Below is my response to the following thread

Nigeria Spends N72.8bn Monthly On Fuel Subsidy
https://www.nairaland.com/nigeria/topic-746266.0.html#msg9024300


I agree with Kobojunkie and strongly disagree with ekt_bear and friends.


This is all basic mathematics. Anyone who went to school will work out that this fuel subsidy noise is a LIE or at best gross exaggeration.

FIRST OF ALL, ANYONE WHO TELLS YOU THAT NIGERIA SPENDS $500 million ON FUEL SUBSIDIES MONTHLY IS A THIEF.

This is basic mathematics and a fact.
They can claim that the give out $500 million in subsidy money monthly. That is between them and their thieving companies and friends.

Let's break it down:

Nigeria produces crude oil. Other countries produce crude oil.
Nigeria has 4 refineries with total installed capacity of 445,000 barrels per day (or whatever the NNPC claims nowadays).
Nigeria's refineries are not working at full capacity.
Crude oil is refined to PMS (Premium Motor Spirit) aka Petrol.
Nigerians use PMS to fuel vehicles, generators and other things.
PMS is traded internationally at a particular rate that varies.
Other countries that produce Crude oil refine it and sell to their citizens at whatever rate they please (irrespective of international rates).
Nigeria monthly PMS consumption = Locally refined + Imported refined (at International Rates)
Nigeria sells PMS to citizens for N65/litre
Subsidy = Amount paid to PMS importers for difference between International Rates for Imported Refined and N65/litre.

Example = Importers buy fuel internationally today from Venezuela at N120/ litre for example, they bring into Nigeria and sell for N65/litre. In order for said Importers not to lose N55/litre, the Nigerian Government pays N55/litre balance. This balance is the SUBSIDY.

Problem 1: Due to corruption, Nigerian officials collude with Government officials and claim to have imported more fuel than they actually bring in.

Example: Mr. Otedola's company may only bring in 1 million litres per day but claim to bring in 2 million litres per day. And like in previous example, The Government officials will pay N110 million per day (N 55/litre subisdy x 2 million litres) instead of N55 million (N55/litre subsidy x 1 million litres).

Problem 2: Due to corruption, Fuel importers collude with Nigerian National Petroleum Corporation (who by the way are in charge of the locally refined) and Government officials to buy the Locally refined and claim that the said quantities of petroleum where in fact imported into the country at international rates.

Example: Ms. Deziani's accomplices may buy 1 million litres per day of petroleum from the NNPC for N65 million and then claim that this quantity was bought at N120 million internationally (N120/litre international rate x 1 million) . They would then proceed to collect N55 million (N120 milion - N65 million) from the Nigerian Government as subsidy payment.

Problem 3:Due to corruption and inadequate monitoring, Fuel importers collude with Nigerian National Petroleum Corporation (who by the way are in charge of the locally refined) and Government officials to fraudulently under-report the quantities of locally refined PMS so they can purchase the more from the local refineries and claim to have imported said quantities (problem 2)

Example: The NNPC may claim to refine only 2 million litres per day when it in fact refines 4 million litres per day. The remaining 2 million litres would then be sold to their partners in crime at N65/ litre. These partners will proceed to sell these quantities to the Nigerian populace while demanding N55 subsidy per litre from the Nigerian Government after claiming that this 2 million litres/day were imported from Venezuela or other country. This example is highlighted by the inability of the NNPC to give account of the actual quantities it refines daily.


Therefore taking into consideration that

Subsidy = Amount paid to PMS importers for difference between International Rates for Imported Refined and N65/litre.

and the extent of problems 1, 2, and 3, it becomes easy to see why the true cost to Nigeria of the fuel subsidy may not exceed $100 -$150 million/ month.

Once again, I put forward that

ANYONE WHO CLAIMS THAT NIGERIA TRULY SPENDS $500 million ON FUEL SUBSIDIES MONTHLY IS A THIEF.


Why do Nigerians need a fuel subsidy??

Do average Nigerians really benefit from a fuel subsidy??

Interesting questions. Let me rephrase that.

Do average Nigerians benefit from buying PMS at N65/litre instead of N120, N130, or N140/litre
I think a monkey can answer that.

1. The average Nigerian buys PMS to fuel his/her car i.e N500 daily.
2. The average Nigerian takes public transport in vehicles that use PMS at certain amount i.e N50 per trip.
3. The average Nigerian buys PMS to fuel his generator i.e N1000 daily.
4. The average Nigerian buys food (bread, vegetables, fish) which is transported across the country in Vehicles that use fuel.

No subsidy equals

1. The average Nigerian needs PMS worth N1000 for his/her car daily.
2. The average Nigerian takes public transport at a new amount i.e N80 per trip.
3. The average Nigerian buys PMS to fuel his generator i.e N2000 daily
4. The average Nigerian buys food (bread, vegetables, fish) at a much higher price.

it doesn't take a genius to figure out that the average Nigerian benefits significantly from the lower cost of PMS.

It would be hard to find a Nigerian in Nigeria who wants the price of PMS to rise. It is a slap in the face of average Nigerians for ekt-bear and friends to claim that removing the subsidy will not have a tremendous negative impact on Nigerians. It is easy to sit in the U.S.A and claim that doubling the price of PMS in Nigeria will have no impact on the populace. Akin to saying an increase in gasoline prices in the U.S.A to $7/gallon today will have no significant effect on the populace.

Does corruption allow unscrupulous individuals to benefit from the subsidization of PMS?? Yes.
But why does the average Nigerian have to get shafted for this?? Why not tackle corruption instead??

Solutions.

A. Ascertain the true quantities of PMS locally produced daily.
B. Ascertain the true total quantities of PMS consumed daily nationwide.

Subract A from B and arrive at the true quantity of PMS imported at international rates (This value will then be subsidized)

By tackling corruption, the cost of subsidization can be brought down to no more than $100 million per month.


Solution Part 2 - By bringing refineries to optimum operating capacity and building new refineries.
Locally refined PMS can exceed Locally consumed PMS.

Mythical Solution= Remove the subsidy and hope that the supposed $500 million/ month that is currently being used to compensate corrupt entities will translate into development and improvement for the average Nigerian.

The question now remains, does increasing the burden on the average Nigerian guarantee the resolution of the problem??


PS: Problem 4: Overestimating the total nationwide PMS consumption allows fuel importers and the NNPC to further perpetrate fraud.


Also, please note that selling locally refined PMS at N65/litre is still a profitable venture for the NNPC.



Thank you for reading.

Abacha-era rates of inflation are in the offing if fuel subsidy is removed.

A country which due to corruption cannot refine its own crude oil should not be talking about subsidy in the first place. The square root of everything in Nigeria is corruption

Whats all the noise about the fuel subsidy? I am yet to find any instance where its been announced that the subsidy is going to be removed without certain economic conditions being met; there is also no fixed date.
We Nigerians are always guilty of taking third hand gist which has lost all accuracy as fact.

@ OP,

Good points. Not much more to add.

You are very right mr poster

Beaf:

Whats all the noise about the fuel subsidy? I am yet to find any instance where its been announced that the subsidy is going to be removed without certain economic conditions being met; there is also no fixed date.
We Nigerians are always guilty of taking third hand gist which has lost all accuracy as fact.

I assume you have first hand gist seeing that you just came back from lunch with the GEJ Economic Team spare us some braincells and tell us what exactly went on about fuel subsidy

God bless you Jensinmi

Does that mean everybody most agree with you? Though, I'm not an economist nor good in economics that doesn't deny the fact subsidy is an economics term. And, it something that needs to be addressed if needed be.

I disagree with some people views on the issue. I can't disagree more that corruption is all encompassing but subsidy is not mutually exclusive.

Nice write-up poster. I have been slightly behind on Nigeria news. Do we really spend $500m per month on fuel subsidies? From my background, I know we can build a 100,000 bbl/d capacity refinery for anything between $1B and $1.5B. That is subsidy for just 2-3 months (on the high end).

I may have to do a little research on this but it will be nice to know how much it costs Venezuela to produce 1 litre of PMS. If the landing cost to Nigeria is about N120, is it fair to say the total production cost is in the neighborhood of N80? (Again, I need to do some homework here). My point is: If it is anything in the range of N80 to purchase and refine crude (plus the profit margins) for 1 litre of PMS, then it makes so much more sense to divert the so-called subsidies to the construction of modern and easier-to-manage refineries in Nigeria. Besides the jobs that will be created and the foreign currency flight that would be averted, govt. will actually be saving more money (which is needed in other sectors).

Although I am strongly against government ran companies, one possible thing govt. can do is to guarantee loans (cheap loans) for individuals to do this. But like the OP said, there seems to be loads of special interests in Abuja. So yeah, we may be on this importation and subsidy thing for a while.

On another angle, WHY (and this is really in CAPS) would a govt., shamelessly opt to withdraw subsidies from products as important to the average citizenry as PMS (and its likes) without doing something first to fix the reasons behind the subsidies? If we had functioning refineries, there wouldn't be any need for big subsidies (or any at all). So why not make concerted efforts to improve local refining capacity; that way we would be killing so many birds with just one stone: Importation will be gone, subsidies will be done with, employment will improve, tax revenue will improve, foreign revenue might improve (if we sell our surplus) and the bye-products of refining can be used in many other sectors like agriculture, pharmaceuticals, and construction. Phew! I tire for naija oh!

When you guys are ready to rebel like the rest of the world call me. Till then I doesnt matter what the government does. Staying silent while your government rmisusess  your resources only makes you an acomplice. So till then let them steal, subsidy or no subsidy.

Maybe this will make the masses to take to the streets, Just like the Arab spring, Just maybe. But then again, Nigerians are the best at suffering and smiling!

@poster-every explicit-true talk.
1st thing 1st.NNPC should report the true status of the four refineries.only then can the Nation be in the right direction for subsidy or not and besides, I think this is an avenue for corrupt Nigerians to benefit from the importation of PMS and that goes to say while our refineries would never be at its maximum production capacity and the delay in building the green filed refineries.
Finally, if I may ask, who has the license for the importation of the PMS? who are these marketers? find out please.I wont be surprise to find out that na dem dem.

It amuses me when some Nigerians say Libyans were in a bondage under Gadaffi.
Who is in a bondage? Nigerians or Libyans?
In libya, there is no power failure but in Nigeria, we pay for darkness.
In Libya, water run through the tap free for 24 hours but in Nigeria, we pay for water.
In Libya, University Education for citizens is free but in Nigeria, they increase tuition fee every year.
In Libya, above 85% of graduate are gainfully employed but in Nigeria, masters holders talkless of graduates are Okada riders.
In Libya, the roads are motorable but in Nigeria, our roads are death traps.
In Libya, healthcare is free for all citizens irrespective of the ailment with quality free drugs but in Nigeria, the only affordable healthcare is " herb sellers".
We said we are in democracy which gurantees peaceful protest and assembly, but some Unemployed Nierian graduate wanted to stage a peaceful protest but police said they need a police permission that can never be given by the police and if they go ahead, they will all be arrested.
NOW, WHO IS THEN IN A BONDAGE? NIGERIANS OR LIBYANS?
PLEASE ANSWER PEOPLE WHO HAVE BEN RULED FOR OVER 16 YEARS BY FOOLS. IN A BONDAGE? NIGERIANS OR LIBYANS?
PLEASE ANSWER PEOPLE WHO HAVE BEN RULED FOR OVER 16 YEARS BY FOOLS.

@OP, nice write up however, that math maybe a lil flawed.


How did you draw the conclusion that Nigeria does not spend such amount when you did not provide the volume of petrol imported daily. Although I do agree that $500 might be on the high side, however, this does not answer the question of the importation volume.

I do acknowledge the corruption part like you stated a company imports 1million barrel and put claims for 2million barrels to get claim for that amount, believe it or not, that other 1million has been accounted for in the federal purse.

na 9ja dey bondage

Hi Jensinmi, others, it is true that removal of the subsidy will be a slap to the faces of Nigerian citizen (of which I am one, even though I travel out about 6mths in a yr to other African countries and to the USA/UK for business, so will bear "half the effects" so to speak). However lets look at it from a different angle.

I think this may be a move to checkmate the importer/sellers who are cheats. Think about it.

You mentioned that Otedola brings in 1million litres but says he brought in 2million, so the govt has to pay him for an additional 1 million right? Well that's because the govt is the one paying (through subsidy) for fuel that will be used, but has not even been sold to the citizens yet (or even if it has been sold, there is no way to prove he didnt bring in 2 million). Now if the subsidy is removed, and the price goes up (i.e. the citizens are the ones paying directly), there is no way an oil importer/seller can "sell 2 million litres" to the citizens when they only "brought in 1million". (Well, they could by "putting something else to make the fuel go up to 2 million litres, which would mean adulterated fuel, but thats a totally different discussion). So basically Otedola/importers/sellers cant get/embezzle the money through "over-quoting for subsidy ".

The down/negative side is that the citizen pay for it through their little & hard earned wages, and even though our country drills/produces oil, we are not benefiting from it (since no more subsidy, which for now looks like the only way citizens benefit from the oil Nigeria drills).  

Another down/negative side to this is that this doesn't stop corruption in the form of embezzlement of the revenue from the oil directly (without having to use "over-quoting tactics to take advantage of subsidy"    

What do you guys think? Lets discuss . . .

Kolababa:

It amuses me when some Nigerians say Libyans were in a bondage under Gadaffi.
Who is in a bondage? Nigerians or Libyans?
In libya, there is no power failure but in Nigeria, we pay for darkness.
In Libya, water run through the tap free for 24 hours but in Nigeria, we pay for water.
In Libya, University Education for citizens is free but in Nigeria, they increase tuition fee every year.
In Libya, above 85% of graduate are gainfully employed but in Nigeria, masters holders talkless of graduates are Okada riders.
In Libya, the roads are motorable but in Nigeria, our roads are death traps.
In Libya, healthcare is free for all citizens irrespective of the ailment with quality free drugs but in Nigeria, the only affordable healthcare is " herb sellers".
We said we are in democracy which gurantees peaceful protest and assembly, but some Unemployed Nierian graduate wanted to stage a peaceful protest but police said they need a police permission that can never be given by the police and if they go ahead, they will all be arrested.
NOW, WHO IS THEN IN A BONDAGE? NIGERIANS OR LIBYANS?
PLEASE ANSWER PEOPLE WHO HAVE BEN RULED FOR OVER 16 YEARS BY FOOLS. IN A BONDAGE? NIGERIANS OR LIBYANS?
PLEASE ANSWER PEOPLE WHO HAVE BEN RULED FOR OVER 16 YEARS BY FOOLS.

At lease in 9ja you can post some rubbish on NL and blast the govt. in power. you can call GEJ all type of names as you like .Can you really do that with Mr. G. from Libya

@poster, why not agitate for more schools and hospitals to be built instead of clamouring for fuel subsidies?  Once the oil runs out (and it will)  where are you going to get your subsidy?   That is why I sometimes wonder at our people who never seem to think about the future.  You should also ask yourself how the common man in Nigeria  was able to survive in the 1950s and 60s when there was no oil boom and no fuel subsidy.   Just look around you at your neighbours like Benin Republic and Cameroon.  They don't have any subsidies yet they  manage their affairs better than us, and  a large percentage of our subsidised fuel is in fact smuggled across the border to them.   Instead of demanding  fuel subsidy in return for an incompetent and corrupt government, do things differently and demand good governance and accountability from your leaders for the sake of your childrens future.  What is the point of fuel subsidies when most of your young people are unemployed and roaming the streets,  your schools and hospitals are like cattle sheds, and your roads are death traps? Are those not bigger slaps on the face of the average Nigerian?

plutonian:

Hi Jensinmi, others, it is true that removal of the subsidy will be a slap to the faces of Nigerian citizen (of which I am one, even though I travel out about 6mths in a yr to other African countries and to the USA/UK for business, so will bear "half the effects" so to speak). However lets look at it from a different angle.

I think this may be a move to checkmate the importer/sellers who are cheats. Think about it.

You mentioned that Otedola brings in 1million litres but says he brought in 2million, so the govt has to pay him for an additional 1 million right? Well that's because the govt is the one paying (through subsidy) for fuel that will be used, but has not even been sold to the citizens yet (or even if it has been sold, there is no way to prove he didnt bring in 2 million). Now if the subsidy is removed, and the price goes up (i.e. the citizens are the ones paying directly), there is no way an oil importer/seller can "sell 2 million litres" to the citizens when they only "brought in 1million". (Well, they could by "putting something else to make the fuel go up to 2 million litres, which would mean adulterated fuel, but thats a totally different discussion). So basically Otedola/importers/sellers cant get/embezzle the money through "over-quoting for subsidy ".

The down/negative side is that the citizen pay for it through their little & hard earned wages, and even though our country drills/produces oil, we are not benefiting from it (since no more subsidy, which for now looks like the only way citizens benefit from the oil Nigeria drills).  

Another down/negative side to this is that this doesn't stop corruption in the form of embezzlement of the revenue from the oil directly (without having to use "over-quoting tactics to take advantage of subsidy"    

What do you guys think? Lets discuss . . .

Even though your proposed govt strategy is flawed, does it make sense to stop corruption by inflicting more suffering on the masses?
That would be very foolish by any administration.

Nigeria is not even united enough to carry out a revolution. Or have the cahonas to produce a Rawlings.

boy t:

At lease in 9ja you can post some rubbish on NL and blast the govt. in power. you can call GEJ all type of names as you like .Can you really do that with Mr. G. from Libya

How many Libyan forums have you been on?

Mr. OP, You made a very tedious effort in your presentation of this topic and I must commend your effort; in summary you believe to have given cogent reasons why the Fuel Subsidy must live on. Let me rehash,

[ Subsidy = PMS Landing Price - Subsidized Price ]

*Subsidized Price*
The price you and I pay for fueling our cars, generators etc. This price is a shelter provided by FG to shelter Nigerians from paying the PMS prices that are obtainable internationally.

*Subsidy*
The price difference paid to the importers of PMS to keep the subsidized price which is currently N65 per litre. It is important to note that this difference is borne by Income Tax of Working Nigerians (the real burden of subsidy as it stands today, hence why are we averse to it).

*PMS Landing Price*
The price at which the NNPC offloads refined PMS from importers for distribution around the country,  Assuming the Landing price of PMS is N120

Thus, Subsidy = N(120 - 65) i.e N55.

Your claims are as follows:
a. Importers declare more volume than is actually offloaded.
b. NNPC is under-reporting local production of PMS
c. NNPC officials & Importers are selling our excess production back to us.

Fair enough, this is corruption and it happens everywhere, not just Nigeria. However my problem and indeed your problem and the problem of every Nigerian is: "how do we quell this corruption"

1. The first claim - 'a' could be sorted out if the NNPC/importers are properly audited.

2. The other claims 'b & c' are there because the subsidy is the attraction. Remove subsidy and your "corrupt" NNPC officials wont have any gain from under-reporting production.

That said the dynamics of subsidy is such that once removed, there will be a surge in PMS price which will spillover to the rest of consumer prices in Nigeria. Indeed it will be painful (at first), but we are already paying twice for it now in the form of so-called "subsidy" [see *subsidy* above], in the form of unemployed youths that could be taken up at the refineries, in the form of forex that we are losing to importers instead of earning from the exports of refined PMS, etc.


Removing the subsidy will really help this country in the long run. But we must immediately figure out a way to resurrect our refineries FAST so that local production will assuage the lack of subsidy to a price of about N80 which oil producing nations currently enjoy from their own refineries.

I typed this in a hurry, would have loved to elaborate more, but if I have the energy and time, i'll definitely come back to this tomorrow.

Thanks OP. This is an IMF directive, I'm sure. The amount churned out by our FG is a ruse. I have always known that. In politics, it's called spinning.

Also, they should start their belt-tightening effort from the ever-increasing recurrent budget.

Yeye people.

Nigeria today is the only country in Africa, except Somalia, that does not have any welfare system of any kind for its citizens. Yet JEG currently was bragging about Nigeria being second to only Saudi as the world's (OPEC) largest oil producer AND THEY WANT TO REMOVE SUBSIDY, THE ONLY GOD'S GIVEN WELFARE TO NIGERIANS? Very wicked, very wicked indeed. PLS SEE PIC FOR YOUR SELVES. Thank you OP, and forget about those who did voted JEG but not PDP.

How is Togo, Benin republic, Niger, Chad etc surviving without petrol subsidies? I want to know! A situation where petrol sells for N65 per liter in Nigeria yet costs N200 equivalent per liter across the border should be obvious to anyone that it will induce massive smuggling which is going on. The FG will never be able to stop it. Even the US cannot stop drug smuggling due to massive profits in the illegal trade

As for the refineries, how will they work when they are run by incompetent and corrupt politicians and civil servants? Would we be talking about refineries not working if they were run by the likes of Shell, ExxonMobil or Oando? Why have these companies refused to invest in refining capacity? Will they invest in an industry where the prices of refinery inputs are set in the international market yet the price of the output is fixed by populist political fiat?

Its similar to how fertilizer is allegedly being subsidized and yet farmers are paying three times the price, the product is scarce and yet subsidies are still being paid. Nigerians will never learn. Corruption will never make any social endeavor / goods / services work as intended in Nigeria and you will never be able to eliminate corruption in Nigeria! it has become a national pastime!

kalokalo:

How is Togo, Benin republic, Niger, Chad etc surviving without petrol subsidies? I want to know! A situation where petrol sells for N65 per liter in Nigeria yet costs N200 equivalent per liter across the border should be obvious to anyone that it will induce massive smuggling which is going on. The FG will never be able to stop it. Even the US cannot stop drug smuggling due to massive profits in the illegal trade

Please, help a brother. Tell me one oil-producing country without petro subsidy.

If none, how do these countries (e.g Saudi) ensure that these products do not get smuggled across their border to their neighbours who don't have these products in their backyard?

Are you saying Nigerians must always pay for the inability of their government to combat corruption? The US example is just disingenuous.

How come there is no subsidy in Ghana, Benin, Togo et al and their people are not dying like fleas on the road sides?? I have been to Ghana 3 times and the price of petrol there if i remember correctly was about N110 when converted, but are there not thousands of Nigerians living there?? Are many companies not relocating there?? Why are we so paranoid about this fuel subsidy thing? We wont die!! And rather, it will help the industry and Nigeria as a whole to be more efficient.

I am not saying that removing the subsidy will not bring some hardship for a number of people. It will! However, in the LONG run for Nigeria - for the sake of more transparency, less corruption, more efficiency - it is more better to remove the subsidy. Subsidy may work elsewhere, but in Nigeria, because of our warped values of egoism, greed, big manism etc, we will almost always corrupt the process, and when a subsidy process gets corrupted, the outcome is often worse (in the long run) than if the subsidy had not been implemented.

For eg, we have subsidised electricity over the years and that made it impossible for it to be deregulated. The lack of deregulation meant that it stayed with govt. The fact that it remained with govt meant that it became run down. The fact that it was run down meant electricity supply to Nigerian's went down from about 20hrs on average in the early eighties to perhaps about 6hrs today. This meant that the cost of manufacturing went up. That meant that many factories closed down (and moved to Ghana, which incidentally has higher cost of electricity, but more stable). Which meant that hundreds of thousands of breadwinners lost their jobs. Which meant poverty pervaded the land. Which meant that many more social vices (419, prostitution, runs - informal prostitution amongst our university girls, robbery) became the norm. And where are we today??

Now assume PHCN had been deregulated in 1980! Wouldn't the picture above have been very different?

I don't know about you guys, but I'd rather have a good job at Dangote electricity (for example) and be able to afford non subsidised electricity and fuel, than work at PHCN and by praying for govt never to deregulate power and fuel.

For more of my thoughts, please see related articles in my blog:

http://wayforwardnaija..com/2009/04/nigeria-plc.html

http://wayforwardnaija..com/2010/07/nlc-and-labour-unions-always-in-our.html

@Beaf
Given d past experiences especially during Obasanjo era, you don't need to b schooled to know d. govt mind.
You may wake up tommorow morning and behold! The new pump price of pms is now N150!
While I'm very hopeful about d distant future of nigeria and nigerians,
However,I will b foolish to expect any meaningful changes from these "Vagabonds in Power" as Fela will put it.
Less than one percent of Nigerians are holding d rest of us to ransome.
The same set of people are every where and in charge of every facet of our economy buying every public asset for peanut under d guise of privatisation.As a thank you gift for those who donated to PDP during election, they needed to recoup their investment by acquiring public assets at a give away price. D wrath of God shall descend on all of them.
Meanwhile, we  may need to adopt Ghana-like revolution to get back our sanity

jensinmi:

Below is my response to the following thread

Nigeria Spends N72.8bn Monthly On Fuel Subsidy
https://www.nairaland.com/nigeria/topic-746266.0.html#msg9024300


I agree with Kobojunkie and strongly disagree with ekt_bear and friends.


This is all basic mathematics. Anyone who went to school will work out that this fuel subsidy noise is a LIE or at best gross exaggeration.

FIRST OF ALL, ANYONE WHO TELLS YOU THAT NIGERIA SPENDS $500 million ON FUEL SUBSIDIES MONTHLY IS A THIEF.

This is basic mathematics and a fact.
They can claim that the give out $500 million in subsidy money monthly. That is between them and their thieving companies and friends.

Let's break it down:

Nigeria produces crude oil. Other countries produce crude oil.
Nigeria has 4 refineries with total installed capacity of 445,000 barrels per day (or whatever the NNPC claims nowadays).
Nigeria's refineries are not working at full capacity.
Crude oil is refined to PMS (Premium Motor Spirit) aka Petrol.
Nigerians use PMS to fuel vehicles, generators and other things.
PMS is traded internationally at a particular rate that varies.
Other countries that produce Crude oil refine it and sell to their citizens at whatever rate they please (irrespective of international rates).
Nigeria monthly PMS consumption = Locally refined + Imported refined (at International Rates)
Nigeria sells PMS to citizens for N65/litre
Subsidy = Amount paid to PMS importers for difference between International Rates for Imported Refined and N65/litre.

Example = Importers buy fuel internationally today from Venezuela at N120/ litre for example, they bring into Nigeria and sell for N65/litre. In order for said Importers not to lose N55/litre, the Nigerian Government pays N55/litre balance. This balance is the SUBSIDY.

Problem 1: Due to corruption, Nigerian officials collude with Government officials and claim to have imported more fuel than they actually bring in.

Example: Mr. Otedola's company may only bring in 1 million litres per day but claim to bring in 2 million litres per day. And like in previous example, The Government officials will pay N110 million per day (N 55/litre subisdy x 2 million litres) instead of N55 million (N55/litre subsidy x 1 million litres).

Problem 2: Due to corruption, Fuel importers collude with Nigerian National Petroleum Corporation (who by the way are in charge of the locally refined) and Government officials to buy the Locally refined and claim that the said quantities of petroleum where in fact imported into the country at international rates.

Example: Ms. Deziani's accomplices may buy 1 million litres per day of petroleum from the NNPC for N65 million and then claim that this quantity was bought at N120 million internationally (N120/litre international rate x 1 million) . They would then proceed to collect N55 million (N120 milion - N65 million) from the Nigerian Government as subsidy payment.

Problem 3:Due to corruption and inadequate monitoring, Fuel importers collude with Nigerian National Petroleum Corporation (who by the way are in charge of the locally refined) and Government officials to fraudulently under-report the quantities of locally refined PMS so they can purchase the more from the local refineries and claim to have imported said quantities (problem 2)

Example: The NNPC may claim to refine only 2 million litres per day when it in fact refines 4 million litres per day. The remaining 2 million litres would then be sold to their partners in crime at N65/ litre. These partners will proceed to sell these quantities to the Nigerian populace while demanding N55 subsidy per litre from the Nigerian Government after claiming that this 2 million litres/day were imported from Venezuela or other country. This example is highlighted by the inability of the NNPC to give account of the actual quantities it refines daily.


Therefore taking into consideration that

Subsidy = Amount paid to PMS importers for difference between International Rates for Imported Refined and N65/litre.

and the extent of problems 1, 2, and 3, it becomes easy to see why the true cost to Nigeria of the fuel subsidy may not exceed $100 -$150 million/ month.

Once again, I put forward that

ANYONE WHO CLAIMS THAT NIGERIA TRULY SPENDS $500 million ON FUEL SUBSIDIES MONTHLY IS A THIEF.


Why do Nigerians need a fuel subsidy??

Do average Nigerians really benefit from a fuel subsidy??

Interesting questions. Let me rephrase that.

Do average Nigerians benefit from buying PMS at N65/litre instead of N120, N130, or N140/litre
I think a monkey can answer that.

1. The average Nigerian buys PMS to fuel his/her car i.e N500 daily.
2. The average Nigerian takes public transport in vehicles that use PMS at certain amount i.e N50 per trip.
3. The average Nigerian buys PMS to fuel his generator i.e N1000 daily.
4. The average Nigerian buys food (bread, vegetables, fish) which is transported across the country in Vehicles that use fuel.

No subsidy equals

1. The average Nigerian needs PMS worth N1000 for his/her car daily.
2. The average Nigerian takes public transport at a new amount i.e N80 per trip.
3. The average Nigerian buys PMS to fuel his generator i.e N2000 daily
4. The average Nigerian buys food (bread, vegetables, fish) at a much higher price.

it doesn't take a genius to figure out that the average Nigerian benefits significantly from the lower cost of PMS.

It would be hard to find a Nigerian in Nigeria who wants the price of PMS to rise. It is a slap in the face of average Nigerians for ekt-bear and friends to claim that removing the subsidy will not have a tremendous negative impact on Nigerians. It is easy to sit in the U.S.A and claim that doubling the price of PMS in Nigeria will have no impact on the populace. Akin to saying an increase in gasoline prices in the U.S.A to $7/gallon today will have no significant effect on the populace.

Does corruption allow unscrupulous individuals to benefit from the subsidization of PMS?? Yes.
But why does the average Nigerian have to get shafted for this?? Why not tackle corruption instead??

Solutions.

A. Ascertain the true quantities of PMS locally produced daily.
B. Ascertain the true total quantities of PMS consumed daily nationwide.

Subract A from B and arrive at the true quantity of PMS imported at international rates (This value will then be subsidized)

By tackling corruption, the cost of subsidization can be brought down to no more than $100 million per month.


Solution Part 2 - By bringing refineries to optimum operating capacity and building new refineries.
Locally refined PMS can exceed Locally consumed PMS.

Mythical Solution= Remove the subsidy and hope that the supposed $500 million/ month that is currently being used to compensate corrupt entities will translate into development and improvement for the average Nigerian.

The question now remains, does increasing the burden on the average Nigerian guarantee the resolution of the problem??


PS: Problem 4: Overestimating the total nationwide PMS consumption allows fuel importers and the NNPC to further perpetrate fraud.


Also, please note that selling locally refined PMS at N65/litre is still a profitable venture for the NNPC.



Thank you for reading.

This is the most sense anyone has made on this issue! A critical and unbiased analysis of the situation inter alia, I now have a better understanding of the issue, Thank You!