kalokalo:

[b]The OP's original article is full of misconceptions. The are a lot of fundamental questions that the article's author failed to ask and answer. [/b]The questions and attendant answrs will point to why fuel scarcity/shortages, adulteration, subsidy consistently plague Nigeria while our surrounding West African neighbors do not have the same issues namely:

1) Why is it that only government owned refineries exist in Nigeria? Why have the IOCs/private investors refused to invest in refineries if there is indeed no 'subsidy' and it made business / economic sense to invest in refineries in Nigeria?

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COMPAQ:

Mr kalokalo

very well though out response. It is obvious that you possess sound logical and intellect and that you are very economically sound. I am in support of deregulation also for the LONG term survival of this country. No doubt withough corruption, we'd be better placed to administer subsidy properly, but those arguing that way are only wishful thinkers. A concise analysis of the Nigeria situation suggests that corruption is not going anywhere anytime soon. Therefore we must take on board the policy that serves us best with public sector corruption in mind and that is to bring about private sector transparency, initiative, proactives, investment, technological know how etc. There are lots of things that the private sector gives an economy like ours that the public sector can't do in 2-30 years, transparency, accountability, proactiveness, efficiency, access to modern technology etc are some of them

That is not to say that the private sector is perfect or is free from corruption, but i can safely say the private sector is 100 times better than govt. NITEL provided us with 500,000 lines in about 40 years, GSM provided 100mln in 10! NITEL consumed govt funds, GSM has contributed massively to govt funds, I only knew old people who worked in NITEl but GSM has employed thousands of young graduates, I have never seen our refineries advertise for vacancies, but Shell, Total, NLNG etc regulalry advertise in the papers! And so many more similar stories exist.

The most pertinent of kalokalos questions is question 4. How are we really sure that Nigerian refined petrol will be cheaper than imported petrol? We simply assume that it would be because in the past govt simply allocated crude to NNPC. but in a dregulated system, refiners would have to pay about the same international price for crude. And with the multiple pipline breakages, hostage taking and bunkering we have here in Nigeria, the costs may indeed be more expensive than imported crude, where there are no logistical nightmares in the transportation of crude to and from refineries.

This fuel subsidy issue need to be debated at the highest level and by the sharpest minds so that all the issues, even the minutest ones, can be identified and analysed and solutions proferred. Nairaland is not really the place for such debate because to be honest most people on the forum are not specialised and logical enough to debate properly.

Like I have always said there will be some short term pain, but Nigeria will benefit in the long run. Some people may loose their jobs and never find new ones, but other younger ones will get jobs and it's better to provide a 28 year old man with a job, than keep a 62 year old on the job. What matters is the macro economics and not necessarily the micro (at every individual level).

I don tire to type, nuff said,

rolchi:

May God bless you Sir! Deregulation is the right way. The truth is that the NLC or labour Unions know this but they are just afraid to loose their jobs! Again, like I said earlier somewhere, it is impossible for any level of Government (including the FG) to build an run a refinery under the current arrangement in Nigeria.

Indorama bought the Eleme Petrochemicals in 2006 and as of today, they have stabilized the Plant and are beginning to expand their operations. Notore bought NAFCON and they are still in business today.

The way forward is complete deregulation but the gains far outweigh the seemingly season of pains. If we want to enjoy our "oyel" from upstream, midstream, downstream and backstream we must deregulate now.

Lets' forget all these cries of no road, power, health. This is the way to go. Believe you me. If Nigeria has waited to fix NITEL, we will still be at 500,000 Lines for 160 Mln Nigerians for 51 Years! Where is Mtel that had an automatic license?

Deregulation all the way and may God help GEJ and help us too!

kalokalo:

The OP's original article is full of misconceptions. The are a lot of fundamental questions that the article's author failed to ask and answer. The questions and attendant answrs will point to why fuel scarcity/shortages, adulteration, subsidy consistently plague Nigeria while our surrounding West African neighbors do not have the same issues namely:

1) Why is it that only government owned refineries exist in Nigeria? Why have the IOCs/private investors refused to invest in refineries if there is indeed no 'subsidy' and it made business / economic sense to invest in refineries in Nigeria?

2) If a brand new refinery in built today in Nigeria, at what price would crude be sold to them by the IOCs/JV partners? at what price would they be allowed to sell their refined products i.e crude costs + refining costs+ crude and refined fuel transport costs + VAT/excise charges + bank charges + profit?

3) Would be IOCs agree to sell crude to local refineries at below international market prices considering that they are are tied to long term crude supply contracts to foreign refineries at global spot prices? If they are forced to, would the FG reimburse them of that loss considering that the IOCs are not charities like NNPC?

4) What makes the author think locally refined fuel would be cheaper than foreign ones? Is he vouching that local refineries can run more efficiently than foreign ones? Has he considered the cost of doing business in Nigeria? How many commodities produced in Nigeria are cheaper than foreign sourced identical commodities? What makes refined fuel different?

5) Would we be complaining about refineries not working if they were run by the likes of Shell, Exxonmobil or Oando and not by the corrupt and inept Nigerian government/civil servants?

6) Has any one wondered why food or any economically priced good has never been scarce in Nigeria? Why is there no room for rent seeking or patronage or corruption or fraud in food production or any non-social goods produced by many competing suppliers? Why fuel or electricity or only monopolistic social goods supplied by the Nigerian government?

7) Why cant we ask the government to start forcing every seller of anything in Nigeria to be selling at government dictated prices and then see what happens?

The laws of economics and corrupt average Nigerian's nature will always defeat the most noble social/political goal the FG has when it to comes to the supply of fuel. What works in Saudi or Venezuela or Iran or Libya will not work in Nigeria due to the peculiar Nigerian factor.

sheyguy:

i want 2 disagree wit u on Nitel/GSM.
Nitel's analog/cable and private telecom co. digital/analog telephone services r two entirely diff things when u consider the effort and cost of maintenance. When the GSM co. came they were selling their lines 4 30k but we all know the situation now.
I think competition coupled with cheaper tech and a more transparent NCC  has helped transormed our Telecom sector more than anything. Deregulation or privatization didn't do the magic entirely, it did 25% if u ask me.

If and when we finally to deregulate the oil sector the govt will still be responsible for checking the excesses of a potentially 'corruptable' group of private oil company.

occam:

Misconception is not an appropriate word to us. Some points you raised underscores why graft and inefficiencies in our oil industry are the real culprits; not oil subsidy. Facts presented by the writer supports this point of view

Solving our chronic energy and power problem requires total overhaul of the current system; perhaps even doing away with NNPC and developing an alternative model.

Successive govt have chosen not to tackle corruption in the oil industry but focused instead on oil subsidy reduction. Until we have leadership with a strong will to confront corruption in the oil industry, we'll never move forward.

Simply reducing oil subsidy will never work but only creates hardship for the masses. Continued weakness of the Naira and rising cost of oil in the global market will always defeat the purpose of oil subsidy reduction.

debosky:


Quote
It was apparently not so long after this moment that the nation’s refineries started experiencing operational and maintenance issues!  It goes without saying that the nation’s journey from that moment on, especially with regards to Energy and Power, became a quick downward spiral!

A grossly inaccurate statement. The author himself acknowledges that the PHRC was not finished till 1989 so how could the 'downward spiral' have started in 1986?

The truth is, arbitrary central price control is a haven for corruption in Nigeria because of the lack of transparency. It will always provide opportunity for patronage and outright stealing from the Nigerian state.

debosky:

There are a number of factual inaccuracies in the article, though the main thrust of the article rings true - there is an unbelievable amount of dishonesty and shady dealings in the 'subsidy' being provided.

For example, this issue of Domestic Supply Obligation (DSO) is clearly untrue - since the introduction of the PPRA, the NNPC has been forced to buy crude for domestic refining at the international prices, not at any subsidized price.

The issue of 'depot' charges is a familiar one - the lack of capacity at Atlas Cove and the frequent disruptions have forced importers to build their own depots and jetties and charge back for it. This is not necessarily a 'fraudulent' charge, but is clearly another product of the grossly inefficient distribution network in the country.

kalokalo has raised a number of very valid comments about the subsidy - many of which are not addressed by the author of the initial article.

A grossly inaccurate statement. The author himself acknowledges that the PHRC was not finished till 1989 so how could the 'downward spiral' have started in 1986?

The truth is, arbitrary central price control is a haven for corruption in Nigeria because of the lack of transparency. It will always provide opportunity for patronage and outright stealing from the Nigerian state.

Overwhelmed with the success of the campaign on liberalisation of the downstream sector, the Government on march 8th 2001, set up the Petroleum Products Pricing Regulatory Committee (PPPRC) as an interim measure to carry out the functions of the PPPRA as recommended by the SCRPPSD while waiting for the enactment of the Act of the National Assembly for the setting up of the Petroleum Products Pricing Regulatory Agency (PPPRA) as required in a democratic set up.

The Committee (PPPRC) was inaugurated by the Secretary to the Government of the Federation.

After series of meetings with the stakeholders and the interest groups, the PPPRC recognised that pricing is a condition precedent for deregulation and liberalisation. It therefore, commenced a phased liberalisation of the downstream sector by announcing the selling prices for PMS, AGO and HHK at N 26, N26 and N 24 per litre respectively on January 1st 2001. The consumption tax N 3.00 per litre of product was abolished while the import duty of N 1.50 per litre was introduced. The sale of crude to NNPC at $9.50 per barrel was raised to $18.00 per barrel.

On 2nd July 2003, the import tax of N 1.50 per litre of products was removed to stabilise the selling prices earlier announced to encourage importation of products by other marketers.

The bill for the establishment of the Petroleum Products Pricing Regulatory Agency submitted by Mr. President on March 2001 to the National Assembly was finally passed by the Senate and the House of Representative on February 5th 2003 and May 22nd 2003 respectively. The President accented to the bill in May 2003 and inaugurated the board of the Agency on 19th June 2003.

With the law establishing the PPPRA, the road to full deregulation and liberalisation of the downstream sector became open for all the stakeholders in the sector to play their parts according to the rules and guidelines as would be unfolded by PPPRA based on its functions.

sheyguy:

When u consider the inflation US dollar has gone through in the past in the past 39yrs and use the buying power of the money earned from oil proceeds in the last 10 years against the last 29 years u will quickly come to realize that a faulty the highlighted logic can be.

As a matter of fact last time I checked a US dollar in the 70's can buy 13 Us dollar in 2005.

3) Would be IOCs agree to sell crude to local refineries at below international market prices considering that they are are tied to long term crude supply contracts to foreign refineries at global spot prices? If they are forced to, would the FG reimburse them of that loss considering that the IOCs are not charities like NNPC?

2) If a brand new refinery in built today in Nigeria, at what price would crude be sold to them by the IOCs/JV partners? at what price would they be allowed to sell their refined products  i.e crude costs + refining costs+ crude and refined fuel transport costs + VAT/excise charges + bank charges + profit?

6) Has any one wondered why food or any economically priced good has never been scarce in Nigeria? Why is there no room for rent seeking or patronage or corruption or fraud in food production or any non-social goods produced by many competing suppliers? Why fuel or electricity or only monopolistic social goods supplied by the Nigerian government?

jp philips:

Some sanguinary PDP infested agents of darkness thought they could discredit this expose thanks to MIdas02 who came to the OP's rescue.

How can a maggot like "Kalokalo" open his bribe infested pity mouth to ask a 5tupid question like this, yet he claims he is close to the oil and gas industry even when i have refuted it severally here on Nairaland, in an attempt to create confusion on a brilliant expose like the above

jp philips:

Guess what? some Govt termites are already praising his smoke skull that even when the writer talked emphatically about the DSO (domestic supply obligation) it still did not make any sense to him.

this was the same strategy Beaf used during the elections, even himself is living in PDP's Agony.
shame on you all.

jp philips:

like Midas told you, we don't need to sell crude to our refineries for God's sake, there is a JV which guarantees 60% of all the oil produced in the country goes to NNPC and NNPC does not operate the JV but IOC, now, by law, a part of that 60% which amounts to 1,500,000bbl/d will be set aside for local refining in what they call DSO. it is left for the NNPC to attach a little price to it as cost of raw material for the refineries.

jp philips:



Kalokalo let me tell you; have you bothered to ask yourself why you buy 12.5kg of Gas for almost 4,000 naira when we burn them in the delta?

the reason is that the DSO allocated to NLNG for local use is exported. NLNG says that the "cabal" has no capacity to lift all the Gas allocated for local consumption NNPC/DPR ignores them because they don't want other people to have the license to lift it except "cabal"

as a result, they lift the little they can with high demand the price goes up, under normal circumstances, a 12.5kg of Gas in Nigeria will not be sold more than 500 naira, the "cabal" is creating artificial scarcity and NNPC is playing along with it. Corruption has finished this country.

jp philips:

good question, the answer is YES

the local refineries need not be juxtaposed with foreign ones rather you should figure out what will soar cost of production and i have treated it above

1 reduce staff strength (i see a lot of jobless,useless, pathetic people in the refineries)
2 pipelines for transport which is a fixed asset except for little maintenance like i mentioned above
3 the cost of raw material is already cheap through DSO
4 throw the license open for anybody to become a distributor of marketer not this "cabal" bullshit
5 Institute an AGG regime for all refineries

y wont it be cheaper? y is it cheap in other oil producing countries but not Nigeria?

Midas02:

Mr Debosky,

It is unfortunate that in nit-picking a nearly 6000 word article this is the kind of meager criticism you can come up with! You may disagree with the writers point of view but engaging in hair-splitting arguments about the writers every statement is counter-productive.

If fuel is sold at 23 kobo/litre and the currency is devalued by 1000% - 1500% over a short period, it means that refineries are now truly selling at 10% to 15% of the original price! Refineries need to be able to make enough margin (especially foreign exchange) to sustain operations and pay for maintenance! You may be of the opinion that the point at which things started a downward spiral was when refineries started breaking down,(in the early 90s) however the writer contends that the point was when the refineries capacity to earned adequate income to sustain operation without government help was compromised. The point at which the decision was made to cut a currency's value without due consideration to several other impacted factors and consequences, this was the point when the downward spiral began!

Midas02:

Once again Debosky,

You might do well to check your facts properly or alternatively keep quiet and learn facts from those who have taken the pain to do the research. One of the reasons why this article was placed in NL is becos there are a lot of 'small fries' in the Oil industry browsing NL and they think becos they work in the industry and have a little insight, this means that they are well informed!

Your statement above suggest to me that you do not even know that NNPC does not 'buy' crude oil, much rather NNPC acquires and allocates DSO supplies from its 60% share of the JV agreements, which is done thru its subsidiary NPDC! How can you buy crude oil at international price when you are the primary source of the crude with a share of 60% of derived oil?? Typically, NNPC thru its subsidiary NPDC, accrues between 1.35 million Bpd and 1.5 million Bpd which is its 60% share of the venture!!

Finally, I am sick of people who don't know and won't acknowledge that they don't know, much rather persisting in the limited exposure that they have to cast aspersions and create doubts whereas they are not 'in the know' and are utterly clueless! Someone has taken the time (a lot of time I might add) and expended his resources to dig out, research and present many of this facts! Whereas sloppy fellows like you just sit in your office, all to willing to run down recklessly without recourse to the truth or due diligence - This attitude is utterly despicable!

According to Kupolokun, the need for the Federal Government to reimburse the NNPC for the extra cost of maintaining the subsidy regime was discussed with the Federal Ministry of Finance and the Presidency where an agreement was reached on how to resolve the differentials on both ends.

"This started in my time so I have some comments on it. In October 2004 [/b]we commenced to pay the[b] international price for crude but we were not allowed to collect the international price at the pump. With all due respects, I disagree with the GMD (Oniwon) where he said NNPC is paying back. NNPC does not owe anybody any money," he said.

The above information from PPPRA's website reveals that prior to January 2001, the official DSO price was N9.50. However after the review and agreement reached in January 2001 , the DSO price was increased to N18.00!! T[b]he writer also goes on to assert in his article that he has been unable to find any evidence to suggest that the price has been raised up or increased again since 2001!  [/b]

If you are going to argue, then argue with facts otherwise please be silent!

[b]You still did not answer the question. You mentioned a domestic supply obligation (DSO) but you failed to mention at what price this supply obligation is to be fulfilled. Apparently, you didn’t understand that the nation’s national budget is premised on the total amount of crude produced per day at a price benchmark fixed by the senate (which is always less than global spot prices)

In other words, if NNPC meets the DSO at below the dollar amount the NASS fixes or the international market price, there is a huge shortfall in national revenues that hamstrings budget implementation. This is why the FG/RMAFC/States are demanding the NNPC refund 450 billion naira difference between global market prices and the price at which the NNPC met the DSO. A dishonest proposition since they know local fuel prices are fixed by the same FG and the prices cannot be met without sharp reductions in prices at which crude is sold to local refineries. This in turn defeats revenue projections used to prepare the national budget which the RMAFC and states oppose since it sharply reduces their monthly allocation.

In case you don’t know, the FG has since 2003 been charging the NNPC international market prices as the price at which the DSO is met. How can a private refinery survive under such a scenario? Why will private investors build refineries under such uncertainty? How can such a business model pass the bankability test?  If not for sovereign backing, the NNPC would have since being declared insolvent.

[/b]

[b]It is cheaper to flare associated gas or re-inject it into the ground in the Niger-Delta because it costs many billions of dollars to build gas gathering, processing and distribution infrastructure and the IOCs won’t embark on such venture unless the local market can support such an undertaking. NLNG alone has gulped a cumulative investment of over 22 billion dollars which is why their product is strictly for export. They could only obtain foreign lender financing to build the NLNG trains by securing a long term (20 years) LNG delivery agreements with European utilities i.e. a guaranteed off-taker. The PHCN tht is supposed to do this in the local market is not a credit worthy partner. By the way, the NLNG allocates 150,000 metric tones per day to meet its DSO while the local market only consumes 73,000 metric tones per day. Nigerians prefer to use kerosene or firewood while gas is cheaper for them to use. A 12.5 kg gas cylinder can last up to 8 weeks. How many kerosene bottles at today’s prices will you use in 2 months? Majority of our West African neighbors use gas.

[/b]

[b]it works in other oil producing countries lke Venezuela, libya and Saudi because only government owned refineries exist in those countries that gets oil at subsidized rates from the state run oil producing monopoly. Their national oil company usually takes that loss which amounts to billions of dollars. It won’t work in Nigeria because our oil industry is not entirely state run. There are IOCs/private companies involved. They are not charities that will invest shareholder funds and then sell their products for less than the opportunity cost of exporting.  Where is the level playing field if the government is begging for private refineries, won’t subsidize crude costs to them (for budgetary reasons) and then expect them to produce price regulated products? That is why private investors have refused to invest in refineries.  The major input costs in a refinery is the cost of crude which is bleeding the life out of the NNPC as they are forced to pay international market prices for DSO crude.

[/b]

You still did not answer the question. You mentioned a domestic supply obligation (DSO) but you failed to mention at what price this supply obligation is to be fulfilled. Apparently, you didn’t understand that the nation’s national budget is premised on the total amount of crude produced per day at a price benchmark fixed by the senate (which is always less than global spot prices)

In other words, if NNPC meets the DSO at below the dollar amount the NASS fixes or the international market price, there is a huge shortfall in national revenues that hamstrings budget implementation. This is why the FG/RMAFC/States are demanding the NNPC refund 450 billion naira difference between global market prices and the price at which the NNPC met the DSO. A dishonest proposition since they know local fuel prices are fixed by the same FG and the prices cannot be met without sharp reductions in prices at which crude is sold to local refineries. This in turn defeats revenue projections used to prepare the national budget which the RMAFC and states oppose since it sharply reduces their monthly allocation.

In case you don’t know, the FG has since 2003 been charging the NNPC international market prices as the price at which the DSO is met. How can a private refinery survive under such a scenario? Why will private investors build refineries under such uncertainty? How can such a business model pass the bankability test?  If not for sovereign backing, the NNPC would have since being declared insolvent.

It is cheaper to flare associated gas or re-inject it into the ground in the Niger-Delta because it costs many billions of dollars to build gas gathering, processing and distribution infrastructure and the IOCs won’t embark on such venture unless the local market can support such an undertaking. NLNG alone has gulped a cumulative investment of over 22 billion dollars which is why their product is strictly for export. They could only obtain foreign lender financing to build the NLNG trains by securing a long term (20 years) LNG delivery agreements with European utilities i.e. a guaranteed off-taker. The PHCN tht is supposed to do this in the local market is not a credit worthy partner. By the way, the NLNG allocates 150,000 metric tones per day to meet its DSO while the local market only consumes 73,000 metric tones per day. Nigerians prefer to use kerosene or firewood while gas is cheaper for them to use. A 12.5 kg gas cylinder can last up to 8 weeks. How many kerosene bottles at today’s prices will you use in 2 months? Majority of our West African neighbors use gas.

it works in other oil producing countries lke Venezuela, libya and Saudi because only government owned refineries exist in those countries that gets oil at subsidized rates from the state run oil producing monopoly. Their national oil company usually takes that loss which amounts to billions of dollars. It won’t work in Nigeria because our oil industry is not entirely state run. There are IOCs/private companies involved. They are not charities that will invest shareholder funds and then sell their products for less than the opportunity cost of exporting.  Where is the level playing field if the government is begging for private refineries, won’t subsidize crude costs to them (for budgetary reasons) and then expect them to produce price regulated products? That is why private investors have refused to invest in refineries.  The major input costs in a refinery is the cost of crude which is bleeding the life out of the NNPC as they are forced to pay international market prices for DSO crude.

jp philips:
[b][/b]

You just highlighted a major flaw in the political system and re-presenting it as a base for rational argument.

I may understand why the NASS is demanding the international market price from NNPC because the refineries are not working in the first place so what exactly did NNPC do with the DSO?

No oil producing country in the world sells local crude at international rate to its local refinery do your research. And don’t tell me because Nigeria is doing it makes it right.
Though I ve not verified but someone wrote it above that it is presently at 18usd so how is it equal to the present international price?

The second paragraph of your post above simply shows that you think Govt is run like a company, oil earmarked for DSO is not meant to generate the same amount of revenue with Govt oil export. It doesn’t even matter if Govt loses some money in the end that is what amounts to direct subsidy every Nigerian is clamoring for Not the kind you pay to a fictitious importer with fictitious import value.

Mind you that I never said there won’t be subsidy even in the face of refineries but it will be minute and not Neck breaking like we have now, I still remember I mentioned somewhere that the refineries need some form of loans from the Govt to be fully established.

Lemme also remind you that for over 30yrs of operation, NNPC is supposed to have had oil production void of JV’s, refer to Italian ENI group and CNPC for guidance. Producing a few barrels for local refining void of JV’s is not a big deal if this Govt and previous Govts are responsible.
Is it unattainable for our NNPC to develop oil fields strictly for refining and refined products export obligations? That way, the whole 60% from JV’s will be exported and used to meet budgetary implementation. Is this clear? [b][/b]

jp philips:

[/b]  Now remove your hand from your crotch and re- read what I wrote, I said a PART of the 60% not all 60% like you are insinuating. O yeah, because it is refined then it becomes worthless? You are the ignorant person that doesn’t know that 10% of libya’s 1.35m bbl/d which amounts to 135,000bbl/d is exported as refined products, you sincerely believe we won’t earn revenue (thus; implement budget) even if we choose to refine and export a part of our 60% and sell as refined products?

Oga, please go back to school [b]

jp philips:
[b][/b]
Did you type the above as a FACT or what you THINK? The last time I checked, Anglo dutch has AGG facilities in Obigbo, imo river, Afam, Agbada 1 and 2, Nembe 1,2,3,4 flow stations etc, how exactly did you come to the conclusion “that IOC’s wont embark on such ventures”? Or is Anglo dutch no longer an IOC in Nigeria? Please stop deceiving people.

I know about reintroduction of Gas in wells and it has nothing to do with AGG unless for Tight IOC’s. I will advise you to visit bigger facilities and stop generalizing from a lone petit facility that re injects associated gas.
Why would you need to design a process that will re inject associated gas (nearly UN realistic perhaps you can spike in condensate) when you can drill a surface Gas well from the same reservoir where your crude is coming from? At least the Gas volume will be higher and will last longer.

How I wished you paused and thought over what you typed on your last paragraph above. I explained in my post why gas is expensive you are busy telling me how west African Countries need it more than us cos we prefer firewood;

You love typing before reading, NLNG DSO is 150,000mt (according to you) I have not verified but we consume 73,000mt according to you (only Jehovah knows how you arrived at that figure), but from my post you quoted, I emphatically said that the “cabals” do not have the capacity to lift the total NLNG provided DSO of
150,000mt (according to you) that is why 73,000mt comes to the market, Apply demand and supply to 150,000mt against 73,000mt in the market and tell us whether the price will be higher or lower? Think, think, think my friend

Are you this daft to realize that the Nigerian government is too inept and corrupt to do what you just said above. Experience in the last 51 years of independence has shown that things done by other nations will fail in Nigeria due to the peculiar Nigerian factor (euphemism for incompetence and corruption). You keep insisting that the government refine fuel that it clearly lacks the capacity to do when considering its track record. It is your misplaced confidence in Nigerian government owned refineries that is undermining your argument. Why not insist that the government implement policies that will cause private refineries to proliferate and see competition force down prices? Deregulation i.e. an assurance of cost recovery + profit is what will cause private refineries to spring up all over the nation.

I will like to commend GEJ for backing down on the subsidy removal on the other hand i hope the consultation does not include bribing or cajoling the NLC and civil society groups to accept that demonic policy.

I think i understand Al harem and jason's confusion your confusion was orchestrated by Ruben Abiati and GEJ by proxy.

How many of you have researched on this subsidy issue before taking a stand?

There are more misnomers than facts surrounding this subsidy bruohaha.
First, the Govt said the economy will collapse, ridiculous indeed
Secondly, the Govt said oil importers are a 'cabal', nearly fell off my seat.

Fellow Nigerians, there are no cabals, in 2009 the scarcity of petroleum products became intense and the Govt admitted that Nnpc through its subsidiary PPMC has failed Nigerians by their inability to meet up with the supply of pet. Products and that phenomenum gave rise to licensing of some people to 'assist' the Nnpc in doing their job for which they are paid for.

Please don't forget that hitherto, Nnpc has been doing the importation and refining themselves before corruption eroded their common sense.

These importers went abroad and came back with a price Nnpc is already aware of comprising of logistics,storage and administrative costs, these were quantified before they arrived at a price.
The FG now fixed a price tag of 65naira on Pms and agreed to be reimbursing the importers the balance knowing fully well that the landing cost is higher than the stipulated price
To my greatest chagrin, the odechukwu administration woke up and termed them 'cabals' who are fleecing the nation.

Assuming Ruben Abiati goes abroad to buy a TM underwear for 1k and decides to sell it 1.5k adding purchase price plus logistics plus profit and the Govt tells him to sell at 900 naira, wont he ask for the 600naira balance? when the incompetent NNPC agrees to reimburse him, then he has become a cabal stealing from the GOvt?
Are we this docile? If Nnpc lived upto their responsibility, we wont have need for the importers in the first place.

There is no doubt that the subsidy regime is met with corrupt practices, is it not the responsibility of the govt to clamp down on those malfeaseance?
The only solution that came to the minds of this disgruntled PDP administration is to remove subsidy into-to not minding its inflationary consequences.

This is the most silly approach any human being with brain if they have one can summon.

Thirdly,

Odechukwu insulted the intelligence of Nigerians telling us that we don't benefit from this subsidy except for the importers and he had the unbridled temerity to be advertising it on NTA saying the rich are getting richer.
This people are demons.

When Ruben abiati's mother goes to the market to buy vegetable at a price, does he not know that the seller included cost of transportation to that price?
So when the transporter buys PMS @ 65naira and fixes his price based on that, he says his mother did not benefit from the subsidy that guaranteed the price in the first place?

It is either Ruben Abiati and his employers are drunks or they think that Nigerians are m0rons.

I feel sorry for people that think that competition will crash the deregulated price erroneously juxtaposing it with GSM.

Do you know that the price of crude being the raw material for refined pet. Products is sold at the same price in the whole world?

If you agree to this, then, even if you deregulate and license 5million importers the product will still be expensive because crude itself is expensive. You will still need to subsidize it to 65naira. Exactly why deregulation of diesel in part did not work.

The only reason you have not bought diesel @ 200naira is because there are so many illegal refineries who bunker crude, settle JTF and refine diesel at a lower price.
This people still pose a great threat to the importers who buy at a higher price that is why you get diesel @ 140naira elsewhere but in the delta i buy as low as 70naira.

At this verge you will not over rule the fact that these unscrupulous elements contribute to the availability of diesel, if you are in doubt, anywhere you see cheap diesel, ask the dealer the source of his consignment
If he is honest he will tell you the truth, when i was told, i took an hr 20mins boat ride to a remote village in the delta between Belema and Kola communities and i saw the local refinery myself. I will post the pictures later.

Conduct a chemical test on those cheap diesel if you are not convinced and you will realize a lot of additives are missing.
Sounds incredible but that is the reality on ground.
You now know why many importers in the delta hardly have diesel.

I still feel sorry for those who think the Govt should build more refineries, that will not solve the problem because there is no cheap crude to supply these refineries.

The oil production of Nigeria stands at 2.37 million barrels of crude daily. nigeria get this crude in a JV (joint venture) with IOC's (international oil companies) and the Nigeria's cut stand btw 55% to 60% of the lot, if we go by 60% then

That gives a total of 1.4m barells daily.

If we average the crude price from 2009 till date, the price falls close to 100usd/bbl.
In that case, Nigeria makes 140,000,000usd daily from this JV.

Nigeria has a policy called DSO (domestic supply obligation) which mandates 250,000bbl/d of this crude to be refined and consumed locally,
In monetary terms, the Nigerian govt is giving us 25,000,000usd worth of crude to refine.

Our three refineries at optimum capacity utilizes 450,000bbl/d which gives 45,000,000usd in monetary terms in other words, the price of raw material in this case, crude, accrued to our refineries comes at 45m usd per day, if you add refining cost and profit of 6usd per bbl,

The total cost becomes 270,000,000usd per day.
There is no way you can refine that crude at that price and sell it 65naira/l and make profit.

Meanwhile, once we mark out that 45m usd worth of crude for our refineries (assuming they are working at optimum capacity), the govt has already lost 45m usd from their 140m usd daily earnings (which will affect budget implementation) and after refining will still spend more money to subsidize it to 65naira/l

With this analogy, you will agree with me that if all our refineries are working optimally, the govt will spend 3times our present day subsidy to bring the pump price down to 65naira/l.
So, for those of you clamoring for refineries should be careful what you wish for because there is no cheap crude for you to refine.

I have argued abinitio that the sales of other derivatives of crude will bring down the cost of most sort PMS,DPK etc but after doing some feasibility studies, i realized i was dead wrong.

I further argued that to make cheaper crude available for our refineries, the Govt should reduce the price at which it is supplied unfortunately, the senate mandated the then GMD of Nnpc that the DSO must be sold at international crude price.

This i believe was proposed for the following reasons:

1 the refineries are working below capacity so what the heck does Nnpc use the crude for?
2, there is a benchmark on crude price for budget implementation.

With this reasons, any existing or yet to exist refinery in Nigeria will get crude at a high price and must need subsidy to sell at 65naira/l, at this cross road, the then GMD of Nnpc decided that all crude should be exported and subsidy be paid on imported products.

Guess he was left with no choice.

At this verge, i must reiterate here that competition amongst importers will only crash the profit margin but not cost price.

Even if every Nigerian becomes an importer of pet. Prods, we can never change the fact that crude in the int l market is already expensive before thinking of refined prod. So we must need subsidy to make profit.

Before this issue of subsidizing petroleum products can be addressed,
You must have the following at the back of your minds:

1, Nigeria pegs a benchmark on crude prices to enable it implement budget. This stands at 75usd/bbl. And this crude is sort from the JV.

2, if crude price exceed the benchmark above, Nigeria makes excess crude revenue (ECR)

3, if we make excess crude revenue, then the price of subsidy on refined products shoot up.

With the above analogy,
One can argue that the ECR be used to subsidize imported petroleum products since both are a function of each other unfortunately in Nigeria, it comes with its own challenges.

By law, the constitution clearly states that all revenue accrued to the FG be shared amongst the three tiers of Govt.
This alone makes it illegal for the FG to keep the ECR to itself for whatever reason.

This is where the wahala started, during GEJ's campaign, he astronomically increased workers salary without consulting the state Governors,

most Governors have refused to pay on the grounds that they cannot afford it. On that grounds Taraba,jigawa and some other states have a genuine case.
With the above development, the states started scrambling for funds and remembered the ECR and insisted it must be shared to enable them pay the new wage and develop infrastructures.

The FG had no choice but to capitulate

With this development, the FG is left with little or no choice.

The way forward:

In the short run:

While the FG is consulting, they must consider these options,

1, identify and tackle the corruption prevalent in the subsidy regime. That will push down the cost of the subsidy in the first place.
Like i said in April,no matter how sincere GEJ think his administration is, he cannot make any reasonable progress in the face of corruption,

2, the power projects must come upstream before removing subsidy, this will reduce the demand on pet. Products to a very great extent.

3, Nigeria must accommodate Gas export, port duties and other forms of revenue in their budget implementation policies.

4, Govt must never invest an extra kobo in our moribund refineries, by doing otherwise, the cost price of the refineries will rise to an extent that it will no longer be attractive to investors or will prolong their repayment plan.
Thereby making it very capital intensive.

5, Instead of deceiving Nigerians with their cabal bullshit and deluding them that they don't benefit from this subsidy, the FG should channel that propaganda with intense lobbying to the senate,NLC and civil society organizations to stop the state governors from demanding for the ECR, this can be achieved by the FG asking the state to pay whatever increment they can afford for the workers that way the ECR will be used for subsidizing pet. Products.

In the long run:

Nigeria must seek local production capacity.
It is no longer news that Nnpc and its subsidiaries have failed woefully in meeting the needs of the Nigerian people.

Nnpc through its subsidiary Npdc and Ngc are saddled with the responsibility of the above for oil and gas production respectively, but as i write, the current production of NPDC stands at a paltry 90,000bbl/day which is a huge failure for an agency set up 23yrs ago,

The IOC's has made us believe that it will cost less than 12usd to extract 1bbl of our oil. The Management of NPDC must be reshuffled and if possible experts brought in on contract basis to improve NPDC's production

These experts must be placed on targets appraised by milestones. in ogoni land for instance, Anglo dutch has a lot of abandoned production facilities and marginal wells and others scattered all over the country, these can be bought by NPDC with the money FG want to waste on refineries to improve production,

If NPDC can extract oil at 12usd/bbl and make a little profit, with this cheap oil available, Nigeria will have no reason going to the JV. This cheap crude will attract investors to build refineries and create jobs,

A 250,000bbl/d refinery will cost a little above 5b usd, dangote alone can afford two of those only if NPDC can guarantee cheap oil. This is why no investor is coming to build refineries.

A crude price of 18usd/bbl from NPDC will guarantee pump price of less than 22naira per litre of pms from these refineries.

With this plan,By the end of this Administration, NPDC will have robust production capacity and the refineries will guarantee steady refined products.

These refineries shouldn't be operated by the Govt for any reason.

The FG will generate revenue from both ends, export of crude and export refined products and the production of NPDC must be increasing periodically.

Once the above takes effect, there wont be any need to be paying subsidy because pump price will be around 23naira/l and inflation will reduce by 40‰.

Now how competent is Allison Madueke and iweala if they cant figure this out to think of removing subsidy at this stage where there is no electricity and high corruption rate will be tantamount to economic suicide.

what iweala forgot is that in the face of inflation the cost of running Govt projects will be high, All Govt contractors will definitely come back for contract variations or Abandon those projects.

As a sound economist, she should tell Nigerians the value of 1.3 trillion naira in the face of 60% inflation and how many projects Nigerians will benefit from the subsidy removal.

If you remove subsidy and the money disappears, then it is a NO NO for Nigerians