not a business. The more the government runs, the more corrupt Nigeria will be.

ola olabiy:

Why is it NOT easy for US farmers to divert thheir subsidized wheat?

I don't know off the top of my head. How exactly subsidies work in different countries and the impact it has tends to be complicated. Why don't you look into it and tell us?

ekt_bear:

Why shouldn't it run the okada driver unions too? Restaurants? Bakeries? Construction companies? IT firms? Why shouldn't it run everything?

It isn't governments place to run most of these things; government is not a business. The more the government runs, the more corrupt Nigeria will be.

You are right, in a way.


Why is it not left to the invisible hand in Saudi?

Why are they not ready to privatize them then?

The real problem is not the subsidy.

Why not ask them to hands off electricity, too. Why are they reluctant, uhn?

ekt_bear:

Why shouldn't it run the okada driver unions too? Restaurants? Bakeries? Construction companies? IT firms? Why shouldn't it run everything?

It isn't governments place to run most of these things; government is not a business. The more the government runs, the more corrupt Nigeria will be.
I don't know off the top of my head. How exactly subsidies work in different countries and the impact it has tends to be complicated. Why don't you look into it and tell us?

Subsidies are meant for
1. Protecting an industry from foreign competition (think farmers in the EU and the US)
2. Reducing the burden on the populace for certain services. (think electricty and transport in the UK)

Eku_Bear

Why are you so much for removing subsidies in Nigeria? There is still so much wastage that can eliminated before you start to introduce unnecessary hardship on the average Nigerian.

Katsumoto:


Eku_Bear

Why are you so much for removing subsidies in Nigeria? There is still so much wastage that can eliminated before you start to introduce unnecessary hardship on the average Nigerian.

I wonder ooo

Eku is a bulldog capitalist in the garb of a real, tea party-attending repu.


He's only interested in those businesses he intends to invest in in Nigeria.

Funny dude  , I tell ya.

@Katsumoto:

1. I'm not sure that the subsidies are really working. Subsidized electricity in Nigeria has essentially killed most of the manufacturing in Nigeria, due to scarcity. So perversely, the electricity subsidy has done more harm than good in Nigeria since the 1980s. I don't know enough about the oil business to say that the same is true in Nigeria, but it very well might be.
2. Subsidies breed corruption.
3. I'm not advocating removing these subsidies instantaneously. You can do it slowly over a 10 year period or something.
4. Which wastages would you tackle first? Anyway, I'm not against keeping the subsidy. . . . just don't complain about fuel shortages, corruption in NNPC, oil profiteers, and lack of functional refineries. After all, it isn't as if these bad things happen in a bubble.

ola olabiy:

I wonder ooo

Eku is a bulldog capitalist in the garb of a real, tea party-attending repu.


He's only interested in those businesses he intends to invest in in Nigeria.

Funny dude  , I tell ya.

Hehe. Fiscally, I agree mostly with Republicans and Libertarians, yes. But on social issues, I'm more of a Democrat.

ekt_bear:

@Katsumoto:

1. I'm not sure that the subsidies are really working. Subsidized electricity in Nigeria has essentially killed most of the manufacturing in Nigeria, due to scarcity. So perversely, the electricity subsidy has done more harm than good in Nigeria since the 1980s. I don't know enough about the oil business to say that the same is true in Nigeria, but it very well might be.
2. Subsidies breed corruption.
3. I'm not advocating removing these subsidies instantaneously. You can do it slowly over a 10 year period or something.
4. Which wastages would you tackle first? Anyway, I'm not against keeping the subsidy. . . . just don't complain about fuel shortages, corruption in NNPC, oil profiteers, and lack of functional refineries. After all, it isn't as if these bad things happen in a bubble.

All countries have these subsidies.

You can't just leave things to market forces. They will spiral out of control.

ekt_bear:

Hehe. Fiscally, I agree mostly with Republicans and Libertarians, yes. But on social issues, I'm more of a Democrat.

ola olabiy:

All countries have these subsidy.

Oil subsidy, no. . . as I said, many countries in fact have heavy TAXES on oil.

Electricity subsidy, no.

You can't just leave things to market forces. They will spiral out of control.

What does this mean?

ekt_bear:

@Katsumoto:

1. I'm not sure that the subsidies are really working. Subsidized electricity in Nigeria has essentially killed most of the manufacturing in Nigeria, due to scarcity. So perversely, the electricity subsidy has done more harm than good in Nigeria since the 1980s. I don't know enough about the oil business to say that the same is true in Nigeria, but it very well might be.
2. Subsidies breed corruption.
3. I'm not advocating removing these subsidies instantaneously. You can do it slowly over a 10 year period or something.
4. Which wastages would you tackle first? Anyway, I'm not against keeping the subsidy. . . . just don't complain about fuel shortages, corruption in NNPC, oil profiteers, and lack of functional refineries. After all, it isn't as if these bad things happen in a bubble.

The problem with your position is that Nigeria doesn't have adequate fiscal and monetary policies. It is the job of the govt and Central Bank to draft flexible policies. At this point, there aren't any competent officials who can do that. You have to use an holistic approach when deciding on whether subsidies are necessary or not and if they are, where to apply them. Most oil producers have policies in place to not only ease the burden on the populace but also to stimulate the economy. How many fuel shortages are in Saudi, Libya, Qatar, UAE, ETC? There is a problem in Nigeria and it is called corruption. Tackle that first while formulating a long term fiscal policy.

Are you aware that a $10 rise in petrol shaves .3% off the GDP of any country?

ekt_bear:

Oil subsidy, no. . . as I said, many countries in fact have heavy TAXES on oil.

Electricity subsidy, no.

Electricity/gas prices are still being regulated in the UK.

ekt_bear:

ekt_bear link=topic=665393.msg8309954#msg8309954 date=1305245502:



What does this mean?

It means 'price system'. It also means market mechanism.
One word, capitalism sha.

Katsumoto:

The problem with your position is that Nigeria doesn't have adequate fiscal and monetary policies. It is the job of the govt and Central Bank to draft flexible policies. At this point, there aren't any competent officials who can do that. You have to use an holistic approach when deciding on whether subsidies are necessary or not and if they are, where to apply them.

I don't disagree with most of this.

Most oil producers have policies in place to not only ease the burden on the populace but also to stimulate the economy. How many fuel shortages are in Saudi, Libya, Qatar, UAE, ETC? There is a problem in Nigeria and it is called corruption. Tackle that first while formulating a long term fiscal policy.

How much is a liter of petrol in those countries? How much do they spend subsidizing each liter of petrol? How much do they spend a year in fuel subsidies per year?

Are you sure you are making an apples and apples comparison, in short, before you conclude that the subsidies in Nigeria and Saudi (for example) are comparable, yet corruption happens only in the former but not the latter?

Are you aware that a $10 rise in petrol shaves .3% off the GDP of any country?

What does this mean in the Nigerian context? Rising price of a barrel of oil increases our GDP, doesn't decrease it.

And I don't think that stat (or something like it) is likely to apply to a fuel subsidy. If it does, please provide a reference.

ola olabiy:

Electricity/gas prices are still being regulated in the UK.

I dunno about the UK, but here in the US, neither of those items is subsidized. They largely float freely on the market (minus the heavy taxes on petrol we have, I guess).

ekt_bear:


What does this mean in the Nigerian context? Rising price of a barrel of oil increases our GDP, doesn't decrease it.

And I don't think that stat (or something like it) is likely to apply to a fuel subsidy. If it does, please provide a reference.
[/quote

Eku, are you kidding? Locally, it doesn't

ekt_bear:

I dunno about the UK, but here in the US, neither of those items is subsidized. They largely float freely on the market (minus the heavy taxes on petrol we have, I guess).

Regulated, I said.

ola olabiy:

Eku, are you kidding? Locally, it doesn't

Nigeria produces 2.5 million barrels of crude oil per day.

How many does it consume the equivalent of (adding up crude and refined)?

Quite a bit less than this 2.5 million.

So since we are a net exporter of oil, then increasing oil prices help us.

ola olabiy:

Regulated, I said.

I dunno how things are done in the UK. Anyway, I'm not against "regulation" (whatever that means), but I don't think subsidies are a good idea, if one can avoid it.

ekt_bear:


What does this mean in the Nigerian context? Rising price of a barrel of oil increases our GDP, doesn't decrease it.

And I don't think that stat (or something like it) is likely to apply to a fuel subsidy. If it does, please provide a reference.

In the Nigerian context, higher oil revenues means more money to be embezzled. It doesn't go towards govt spending. If you remove the subsidy, prices of everything in Nigeria goes up. People will have less to spend on industries that began to boom in the OBJ era such as telecomms, music, entertainment, restaurants, etc

ekt_bear:

I don't disagree with most of this.
How much is a liter of petrol in those countries? How much do they spend subsidizing each liter of petrol? How much do they spend a year in fuel subsidies per year?

Are you sure you are making an apples and apples comparison, in short, before you conclude that the subsidies in Nigeria and Saudi (for example) are comparable, yet corruption happens only in the former but not the latter?
What does this mean in the Nigerian context? Rising price of a barrel of oil increases our GDP, doesn't decrease it.

And I don't think that stat (or something like it) is likely to apply to a fuel subsidy. If it does, please provide a reference.

How can it be apples and oranges; they are all oil producers, which is a major similarity.
The debate is not about the size of the subsidy but about whether there are subsidies. There are subsidies in all the countries I mentioned and they don't grapple with fuel scarcity.

Katsumoto:

In the Nigerian context, higher oil revenues means more money to be embezzled. It doesn't go towards govt spending. If you remove the subsidy, prices of everything in Nigeria goes up. People will have less to spend on industries that began to boom in the OBJ era such as telecomms, music, entertainment, restaurants, etc

You are correct, there is a good chance that this $4.2 billion a year they spend on subsidizing petrol, at least a bit of it would be stolen. I wouldn't just remove/reduce the subsidy and leave the cash in the hand of the FG; if I had my way that would be distributed out to states/LGAs. I'd shrink the size of the FG, basically.

Anyway, this is more of a long-term thing. In the short term, it'd cause too much of a shock to let the price of petrol float freely say tomorrow. But over the course of 10 years or so, it'd make sense (coupled with shrinking the size of the FG).

How can it be apples and oranges; they are all oil producers, which is a major similarity.
The debate is not about the size of the subsidy but about whether there are subsidies. There are subsidies in all the countries I mentioned and they don't grapple with fuel scarcity.

Well, that they are all oil producers isn't the most relevant similarity; it is that they all subsidizers.

For one, a 1% subsidy is different from a 50% subsidy. So until you tell us the rate at which oil is subsidized in each country, we don't know if your comparison of corruption levels makes sense.

There are other factors too of course, but that is just the immediate one that jumps out at me.

Katsumoto:

In the Nigerian context, higher oil revenues means more money to be embezzled. It doesn't go towards govt spending. If you remove the subsidy, prices of everything in Nigeria goes up. People will have less to spend on industries that began to boom in the OBJ era such as telecomms, music, entertainment, restaurants, etc

Thank you

ekt_bear:



For one, a 1% subsidy is different from a 50% subsidy. So until you tell us the rate at which oil is subsidized in each country, we don't know if your comparison of corruption levels makes sense.

There are other factors too of course, but that is just the immediate one that jumps out at me.

So, your argument isn't about the subsidy but the size of it, abi?

ola olabiy:

So, your argument isn't about the subsidy but the size of it, abi?

I don't think subsidies of this sort are a good idea. So I'd prefer their size to be as close to zero as possible.

But that isn't really the point of what you quoted. Katsumoto is comparing corruption levels in Nigeria to that of other countries that subsidize oil. We cannot be sure the comparison is a fair one until we know how big the subsidy is in each country (among many other factors.)

Hrm, this article has a table listing fuel prices:

http://en.wikipedia.org/wiki/Gasoline_and_diesel_usage_and_pricing

ekt_bear:

Hrm, this article has a table listing fuel prices:

http://en.wikipedia.org/wiki/Gasoline_and_diesel_usage_and_pricing

Different dates of price

ekt_bear:

You are correct, there is a good chance that this $4.2 billion a year they spend on subsidizing petrol, at least a bit of it would be stolen. I wouldn't just remove/reduce the subsidy and leave the cash in the hand of the FG; if I had my way that would be distributed out to states/LGAs. I'd shrink the size of the FG, basically.

What does subsiding petroleum have to do with the size of the Government?

I am not an economist, but the way I look at it is that, take for instance, we have N100 for 200 people. If we spent the N100 to procure foodstuff in bulk, we would prolly feed everyone to satisfaction. However, if we should go with your idea, and divide the money equally among the people, with each person taking home 50k, it would be impossible for each person to buy enough food to satisfy him/her.

The aim of the subsidy is to:

Katsumoto:

Subsidies are meant for
1. Protecting an industry from foreign competition (think farmers in the EU and the US)
2. Reducing the burden on the populace for certain services. (think electricty and transport in the UK)

Just to add to what Katsumoto said, removing government subsidy would bring untoward hardship on the masses. It would be felt by everyone, but the ordinary people would suffer most. If you remove petroleum subsidies, the price of oil will go up,and not just that, everything else would go up; transport would go up, obviously; food would go up since they would have to pay more for transport and that would be reflected on foodstuff prices since it is only appropriate for the sellers to recoup the increased cost of transportation, and you can just imagine how that would affect all other aspects of life.

The moral is that, removing subsidy isnt the best thing for the country at this point. I sense some aloofness, on your part, from reality in Nigeria.

zstranger:

Just to add to what Katsumoto said, removing government subsidy would bring untoward hardship on the masses.

I'm aware of that.

The moral is that, removing subsidy isnt the best thing for the country at this point.

When did I say it was the thing to do tomorrow? That I'm anti-subsidy doesn't mean I want it scrapped today. That 10 year phaseout, or variants of it might would be more practical.

You are beating a strawman, to a large extent. . .

I sense some aloofness, on your part, from reality in Nigeria.

Aloof if one chooses to misread what I wrote, yes. Or ignores critical parts of it, yes.

zstranger:

What does subsiding petroleum have to do with the size of the Government?

Well, the FG spends $4 billion+/ year on petrol subsidies. Out of a $40 billion budget or so. So if one removes the subsidy, the frees up that $4 billion. If you then redistribute that money to the states, then the FGs budget has shrunken to $36 billion. So the FGs size has shrunken by 10%.

I am not an economist, but the way I look at it is that, take for instance, we have N100 for 200 people. If we spent the N100 to procure foodstuff in bulk, we would prolly feed everyone to satisfaction. However, if we should go with your idea, and divide the money equally among the people, with each person taking home 50k, it would be impossible for each person to buy enough food to satisfy him/her.

Right, so that is an economy of scale sort of thing. That it is usually cheaper to buy in bulk.

But in general, governments spend money less efficiently than people do. If a man wants to build a house and it costs him $500,000, then that same house built by the government might cost twice the same amount. Governments generally just aren't efficient. Isn't even a naija phenomenon, same is true in the US.

This is part of the reason I believe in small government. Certain things DO benefit from economies of scale. Or that are public goods that nobody in the private sector would want to spend money on (e.g., military defense.) But many governments spend money far beyond the basics.

Katsumoto:

The problem with your position is that Nigeria doesn't have adequate fiscal and monetary policies. It is the job of the govt and Central Bank to draft flexible policies. At this point, there aren't any competent officials who can do that. You have to use an holistic approach when deciding on whether subsidies are necessary or not and if they are, where to apply them. Most oil producers have policies in place to not only ease the burden on the populace but also to stimulate the economy. How many fuel shortages are in Saudi, Libya, Qatar, UAE, ETC? There is a problem in Nigeria and it is called corruption. Tackle that first while formulating a long term fiscal policy.

Are you aware that a $10 rise in petrol shaves .3% off the GDP of any country?

Can you clarify the bold part.
Is it just down to incompetence? I doubt that.
Sure it is not just something systemic.

ekt_bear:

Well, the FG spends $4 billion+/ year on petrol subsidies. Out of a $40 billion budget or so. So if one removes the subsidy, the frees up that $4 billion. If you then redistribute that money to the states, then the FGs budget has shrunken to $36 billion. So the FGs size has shrunken by 10%.
Right, so that is an economy of scale sort of thing. That it is usually cheaper to buy in bulk.

But in general, governments spend money less efficiently than people do. If a man wants to build a house and it costs him $500,000, then that same house built by the government might cost twice the same amount. Governments generally just aren't efficient. Isn't even a naija phenomenon, same is true in the US.

This is part of the reason I believe in small government. Certain things DO benefit from economies of scale. Or that are public goods that nobody in the private sector would want to spend money on (e.g., military defense.) But many governments spend money far beyond the basics.

Eku, this is the answer:

Without subsidy in America, you wouldn't be able to live there. Not even sure you would have become what you are today.

How do you remove subsidy just like that in a country where nothing works and the people get no benefits? How do you then lessen the impact of its removal?


You live in a world where the government cares so it is strange you reason like this.


I am sure if your bin doesn't get emptied within days in Califo you normally complain, innit?

ekt_bear:


Only way to eliminate corruption at stage #3 is to eventually remove the gap between how much the petrol costs (N65) and how much it is really worth (N130)

In the same breath you should suggest how you intend to deal with the homongous attendant inflation the removal of such subsidy will bring.
I don't even want to imagine the socio political dimension of such.

Katsumoto:

The problem with your position is that Nigeria doesn't have adequate fiscal and monetary policies. It is the job of the govt and Central Bank to draft flexible policies. At this point, there aren't any competent officials who can do that. You have to use an holistic approach when deciding on whether subsidies are necessary or not and if they are, where to apply them. Most oil producers have policies in place to not only ease the burden on the populace but also to stimulate the economy. How many fuel shortages are in Saudi, Libya, Qatar, UAE, ETC? There is a problem in Nigeria and it is called corruption. Tackle that first while formulating a long term fiscal policy.

Are you aware that a $10 rise in petrol shaves .3% off the GDP of any country?

then the problem might not be the fiscal policies.
the leaders we have are not interested in an efficient system but seeking ways to expand the frontiers of corruption.