Some persons have no sense of reasoning. Subsidy removal is done, stop whining and look ahead. We as a people do not appreciate planning and long term projects. It's easy to hide behind your keyboard and abuse GEJ, isn't it?

This may seem like drifting off the topic of FX rate but i felt i needed to clarify the pros and cons to guide our reasoning:

Who benefits from the existence of the fuel subsidy:
1.  the masses (as price of fuel is reasonable and made affordable)
2.  untrustworthy and corrupt fuel dealers (as they can smuggle products across the borders and make huge returns)
3.  corrupt government officials (who falsify the subsidy values and reap the country off)
4.  corrupt law enforcement officers who allow 2 and 3 above to occur, as they get rewarded for their support.

The reality on ground is that other industries and even the Telecoms sector are driven by diesel. Diesel has been deregulated a long time ago, in my thinking, the sectors that are presently being affected by the recent fuel price (PMS) increase are as follows

1. transportation - direct impact (ridiculous increase)
2. price of food stuff - indirect impact but very critical ( we expect to see price increases soon)
3. small-size generator users - homes, barbing & beauty salons, etc  (personally i prefer the positive effect of less noise pollution from those  i better pass my neigbour gens)
4. fuel smugglers - directly ( no more cash for them - less attractive to smuggle now)
5. fuel subsidy returns falsifiers - directly (subsidy returns not permitted anymore).
6. corrupt govt officials - no more kick backs
6. FX rate  - would be an indirect impact, and subjective depending on actual fuel demand and supply.


Who suffers when subsidy is removed:
1. the masses - they dont have a choice and wages are low.
2. fuel smugglers - no more business
3. fuel subsidy falsifiers - no more returns
4. corrupt govt officials


I know one school of thought is that the corrupt elite would still embezzle the proceeds from subsidy removal as they have always done, but that again is a game of chance, we know everyone prefers the path of least resistance, retaining the fuel subsidy is also in their best interest let's not forget that.

my recommendation to the government (if they will listen):
1. fight corruption as this impacts the success of the whole scheme
2. subsidize the public transport sector only ( so that people wont pay through their nose to get to work)
3. increase minimum wage
4. stimulate small and medium scale companies to boost jobs, once people's earning powers increase then they will be more receptive to price increases and can cope better with the attendant inflation.

my recommendation to the protesting masses (i sympathize with you):
1. find out the genuine motive of the organizers before participating, some of the sponsors out there are: corrupt govt officials and fuel smugglers who also want the subsidy to be retained. mind you they have reasonable looted resources to spare for things like this.
2. once you locate a genuine course - protest peacefully until the govt hears our concerns.

lagbaja:


Answers

1. It is an established fact that a huge chunk of the subsidized petrol ends up in neighboring countries through smuggling.

By whom exactly? yes Petrol is being smuggle out of the country, but SLS did indicate that there is a lot of chwua-xchwua as fuel imports tend to be lower than the claims the Oil theives claim to import

lagbaja:

2. By implication of subsidy removal, the gap between the price of petrol in Nigeria and neighboring countries will be narrowed thereby discouraging further smuggling

True, but in reasonable and sensible nations, smuggling is stop by legal means not by inflicting hardship on the people!

lagbaja:

3. Absence of smuggling will translate to reduced demand for foreign exchange.

Fraudulent point you make, smuggling does not create demand for foreign exchange, it is the actual importation of fuel that leads to higher demands for the dollar!

lagbaja:

4. Genuine demand for LC viz-a-viz demand for forex will also drop in the likely consequence that fuel consumption will reduce. This follows from the logic that higher price will translate into lower demand.

Your logic is in reverse order, it is suppose to be reduction in Fuel consumption will lead to drop in forex demand due to higher price, true,as Marketers will import only what they need, but your logic again is severely neglecting the fact the Forex is not driven primarily by Fuel consumption and importation, but by dynamics of the dollar, sometimes the dollar regains some of its lost value thereby making it higher in value than naira, this is usually the case, as the dollar is likely to increase in value. more importantly there is hardly demand for the naira.

lagbaja:

5. Overall, in view of an expected constant supply, a reduction in demand for foreign exchange will translate to a drop in price.

Not quite true

lagbaja:

6. A stronger Naira will translate to a reduction in inflation because Nigeria has a high propensity for Importation.

Again you missed the point here, a high propensity for importation is what creates demand for forex!

lagbaja:

7. As the naira becomes stronger, the price of imported petrol will drop.

well a stronger naira will make the cost of purchasing foreign goods cheaper, but you simply nailed the naira, since you said we have a high propensity to import!

[size=18pt]Oil Subsidy, the fact is “we are subsidising West-Africa Nations”, not only Nigeria, people should see through these sentiments. If we are planning not now, probably in the future, to have economic integration with ‘WA Nations’ we have to be selling our Petroleum Products, goods, and services at competitive rates, that is at the same rate across board otherwise we would be doomed as a nation like Greece.

Subsidising every country from Benin Republic in our immediate West of Nigeria, to Mauritania in the far North West of West Africa is a suicidal pact with the devil which we should shy and run away from no matter the hardship.

Monkey dey work baboon dey chop!!! [/size]

^^^^^

Knowit all do you anything at all?

Smugglers are responsible for carrying fuel from Nigeria to bordering country which your incompetent Govt. has refused to address!

Knowall, you are also just hypothesizing like the government instead of supplying us with fact supported with concrete data.

How much oil is actually being smuggled across the border?

What is the total fuel consumption of Benin Republic, Niger, Cameroon and Chad all out together? How many cars are in these counties?

How come Ghaddafi's Libya was able to supply cheap petrol to its citizens without smuggling to neighboring countries?

Then how much oil is actually consumed in Nigeria on a state to state basis?

If we have these figures, it might even be a good international relation policy to supply subsidize oil officially to neighboring countries,as a control mechanism, the way the west use loans via IMF and World Bank as a way to control other nations.

Good lecture going on here, and I need further enlightenment on the following areas:

1. It has been stated here that increase in cost of fuel will reduce demand and eventually price of crude oil will fall. If price of crude oil falls, I believe that fuel prices will again drop and sont demand for fuel increase again?Sounds like merry-go-round to me except I didn't get it!

2.Main palliative always mentioned is the subsidising of public transport. Except lagos where BRT is fully functional, how will this be done in reality? You will sell 'special fuel' at reduced price to cab/bus/okada owners?? I knew during the military era, it was mentioned that Public Buses were bought as palliative under Mass Urban Transport. Where are those buses now?do we know the intricacy in running mass transport outfits even by the best of hands in the private sector?

3. It has also been mentioned that minimum wage should be increased. What percentage of Nigerians are employed? Those that are self-employed as service providers or traders, won't they raise their fees astronomically and abrbitarily also to be able to maintain(not even improve) their standard of living?

We have all agreed that corruption is the main problem in this critical sector. Once this is not tackled things will never change. As it is now the so called cabal still get their full lucre, the difference being that government is asking the masses to pay for it. That is the masses subsidizing governments corruption and inefficiency. What ever postulations or theories cant change this truth.

Wide in the note that has been writing in here along side with the comment shared we dont know who we have been talking to and we talk more like we knew what we are saying but only to share how it feels to have such an act from those that we claimed to put in post and put in power.

Taking a Good look at each name/users that has made it way in to the forum we still dont know who is who , looking at each comment i could still its still the poor that stand in here to talk.

I dont have to say my mind(in here ) based on you all that are in here are not the right once for me to talk out to 1. dont get me wrong . Making my comment or My words in here on how i feel im only sharing to those that wont make a different.
2. who are those that are in here. those that are having it hard to buy a liter for 250n how much my purchasing a full tank of fuel.

Dont get me wrong most point shared in here dont get any where.

Are people saying that oil subsidy removal will disturb or discouragr oil bunkering in any way? I don't think so. People steal and  smuggle crude oil more than they do PMS. Oil subsidy removal is a good step but I prefer a gradual removal like OBJ was stylishly doing to this. This one is killing as the masses are not prepared.

sleekcm:

Some persons have no sense of reasoning. Subsidy removal is done, stop whining and look ahead. We as a people do not appreciate planning and long term projects. It's easy to hide behind your keyboard and abuse GEJ, isn't it?

planning and long term project would actually mean the FG have either repaired the refineries to an appreciable level, stop telling us ordinary nigerians that some people are diverting the petrol on the high sea and go after them instead, and get the real amount imported instead telling us they dont know the actual figures

I think the exchange rate going forward remains uncertain in the short to medium term. No doubt the 1.3 trillion spent on subsidies - most of which was through deficit financing played a major role in last year's naira rate slide. Thus with an anticipated reduction in imports due to higher prices and the elimination of sharp practices I expect the naira to rebound. I also expect a more positive balance of trade due to short term import falls particularly in the area of consumer goods as personal budgets are trimmed.

However all this can as well be countered by capital flight from economic fence sitters, speculators and opportunists particularly if subsidy protests are brutal and prolonged.

Very uncertain economic times in the medium term. We've not seen such a shake up since the massive IMF induced devaluation of 1986-7. I think like a patient out of surgery we have to come to before success or not can be measured.

Ngutor:

We have all agreed that corruption is the main problem in this critical sector. Once this is not tackled things will never change. As it is now the so called cabal still get their full lucre, the difference being that government is asking the masses to pay for it. That is the masses subsidizing governments corruption and inefficiency. What ever postulations or theories cant change this truth.

Government does not import fuel, private companies do. There are some in government that encourage subversion and collect kick backs but essentially the cabal we speak off combines both private sector and government collaborators. It is endemic and that is why it is near impossible to uncover. You don't do this business without cooperation of the Navy, Police, Customs, DPR, PPPRA, perhaps NIMASA, SSS, union members NUPENG, PENGASSAN. From the clerk in the office to the tanker driver who trucks over the border and the private sector big boss oil giant CEO are all rewarded handsomely for their risk.

That is a large chunk of our economy, our law enforcement. Too many mouths to feed. That's why subsidy suddenly balooned from 200+ to 1.3. When these folks locked on this oasis of free cash they became a pack of lions on a fresh carcass.

If this sector is so highly infiltrated involving too many the best solution is to shut it down. No government can stop corruption. It is the peoples who will decide when the cost/benefit is too high and simply walk away from it. What the government has done is to bring that process just a step closer. So don't be like the NLC fight for the economy and not just your pockets. The Nigerian economy is bigger than any personal interests.

Reference I like your point of view. But what is an economy if not a summation of individual pockets? Can an economy exist without you and me? It is lay man knowledge that savings is a function of investment. 1000 billion dollar cooperation's cannot run an economy in isolation of the informal sector i.e barbers,laborers,achaba,shoemakers,water vendors even prostitutes. You have also agreed that corruption is the bane. So are really convinced that the present step will eliminate this cancer? When nobody has been apprehended or punished? When the same cabal is responsible for our daily pms needs? So many questions very few answers my brother.
Take a look at this:

The facts they wish you didn’t know!
1) One barrel of Crude oil = 42gallons or
159 litres

, 2) Our Refineries (i.e 4) Installed (combined) capacity = 445,000

, barrels per day

3) Actual refineries capacity due toageing equipment = 30% i.e. 133,500 barrels per day

.

4) . . 133,500 barrels = 21.2 million litres

5) Local required consumption (F.O.S) =12millions litres

6) It means that even our MORIBOND refineries can actually meet our localconsumption need of petroleum.

7) The cost structure of crude oil (i.e.Qua Iboe Crude Oil) production;

- Findings / development - $3.5

- Production cost - $1.5

- Refining Cost - $12.6

- Pipeline/transportation - $1.5

- Distr/bridging fund Margin -$15.69

True cost of one litre of petroleum

anywhere in Nigeria;

- Total sum cost = $34.8

- 1ltr cost = $34.8/159 litres = $0.219

- Naira equiv. 0.219xN160= N35.02k

- Add Tax N5 + N35.02 = N40.02

9) Let FGN refute the above composition and if not, they should tell us how they came about N65/litre.

10) Locally refined products cannot be sold at International price.

11) We really do not need FGN SUBSIDY as there was NONE in the first place.

12) What is LACKING, is the WILL to enforce LAW ON CORRUPTION.

(STATISTICS SUPPLIED BY PROF TAM DAVID-WEST, FORMER MINISTER OF PETROLEUM)1

Like any other industry competition will favor the consumers, yes prices are high now but when the private sector takes over the refining process watch those prices crash. its the same way when GSM came to Nigeria we were paying 30-40,000 for a sim car now the are almost free. The removal of the subsidy and the deregulation of the sector opens the door for the private sector to build refineries. thereby creating jobs and also stimulating healthy competition. Another thing many people do not know is that our refineries are currently being repaired by the people who built them not some random contractors (politicians and their cronies).

I have said it for over 2 years that government will have to stop subsidizing our fuel for us to move forward as a nation. Every president we have had since IBB knew it but didnt want to face the backlash that would come as a result of it. Also if it had been done when our refineries were working there wouldnt have really been a big price hike. We need to challenge our fellow nigerians to stop be more honest, the vast majority of the transporters who have increased their fares run on diesel (which has not been subsidized for a few years now) even a lot of danfos run on diesel but they will never tell you that. if the fare from ajah to cms was 150 per passenger there is absolutely no reason for it to double, because not all of your fare goes towards petrol, what they are doing is a pure case of profiteering and its only going on because we are letting it. Tomatoes, rice and wheat coming from the north to the south are carried on trailers and trucks running on diesel so their cost hasnt really gone up either. yes i agree that the cost to the individual market women has gone up but not by as much as you would imagine.

if you are wondering why im talking so much about transportation costs its because its my industry, i own a few danfos, short trucks and trailers.

If the government had preceded this subsidy removal by 6 months of bringing the criminals to justice - making them return the ill gotten wealth, handing out some sentences; it would have been better received.

Nigerians are not exactly fools and yes removal could be beneficial but this is just torturing the masses for the sins of the elite criminals.

Of course, I know GEJ has no liver, or a cirrhotic one- all that booze

ose_o:

Like any other industry competition will favor the consumers, yes prices are high now but when the private sector takes over the refining process watch those prices crash. its the same way when GSM came to Nigeria we were paying 30-40,000 for a sim car now the are almost free. The removal of the subsidy and the deregulation of the sector opens the door for the private sector to build refineries. thereby creating jobs and also stimulating healthy competition. Another thing many people do not know is that our refineries are currently being repaired by the people who built them not some random contractors (politicians and their cronies).

I have said it for over 2 years that government will have to stop subsidizing our fuel for us to move forward as a nation. Every president we have had since IBB knew it but didnt want to face the backlash that would come as a result of it. Also if it had been done when our refineries were working there wouldnt have really been a big price hike. We need to challenge our fellow nigerians to stop be more honest, the vast majority of the transporters who have increased their fares run on diesel (which has not been subsidized for a few years now) even a lot of danfos run on diesel but they will never tell you that. if the fare from ajah to cms was 150 per passenger there is absolutely no reason for it to double, because not all of your fare goes towards petrol, what they are doing is a pure case of profiteering and its only going on because we are letting it. Tomatoes, rice and wheat coming from the north to the south are carried on trailers and trucks running on diesel so their cost hasnt really gone up either. yes i agree that the cost to the individual market women has gone up but not by as much as you would imagine.

if you are wondering why im talking so much about transportation costs its because its my industry, i own a few danfos, short trucks and trailers.

was watching the news online yesterday, i noticed the price of diesel has gone up by N10-N20, since diesel was never subsidised why hasnt the price fallen according to the competition theory, the competition theory hasnt worked in the cement industry, this is nigeria remember text book economics dont work precisely

and when you saw 'we' you are doing exactly what these officials are doing, blaming the man on the street, its not up to nigerians on the street to fight profiteering and smugglers and cabals, there are people voted in with powers to do that! So the ministers telling us we have to fight the cabals who exactly is they looking to do that?

ose_o:

Like any other industry competition will favor the consumers, yes prices are high now but when the private sector takes over the refining process watch those prices crash. its the same way when GSM came to Nigeria we were paying 30-40,000 for a sim car now the are almost free. The removal of the subsidy and the deregulation of the sector opens the door for the private sector to build refineries. thereby creating jobs and also stimulating healthy competition. Another thing many people do not know is that our refineries are currently being repaired by the people who built them not some random contractors (politicians and their cronies).
if you are wondering why im talking so much about transportation costs its because its my industry, i own a few danfos, short trucks and trailers.

So what happened to those that took money in the past to repair the refineries, you just want us to forget about them and move on, the problem with this crackhead heading government is that he believe its okay to just plug the loopholes without going after those that breaking the law

The diesel prices haven't gone done for one simple reason there is no private sector involvement in the refining process, yes diesel has not been subsidised for a while but the whole industry needed to be deregulated and turned into a pseudo-free market before investors could come in. The same refineries produce petrol, diesel and all oil derived fuels. The deregulation of diesel back then was to tackle shortages caused by smugglers and other factors and it worked cos I can't even remember the last diesel shortage.

The past contractors will probably never be prosecuted because half of them are either still in government or dead and the other half a phony companies floated by the bigwigs of our society which cannot be traced.

Why I say we are to blame for the profiteering that's going on is because it is fellow citizens like you and I that allow our businesses and staff to be criminals. It goes deeper than corruption. Take for example kidnappers, they all have families, how many of their mothers ask them where they are getting money from? If your community ostracised you for being a criminal and branded you an outcast it would be less appealing to a child on the street. But in reality its the reverse, you see our people hailing and praising people who are ripping others off, doing 419, and the likes. There is no longer a sense on social responsibility or community responsibility when it comes to that. It even stretches into religion. We don't care where the money comes from anymore.

Don't get me wrong, in no way am I saying they shouldn't be punished, what I am saying though is that corruption is a long fight, and its best started by plugging the loopholes that the criminals can exploit. Also you cannot blame the current government for the sins of their predecessors, if they don't use the money judiciously then by all means cremate them. But give them a fair chance.

ose_o:

The diesel prices haven't gone done for one simple reason there is no private sector involvement in the refining process, yes diesel has not been subsidised for a while but the whole industry needed to be deregulated and turned into a pseudo-free market before investors could come in. The same refineries produce petrol, diesel and all oil derived fuels. The deregulation of diesel back then was to tackle shortages caused by smugglers and other factors and it worked cos I can't even remember the last diesel shortage.

The past contractors will probably never be prosecuted because half of them are either still in government or dead and the other half a phony companies floated by the bigwigs of our society which cannot be traced.


Don't get me wrong, in no way am I saying they shouldn't be punished, what I am saying though is that corruption is a long fight, and its best started by plugging the loopholes that the criminals can exploit. Also you cannot blame the current government for the sins of their predecessors, if they don't use the money judiciously then by all means cremate them. But give them a fair chance.

'government is a continuum' thats what i hear; most especially as the government in power is the same since 1999, so they will take the same criticims as you said they are still in government, how can nigerians give them a fair chance when they are not showing any signs of being serious,

Some people sold NIPP equipment from the ports, what do they do tell them to return it? how does that make sense, isnt there any form of punishment?

People are diverting petroluem products from the high sea to other countries, and over charging nigerians for more fuel than they deliver, what
happened to investigating and punishing these people fleecing the country

If the government cant take the lead in prosecuting people for wrong doing, why do you think the follower will castigate those around them who often most time gets national awards despite their ill gotten wealth?


you cant plug a hole when you just allow the rats to go scot free, it will only come back bigger and fatter to create bigger more sophisticated holes.
increasing the feeding allowance and taking 150 people for a meeting is not using the money judiciously!!

The deregulation will reduce pressure on the naira and may lead to an improvement in exchange rate.

What will have the greatest benefit will be the dollarised payments of oil income to the States and Federal Government. The continous nairazation of the monthly allocation leads to excess money in circulation which in turn weakens the naira or leaves it in a weak state. It also leads to perpetual mopping of excess liquidity with the attendant high interest rates.

Who says deregulation of the oil industry will eventually lead to drop in prices like the telecom sector?
The inputs in the oil sector are completely different from that of the likes of telecoms services, PLEASE!
The major factor input for oil refining is CRUDE OIL, whose prices are determined by vagaries in the production International market.
To a large extent, the najor factor is Intl market price of Crude oil but how this plays out is not the crux of our discussion here.
No wonder the Venezuelan president will continue to lambast Nigerian government officials. That is where we import lots of refined products from.
Just imagine this scenario: The chinese have long started process of establishing refineries in Nigeria. Agree with them that all refined products are to be sold in Nigeria. Then subsidise the production by discounting the price we give them crude oil. What will then happen??

On my radar: US$ exchanging for N165 to N170 in some places. Too early to tell as economic activity in 2012 has been low. Additionally Govt revenue is still coming in.

Labour-Govt engagement and its outcome should impact the US/N rate.