@ola olabiy: I pay a lot of money in taxes, fees, etc here. This has always been the case. Same with my parents when they lived here. . . they paid a lot more out in taxes/fees/etc than they got in return.

I don't think most Americans on average are subsidized. . . probably your middle class person has a net outflow of money from him to the government, not vice versa. I could be wrong though; you should look it up and find out.

Anyway, not advocating removing the subsidy immediately or even necessarily at all. Just saying that it'd be nice if we didn't have to have it.

And certainly, this is not something that is sustainable in the long run. At some point in the future, as average wealth increases and petrol consumption increases, current subsidy level will not be possible

ekt seems to think that our government will utilise the savings on subsidy removal for the benefit of ordinary nigerians, we have voted in a government that does not care, if it is the subsidy that the common man can benefit, then let it be, removal of subsidy simply gives them more money to loot.

^-- I don't think the FG would do anything but plunder it. But I think if it were distributed to the states/LGs, there is a good chance something good can come of it (at least for those of us who live in states where we trust our governors.)

The deleterious effect of removing subsidy is far more than leaving it in place right now, the effects include social upheaval, economic palaver for ordinary nigerians. I hope you know that in Nigeria prices always go up.

^-- Even if I cut down the subsidy by 5% a year for say 20 years?

or 10% a year over 10? Etc, etc?

There are many ways to approach this while making the change gradual and less abrupt

A 5% cut in the subsidy will result in over 50% increment in the cost of some items, remember that nothing is planned, transport cost for instance will double except for BRT, Obasanjo did it and we had cost of living going high.

Petrol from N65/liter to N68.25/liter will really result in +50% increment in cost and will cause a huge burden? 

IMF is trying to protect their own interest. I agree that we need to tackle power first before taking on the refineries but we eventually have to eliminate product imports. Here are reasons to support my points.

1. POWER FIRST
A huge portion of our product imports (Diesel and Gasoline) are used to fuel generators and plants for power consumption. If we can utilize gas to generate enough electrical power to meet local demand, we can reduce our dependence on the imports significantly.

2. REFINERIES NEXT. Everybody in the refinery business knows that Nigeria occupies a vantage position in terms of refining. We have access to FOB (Free On Board) crude and a subsidized CIF (Cost, Insurance and Freight) market. The investments that would be made in constructing new refineries and upgrading old ones will be quickly recovered by the CIF - FOB margin. The idea is eliminating the Cost of Importing products. This will also significantly improve the economy and create jobs. Government may have to spend the same money on subsidies in order to keep refiners in business but guess who will get the profits: NNPC (Another part of the government!). We will internalize the profits rather than export value.

3. WHY IMF IS WORRIED:
There are too many refineries in the world already and refining margins are quite low. There is risk of excess supply. Nigeria is an extremely large market and whoever was supplying us will be hit very hard if we suddenly stop the imports. IMF is trying to protect itself by balancing the market but keeping us at the demand end.

It's best for us to improve the power situation and build enough refining capacity for local consumption simultaneously. However, power should be given the priority while we are at it.

This is why IMF or Western nations would not support General Buhari, because he never listened to their nonsense during his time as Head of State.

ekt, it is not the amount by which you increase the cost, it is the fact that something has been added on top, apparently you did not live long in naija.

violent:

Bullshyt!

I hate it when people attempt to blow hot air down my árse like i've never been through the walls of an higher institution.

If all refineries were made to work, all the government simply had to do is to reduce subsidies and increase taxes on refined crude exports, up to an extent where it becomes priced competitively in global markets and owners would be forced to see a more lucrative deal in selling at the local price where less taxes and higher subsidies abound.

Violent, dont you just hate it when people like the IMF always try to make a fool out of Nigerians and
make statements that dont make sense and border on foolishness.

If Nigeria's refineries were all working at 100% capacity and we were exporting refined petroleum
products would not out oil and gas revenues increase by 20 times if not more.

A country that produces crude oil but exports it only to import the refined substance at a higher rate
is that not just foolish

Aww i forgot the Oil guys like shell, Eni etc do not what our refineris to work as this would be a loss of business
to their refineries in the Europe,

mbulela:

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

mbulela:


I don't even want to imagine the socio political dimension of such.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.

I think we are trying to say the same thing. The fact is that corruption has many evil children and incompetence is one of them. A corrupt minister in Nigeria will never seek the best administrators; instead they go for those that can protect their interests. In the bad policies are drafted and implemented badly.

hercules07:

ekt seems to think that our government will utilise the savings on subsidy removal for the benefit of ordinary nigerians, we have voted in a government that does not care, if it is the subsidy that the common man can benefit, then let it be, removal of subsidy simply gives them more money to loot.

Precisely
Removal of subsidy will not trickle down to citizens in form of infrastructural development but will instead find its way to the pockets of corrupt administrators.

ekt_bear:

^-- I don't think the FG would do anything but plunder it. But I think if it were distributed to the states/LGs, there is a good chance something good can come of it (at least for those of us who live in states where we trust our governors.)

This is wishful thinking. Administrators at the local government level are just as corrupt as those at the State and federal levels. The money will simply get shared between all adminstrators and the local government chairman will just build a library with 15 books in the middle of an evil forest, call the press, and throw a party that costs more than the freaking library.

Like I said before, the decision to remove/reduce any subsidy must be taken as part of a concerted, well thought out and articulated fiscal policy rather than one based on just increasing revenue because thats how it is done in other places.

Katsumoto:

This is wishful thinking. Administrators at the local government level are just as corrupt as those at the State and federal levels. The money will simply get shared between all adminstrators and the local government chairman will just build a library with 15 books in the middle of an evil forest, call the press, and throw a party that costs more than the freaking library.

If that is the case, then of what use of any of these calls by say the ACN, governors forum and other parties to revise the revenue formula and shrink the FG? You don't think shifting resources at the state and LGA levels will have a positive impact, on average? If your idea of LGA, States and  FG all being equally corrupt is true, then it seems to me that there is no difference what the revenue formula is, who spends what.

Like I said before, the decision to remove/reduce any subsidy must be taken as part of a concerted, well thought out and articulated fiscal policy rather than one based on just increasing revenue because thats how it is done in other places.

I don't disagree with this. But my reasons aren't arbitrary, or meant to do it just "because thats how. . . " Perhaps the reasons aren't very good, but certainly not chosen randomly.

ekt_bear:

If that is the case, then of what use of any of these calls by say the ACN, governors forum and other parties to revise the revenue formula and shrink the FG? You don't think shifting resources at the state and LGA levels will have a positive impact, on average? If your idea of LGA, States and  FG all being equally corrupt is true, then it seems to me that there is no difference what the revenue formula is, who spends what.
I don't disagree with this. But my reasons aren't arbitrary, or meant to do it just "because thats how. . . " Perhaps the reasons aren't very good, but certainly not chosen randomly.

This is a different discussion you are venturing into. Federal, State and local govts can discuss whatever formula they choose without any subsidies being removed. It is simply a case of increasing the percentages that go to State and local govt. implying a lesser percentage for central government. This may or may not improve states at the local level but can be implemented with the current subsidies remaining in place.

At the end of the day, the new ACN governors must prove themselves just as Fashola as done. That they are in ACN does not automatically translate to good governance. Afterall, not all PDP governors are completely incompetent. Ameachi and Chime seem to be doing well, according to those on the ground. I am certainly for de-centralisation.

I am neither for centralization nor decentralization.
In the Nigerian system it makes no difference.
whatever the system, we must fashion a way to hold our leaders accountable.
That is the crux of the matter.

mbulela:

I am neither for centralization nor decentralization.
In the Nigerian system it makes no difference.
whatever the system, we must fashion a way to hold our leaders accountable.
That is the crux of the matter.

I agree that Nigerians need to to hold their leaders accountable. Having said that, centralisation makes it easier for those without a base to hold the nation to ransom. OBJ is a very good example of that. You get so powerful at the center yet you lose elections in front of your house repeatedly. The complex nature of Nigeria makes centralisation un-workable. Centralisation has not worked and needs to be changed for something better like true federalism or confederationism.

Katsumoto:

This is a different discussion you are venturing into. Federal, State and local govts can discuss whatever formula they choose without any subsidies being removed. It is simply a case of increasing the percentages that go to State and local govt. implying a lesser percentage for central government. This may or may not improve states at the local level but can be implemented with the current subsidies remaining in place.

Not quite. There are limitations to how much exactly the FG can cede to the states and LGs. Military defense spending, various other things it must keep. Subsidies are also part of its portfolio, one which it spends $4 billion+/year on. So while subsidies remain, there is only so much you can shrink the size of the FG.

So naturally one asks, "OK, is the best use of this $4 billion+ that the FG is spending to subsidize petrol?" I guess most of you think it is, or that it is better for this money to be spent subsidizing fuel than say distributed to states.

^^^

So why is subsidy for oil production good for the US, but very bad for Nigeria?

zstranger:

^^^

So why is subsidy for oil production good for the US, but very bad for Nigeria?

I thought we are talking about subsidies for oil consumption, not production?

ekt_bear:

I thought we are talking about subsidies for oil consumption, not production?

Well, so you are not opposed to subsidy for production?

Forget this nonsense. The IMF's practically telling us to go and burn down our refineries because they are making gas as cheap as it is. We should build more refineries, no doubt, but the government should stop spending on that good for nothing subsidy that only serves to further debt and to limit the amount we can spend on power, infrastructure, education and health.

zstranger:

Well, so you are not opposed to subsidy for production?

You have to be more specific than that. . . tell me what the situation is and I'll give you my opinion.

I'm generally against subsidies, but it depends on exactly what the situation looks like, why the subsidy is happening, etc.

ekt_bear:

I thought we are talking about subsidies for oil consumption, not production?

The CEOs of the top five Oil companies went before congress yesterday to argue against losing the tax breaks they receive for oil production. They argued that removing the tax breaks will result in an increase in price at the pumps. Subsidies whether for production or consumption, have the same effect - lower prices at the pumps which has a trickle down effect.

ekt_bear:

Not quite. There are limitations to how much exactly the FG can cede to the states and LGs. Military defense spending, various other things it must keep. Subsidies are also part of its portfolio, one which it spends $4 billion+/year on. So while subsidies remain, there is only so much you can shrink the size of the FG.

So naturally one asks, "OK, is the best use of this $4 billion+ that the FG is spending to subsidize petrol?" I guess most of you think it is, or that it is better for this money to be spent subsidizing fuel than say distributed to states.

You are guessing here. Please use real figures. Besides, the federal govt. can devolve more powers to state and local government and cede more funds to them to provide those services. The Nigerian govt. doesn't need to be involved in everything it is currently involved in. The subsidies are part of the budget and can remain part of the budget. You make it seem like the budget and everything else is hinged on subsidies.

ekt_bear:

You have to be more specific than that. . . tell me what the situation is and I'll give you my opinion.

I'm generally against subsidies, but it depends on exactly what the situation looks like, why the subsidy is happening, etc.

So you think the capitalist countries that have different forms of subsidies don't know what they are doing?

Katsumoto:

The CEOs of the top five Oil companies went before congress yesterday to argue against losing the tax breaks they receive for oil production. The argued that removing the tax breaks will result in an increase in price at the pumps. Subsidies whether for production or consumption, have the same effect - lower prices at the pumps which has a trickle down effect.

I was going to post the same thing exactly.

Katsumoto:

The CEOs of the top five Oil companies went before congress yesterday to argue against losing the tax breaks they receive for oil production. The argued that removing the tax breaks will result in an increase in price at the pumps. Subsidies whether for production or consumption, have the same effect - lower prices at the pumps which has a trickle down effect.

Alright, so there appears to be some subsidization of petrol through these tax breaks. Yet, there are heavy, heavy taxes on gas I buy at the gas station. So aggregating these two effects, I don't think that oil is subsidized here. In fact it is heavily taxed. Or are you claiming otherwise?

You are guessing here. Please use real figures.

Nope, see the first post in this thread. $350 million/month. . . .assuming that month is representative, that is $4.2 billion/year.

Besides, the federal govt. can devolve more powers to state and local government and cede more funds to them to provide those services. The Nigerian govt. doesn't need to be involved in everything it is currently involved in. The subsidies are part of the budget and can remain part of the budget. You make it seem like the budget and everything else is hinged on subsidies.

See above. $4+ billion a year on petrol subsidies certainly constrains how small you can make the FG.

Katsumoto:

So you think the capitalist countries that have different forms of subsidies don't know what they are doing?

As I said, I'm generally against subsidies, but i think it makes more sense to judge on a case-by-case basis, rather than blindly saying "yay" or "nay."

ekt_bear:

Alright, so there appears to be some subsidization of petrol through these tax breaks. Yet, there are heavy, heavy taxes on gas I buy at the gas station. So aggregating these two effects, I don't think that oil is subsidized here. In fact it is heavily taxed.

Are you really sure of this?

Take a look at this:

http://www.cbo.gov/ftpdocs/67xx/doc6792/10-18-Tax.pdf

According to that report, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9.2 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.

What does that mean to you?

ekt_bear:

Alright, so there appears to be some subsidization of petrol through these tax breaks. Yet, there are heavy, heavy taxes on gas I buy at the gas station. So aggregating these two effects, I don't think that oil is subsidized here. In fact it is heavily taxed. Or are you claiming otherwise?

If there are no subsidies in the US, why do you pay an average of $4 per gallon in the US, CAD $6 per gallon in Canada, and $9 in the UK? They all have oil. The US has one of the heaviest oil subsidies in the world.

ekt_bear:


Nope, see the first post in this thread. $350 million/month. . . .assuming that month is representative, that is $4.2 billion/year.
See above. $4+ billion a year on petrol subsidies certainly constrains how small you can make the FG.

I am not just talking about the figures for the subsidy; I am talking about the entire budget. Like I said previously, the decision to remove/reduce must be part of an holistic approach. You can't address the subsidies in isolation.

@zstranger & Katsumoto: Hrm, I thought in the aggregate oil is taxed here rather than subsidized. I might be wrong though. . . let me see if I can find a good article breaking it down and saying how much oil would cost with no subsidies.

Katsumoto:

I am not just talking about the figures for the subsidy; I am talking about the entire budget. Like I said previously, the decision to remove/reduce must be part of an holistic approach. You can't address the subsidies in isolation.

This was to address the "you are guessing" comment.

I'm not sure that the size of these corporate tax breaks/subsidies is that huge. The aggregate value of these subsidies Obama is proposing to eliminate seems to be under $5 billion/year:
http://www.cato.org/pub_display.php?pub_id=13071

Given that we consume roughly 20 million/barrels a day (http://en.wikipedia.org/wiki/Energy_in_the_United_States#Oil_consumption), this is roughly 68 cents per barrel of oil (price of oil is north of $100/barrel.)

I'd imagine that the amount of state/federal taxes the consumer pays outweighs this 68 cents/barrel figure. . . so I'm not sure the overall effect is a subsidy.

It does look like the oil companies get a bunch of other benefits that could be considered subsidies, though: http://www.cato-at-liberty.org/how-large-are-federal-oil-subsidies/

Hrm, see this graphic: http://tonto.eia.doe.gov/energyexplained/images/charts/breakdown_regular_gasoline-large.gif

(from here: http://tonto.eia.doe.gov/energyexplained/index.cfm?page=gasoline_factors_affecting_prices)

And this article too:
http://www.americanthinker.com/2011/05/about_those_oil_subsidies.html

So I think we've pretty thoroughly debunked the notion that petrol is subsidized in the US, yes? State and federal taxes on the consumer seem to vastly outweigh whatever subsidies the oil companies get.

Katsumoto:

If there are no subsidies in the US, why do you pay an average of $4 per gallon in the US, CAD $6 per gallon in Canada, and $9 in the UK? They all have oil. The US has one of the heaviest oil subsidies in the world.

Bolded is 100% incorrect.

http://www.bloomberg.com/news/2010-09-03/nigeria-aims-to-end-oil-subsidies-within-6-months-finance-minister-says.html


Nigeria to End Fuel Subsidies by End of 2011 at the Latest, Aganga Says
By Philip Sanders - Sep 3, 2010 11:30 AM CT


Nigeria’s government is aiming to remove subsidies on domestic fuel prices by the end of next year at the latest after investing in a mass transit system to ease the impact on the poor, Finance Minister Olusegun Aganga said.

“It is going to be sooner rather than later,” Aganga said in an interview in London today. Everything will be ready “by the end of 2011 at the latest. It could be this year.”

The subsidies will cost the government 520 billion naira ($3.4 billion) this year, compared with 1 trillion in 2009, central bank Governor Lamido Sanusi estimated in June. That compares with a federal budget deficit of 1.9 trillion naira this year, which Aganga said today he wanted to narrow in 2011.

[size=18pt]The abolition of the subsidy would increase gasoline prices to 115 to 120 naira a liter from 64 naira currently, Aganga said.[/size]

“If that happened, it would be a big shock to the system,” he said.

Nigeria, Africa’s biggest oil producer, imports more than 80 percent of its domestic fuel due to a lack of refining capacity, according to the country’s Petroleum Ministry. The government, through the Nigerian National Petroleum Corp., guarantees regulated fuel prices by paying importers the difference with market prices.

Mass Transit

Crude oil for October delivery declined $1.33, or 1.8 percent, to $73.69 a barrel at 12:14 p.m. on the New York Mercantile Exchange. Nigeria’s budget estimated an average oil price for the year of $60 a barrel.

About 10 billion naira has been earmarked to improve public transportation and many buses have already been ordered, Aganda said.

The government is also in talks with labor unions to gain their support and avoid social unrest, he said. “I think we are making very good progress” in the talks.

[size=18pt]“Everyone accepts that there is no economic sense to maintaining subsidies,” Aganga said. “The question is, what would be the impact of removing the subsidy on those that you want to protect, the most vulnerable in society?”[/size]