Let me make an attempt at answerimg this very important question:

1. The mathematic relationship between exchange rate and value of imports is not linear. For example between 2007 and 2011, there was a 20% decrease in exchange rate whereas there was a 400% increase in imports. The main factor responsible for value of imports in Nigeria is forex availability. If you extend this to the import of vehicles and generators, the inference is clear
2. The prices of petrol generators have declined by more than 100% within the last 6 years
3. As the gap between local price of petrol and that of our neighours increases (due to rise in international price) the volume of smuggling will increase because the incentive to the smugglers (profit) has increased.

some say the increase to 1.3 trillion is attributable to the elections - used in rigging.

See the attached figure to buttress my point.

@ Deep Sight

What was unique about the year 2011 was that it was an election year and I will come back to this point.

The best explanation for the multiplication of the subsidy refeund in 2011 is what I read in a brilliant in one of the papers , ( I hope I can find it again quickly and present a reference.) the Cabal who are very good friends and financiers of the PDP presented bills of arears of subsidy refund for several years in addition to that of the prevailing 2 years or so. These bills may be true bills or not but the were paid by the PDP government of GEJ just before the election and this went into the trillion plus amount.
the cabal in turn paid back substantial part of this friendly payment for the campaign support to the president and the PDP. The second question would be why do they want to remove the subsidy now, why not go on with the " normal routine , now that " the arrears " have been clerared? This is where election year 2011 comes again and much money was invested in our votes.
answer; the gift from the huge gift from the cabal was not sufficient to finance the very controversial election of 2011, so the government treasury had to be emptied as well to pay off Elction officials, potential opponents, the media, the security agents, the Emirs , traditional rulers and chiefs, the pastors and Imams, Marabouts and babalawos as well as the stipend for some of the electorate. The hundreds of millions for the campaign train , the flights of hundreds of supporters, the hotel bills, the daily change of uniforms and costumes during the campaign period , the bill boards, the adverts and the hand outs all made the country to enter 2012 with an empty treasury and a huge budget deficit demands for a drastic action to raise money. As GEJ has neither the desire nor the balls to change the size and life style of the ruling class he goes for the taxation of the masses thru the doubling of the cost of petrol at the pumps. That's it.

From 300billion to 1.3trillion.Hmmm. This Jonathan/Oko-ole just the everybody is a fool.

in the end its govt magic, the same magic by which 11000 buses were procured, imported, cleared and ready for ceremony within 2 days

NIJAKING as a nigerian has researched stop asking why and do ur own simple research


Products subsidized in Nigeria - PMS and Kerosene
Demand
PMS - 35 million litres /day
Kero - 8 million litres/day

Prices
PMS Open market Price (OPM) - N145/L ( this number varied from N125 - 165 in 2011 because of crude oil price in 2011)
Kerosene Open Market price  - N150/L (this also varies)

Subsidy Per Liter
PMS Subsidy per liter = 145-65 = N80/L
Kerosene subsidy per liter = 160-50 = N110/L

Subsidy Per day
PMS = N80/L* 35,000,000 L = 2,800,000,000/day  = 2,800,00,000*365days = 1,022,000,000,000 = N1.022 Trillion/year
Kero= N110/L * 8,000,000 L = 880,000,000/day = 880,000,000*365days = 321,200,000,000 = N321 Billion/Year

Total Subsidy
PMS subsidy + Kerosene Subsidy =N 1,022 billion + N321 Billion = N1.342 Trillion

This is a very good estimate on how 2011 was arrived at.

Why the change of subsidy value from previous years, the average crude price for last year was largely above $100/bl, coupled with exchange rate differentials and  increase in energy demand  due to population growth, GDP growth & increase in smuggled products across Nigerian borders.

I hope this helps

I modified the posting based on questions asked

Example of Subsidy Calculation for August 2011 - A Bit More Detailed

Let me give more clarifications on how the Open Market Price (OPM) which determines the subsidy per liter is arrived at. The OPM is the end price that arises after all the players in the product value chain are being compensated. It is PPPRA that sets the benchmark compensation (margin) for each player in the value chain. Below is actual detail computation of Subsidy for the month of August 2011 for PMS showing the players in the value chain, their margins and thus the Open Market price and finaly the subsidy per liter.

PMS Template August 2011 (from PPPRA Website)

Price Element/Player        Naira/Litre

PMS International Price    123.00
Freight                         3.23
Lightering                           3.94
NPA                                   0.60
Fiancing                           2.91
Jetty                                   0.80
Storage                           3.00
Retailers                           4.60
Transporters                   2.99
Dealers                           1.75
Bridging Fund                   5.85
Marine Transport           0.15
Admin                              0.15
Final price    (OPM)       152.97
Pump Price                  65.00
Subsidy                          152.97-75 = N87.97/L

This implies Subsidy for the month of August for PMS only will be based on 31 days in August with 35 million Litre of PMS per day
= N87.97/L*35,000,000L/day*31 days =  N95,447,450,000 ie N95 Billion Naira for August 2011 for PMS only.

Computations for Kerosene are similar, the major difference will be the international Kerosene price and the Pump price of Kerosene, and volume of 8 million litres per day

Brief Explanations of the Cost Elements/Players

PMS Import Price - this is the international price for PMS for a refinery offshore(mostly Europe) as quoted on Platts. Also includes the traders margin.
Freight - Cost of shipping it to Nigeria
Lightering - Cost of Ship to ship transfer to bring the product to berth at the Jetty. It includes demurrage allowance of 10 days
NPA - Nigerian port authority charges
Financing - Interest incurred by the traders or marketers on money they got from bank to buy the product
Jetty - provides a platform to pipe the product from the ship to the depot on the land
Storage - Cost of storing at the depot
Retailers - This is the person buys bulk from depot and takes to a dealer or his own petrol station
Transporters - sure u know these guys, they drive the truck from the depots to the petrol station
Dealers - the person running the petrol station
Bridging Fund - this pool is created to compensate longer haulage trucks with trucks travelling shorter distances
Marine Transport - provision for marine transport
Admin - administrative charges
Final price - this is the open market price and is the sum of all these on top
Pump Price - this is the regulated price at the pump price which was N65/L.
Subsidy - THis is the difference between the Open market price (real cost of delivering the petrol at the pump) and the pump regulated price of N65/L.


Anwser to a question on Why Smuggling increased over the years from 2009

This is how it works the Higher the difference between the Open market price (OPM) and your regulated official selling price of N65/L, the higher the opportunity/incentive for arbitrage (arbitrage is the practice of taking advantage of a price differentials between two or more markets). So what this means is that the incentive for arbitrage has increased over the years. (an incentive is any factor (financial or non-financial) that enables or motivates a particular course of action (smuggling))

Year          OPM(N/L)      Pump Price   Subsidy(N/L)      Incentive
2009            90             65                   25                    1.0
2010           112            65                   47                    1.9
2011           145            65                   80                    3.2

From the above looking at the subsidy(N/L) column, you can see that the incentive/opportunity for arbitrage has more than tripled from N25/L in 2009 to N80/L in 2011 (320% precisely). As the incentives (rewards) increase more investors (smugglers) take the risk of smuggling to take advantage of the arbitrage, its a Risk/Reward thing. This naturally pushes up the demand volumes that could be diverted to markets of economic advantage. The lower the incentives the lower the investors that will take the risk, the higher the incentives, the more the investors that will take the risk. Its is basic economics.

You can cross check some of these figures from PPPRA, website its public information though they might have removed some of historical numbers due to the change in the pricing regime. You might also need to process the information to make more sense of it.

Our Leaders language are as thus: "We will" "We shall"

karl max:

NIJAKING as a nigerian has researched stop asking why and do your own simple research


Products subsidized in Nigeria - PMS and Kerosene
Demand
PMS - 35 million litres /day
Kero - 8 million litres/day

Prices
PMS Open market Price (OPM) - N145/L ( this number varied from N125 - 165 in 2011 because of crude oil price in 2011)
Kerosene Open Market price  - N150/L (this also varies)

Subsidy Per Liter
PMS Subsidy per liter = 145-65 = N80/L
Kerosene subsidy per liter = 160-50 = N110/L

Subsidy Per day
PMS = N80/L* 35,000,000 L = 2,800,000,000/day  = 2,800,00,000*365days = 1,022,000,000,000 = N1.022 Trillion/year
Kero= N110/L * 8,000,000 L = 880,000,000/day = 880,000,000*365days = 321,200,000,000 = N321 Billion/Year

Total Subsidy
PMS subsidy + Kerosene Subsidy =N 1,022 billion + N321 Billion = N1.342 Trillion

This is a very good estimate on how 2011 was arrived at.

@ Karl max


OYA CLAP FOR YOURSELF, MR. PROFESSOR.

Are you done clapping?

Answer me this.


If the daily demand of PMS is 35million litres (bogus figure) and we pay N80/litre as subsidy refund,


DO WE IMPORT ALL THE PMS THAT WE CONSUME??

If not,

DO WE PAY SUBSIDY ON PMS (and even Kerosene) REFINED IN NIGERIA??



No let me vex here o.

FGN has also said the N1.3trillion includes arrears from earlier years. If this is the case then the simple calculations I have seen on this thread do not take the arrears into account and neither do they take the amount of crude refined locally.

Furthermore NNPC does SWAP deals with our suppliers so there is a "net" figure which has not been reflected.

^^^ stop the ranting we kn that our refineries are not working more than 25 percent capacity ague with points show me the data of the quantity that our refinaries produced in 2011.

There is no ranting, ok. So stop the silly comments. The analysis shown so far is flawed.

May God punish whoever is posting this nonsense, please find a link to oil prices fluctuations from 2003 to 2010. http://en.wikipedia.org/wiki/2003_to_2011_world_oil_market_chronology
http://www.wtrg.com/prices.htm
As can be seen we had the highest price in 2008 and yet subsidy was under 500 billion Naira as prices improved towards the end of the year and we were shipping 33 million liters of fuel o (2011 was 35 million liters), abeg tell Dizeani to supply you another set of data, this one don fail. Prices were hitting 130 dollars per barrel in 2008.
Oya find below the prices of oil for the 2000s

http://www.nyse.tv/crude-oil-price-history.htm

Please note that average price of crude in 2008 was $98.24 dollars per barrel while for 2011 was $93.15, abeg make una dey fear God.

@ karl M
You mean our refineries did not turn out any refined products all through 2011. Even if they operate at 10% capacity, why is it not captured in your analysis.

@efisher The reasons madam gave are valid but they should have resulted in marginal increase in subsidy costs not 400% . Because none of the other determining factors grew 400% I.e population,GDP, e.t.c. The fact that the astronomical increase started after April elections.

@karl max   good job! I like the emperical facts, nothing more is worthy of contributing other than an answer to the many questions that have being raised here. other than the emperical Facts, can we avail ourselves to realty, away from logic and inferences. Aside the reality of corruption and our seeming inability to keep or gather statistics(the 35million estimate includes the actual daily consumption and reserve. so the estimate becomes 1.5 of actual daily consumption), though the actual daily consumption is not in record anywhere!
What we fail to remember or keep forgeting is the failure in leadership, A leader takes responsibilty and does not blame his short coming on vague imaginations or the inability of various ministry or minister to perform. That being said, the oil revenue we base all our expenditure on seems to my understanding, as not the sole revenue earner. what happened to divisifing the economy, what happened to using import as a revenue earner through custom( they make record breaking revenue each year!).
the easy way out(short-cuts). Removing subsidy now without the expliot of other source of revenue and tackling of corruption( so many list of first thing first) in the long run takes us light years backward when the monster called expenditure catches up with this new revenue profile!

Karl max
You are doing what we call “jomo to the answer“ meaning you rig the figures to arrive at a pre-defined answer.

You provide very dubious statisticsto arrive at N1.3 trillion.

Where did you get the 8million daily consumption of kerosene per day. Do we now use kerosene to drive cars or generators? Even the total daily consumption would not be much higher than that. Most of last year kerosine was not even always available at the filling stations and there were very few stations selling kerosine.

Your average price of crude for 2011 was highly exaggerated to support your figure, the average price of crude has hovered around the $$90 mark for the last 3 yrs. Same for the exchange rate, it has hovered around the N150 per dollar mark under sanusi.

With all these you did not even bother to tell us the grade of petrol you are quoting. We get all sort petrol at the petrol stations, some are pink, some are almost red, while some are white. I suspect that most of the petrol we buy is mixed with ethanol because it burns too fast.

I wonder why you convienently choose to ignore products produced in our refineries, I know people who get kero from warri refinery.

a_aliyah:
@ karl M
You mean our refineries did not turn out any refined products all through 2011. Even if they operate at 10% capacity, why is it not captured in your analysis.

The pms that Ʊ buy cheaper at the NNPC filling station all across the nation came from the MOON

so the pms daily consumption figures you provided does not include those sold at NNPC mega stations.

lol

the question is- how sweet petrol must be now nigerians have started drinking it. We must be very obese people now we are drinking it multiplied to the power of three!

Adeyemi Oyewumi
January 2012⁠

The Oily Affairs of a Profligate Nation

I have read and watched several arguments pervading the public domain since the announcement of the removal of the fuel subsidy. I have been very circumspect in pitching my tent during these turbulent times. However, it is clear that all Nigerians are justifiably angry. By Nigerians I refer to the majority of people who have their own hands in their own pockets!

Despite the fervent uproar that heralded this unpopular government policy, some things have been achieved. What amazes me is the speed at which these two things have been achieved:

First, the truth is coming out concerning the mono-trade that props-up our nation. Veiled behind contrasting facts, figures and extrapolations is the truth. More people have come out with their own versions of the real reason why Nigeria needs to stop a subsidy that should not have existed in the first instance.

Second is that Nigerians have become more perceptive at seeing the big lie that has been sold to them for the past fifty years.

The government has been a big lie, its policies a poignant reminder of the wickedness of man to man and its appetite for waste compares only to Usain Bolt’s abilities to break his own world records over and over again. Subsequent Nigerian governments have elevated corruption and wasteful spending to a new art form. No stable nation competes with us in this genre, we are record breakers.

Let us briefly examine the origins of the fuel subsidy, and the carnage of catastrophy that has followed. We discovered oil in the southern part of Nigeria and sited refineries in Warri, Port Harcourt and Kaduna. In typical Nigerian style, our refineries were left to deteriorate while turn around maintenance contracts were constantly awarded to incompetent firms. Miraculously, our leaders also forgot to build additional refineries to cater for the burgeoning population. Our three refineries were built when Nigeria’s population was about eighty million people. While we doubled in size, our leaders were more focused on lining their own pockets than planning for a growing population.

As far back as the Babangida years, Nigeria had been experiencing shortfalls between internally refined petroleum products and actual demand for petroleum products. Professor Tam David West managed the challenge by exchanging crude oil for finished products. He devised a system where countries were paid in crude oil for refining petroleum products, ensuring that nobody made money from the situation.

This problem of lack of internal capacity to refine crude oil is perennial, just that the politicians took over and devised a clever way of making money from their own incompetence.

The politicians created a class of super rich Nigerians who became cohorts in funding elections and perpetuating corrupt people in government. How else can you explain the fact that everyone who has donated two hundred million naira to the presidential campaign fund in the past two elections are all major players in the oil sector? How would they be paid back? SUBSIDY!

People like Aliko Dangote, Femi Otedola and Wale Tinubu all became purse keepers and financiers for the politicians, empowered and capable to provide cash for political conquest. Some of them barely existed ten years ago! The politicians neglected the refineries, did not build new ones and created the elaborate scheme of phantom subsidy in order to solve their own problems, not ours!

Like all businessmen, the “oil marketers” were quick to sense opportunity. Several of them set up accounts with banks to harness the business opportunity of subsidy, not petroleum products marketing. Sanusi Lamido Sanusi provides insight into these fraudulent dealings in his write up:

“You establish an LC for importing 20,000MT of PMS and the PPPRA says this is at a landed cost of N145 for example per litre. So u know that for every litre in that vessel you will get at least N85 as subsidy. Now you have a number of "possiblities":

1. You can off load 5,000 MT and bribe customs and other officials to sign papers confirming u offloaded 20k MT. Then do the same across the chain with a paper trail showing you delivered 20k MT to a tank farm, and maybe even that u transported it to Maiduguri entitling you to a share of the price equalization fund. Maybe for N20-N30 per litre u bribe all those who sign the papers. The 15k MT you take to Benin or Ghana or Cameroun and sell at market price thus makin an additional "profit" of N55/ltr on 15,000MT!

2 you can just forge documents and have them stamped without bringing in anything and collect the subsidy-PPPRA pays based on DOCUMENTS.

3 you can bring in the fuel, load on tankers, sell some at N65N some at 80 some at 100 some across the land borders.

You can do all this and no one can catch it or prove it because somebody was paid to sign off on docs. And with a high enough margin there is too much temptation to be resisted and firepower for bribing officials.

When I spoke to the house of reps I told them why I was suspecting fraud. It starts from PPPRA "allocations" based on "capacity". You will find a company like Mobil with capacity for say 60,000 MT and a relatively unknown name with a capacity of say 90k MT. Red alert number 1.

Although PPPRA is supposed to give license only to marketers with a national distribution network you see names of companies where you have never seen a filling station in their name.

I was a chief risk officer in UBA and in FBN for many years approving loans so I know the name of every big player in every industry that nigerian banks lend to as these are among the biggest banks in the country. I see names on the list I don't recognise either from portfolios. I looked at or industry studies over the years. Red alert number 2.

I studied the papers presented to PPPRA in a short period in 2010 (I won't tell you how I got them!). And I was surprised that on some days over 10 vessels are said to have discharged cargo in lagos on the same day-clearly the same officers stamping and "verifying" that the vessels were SEEN. Is it really realistic that on the same day 13-15 vessels can discharge in Lagos? Red alert number 3. “

According to the same write up, Femi Otedola’s Zenon and AP owe the Nigerian banking system about 220 billion naira in bad loans that have been taken over by AMCON, yet he did not have stock of petroleum products worth a fraction of that amount. You can bet he also did not have the cash in his corporate accounts. More importantly, he could still afford to give the Jonathan/Sambo campaign organization 200 million during the election season.

I have taken time to quote the Governor of Nigeria’s Central Bank in order to show you, my reader, the sleaze that makes for an arresting Hollywood thriller. On all sides, you see subterfuge, greed and corruption. You see institutionalized kleptomania across the value chain, oil marketers, port officials, PPPRA, DPR and bankers who knew the truth and never said it until now!

It is clear to me that the subsidy scheme was created and executed by the government to enrich their friends and themselves. It means the nation budgeted huge amounts of money which we knew was going to be pocketed by a few people.

Why is the Goodluck government removing the subsidy? Profligacy is not sustainable on the long run! They now want us to pay for their incompetence. It is clear that no official wants to let the truth out of its hiding place. We are broke! Our external reserve is down to 27 billion dollars from 80 billion when Obasanjo handed over. Our internal debt is 5 trillion naira. External debt is back to 35 billion dollars. Excess crude oil account is down to zero. We are broke yet the only rich people in Nigeria are politicians and some pastors. Politicians who earn more than every other earthly government and pastors who collect earthly money, lay hands on and promise heavenly bliss to men of shady character. Some of these super rich pastors are not saying anything now. Some of them are speaking as a matter of expediency. Some of them have private jets with which to fly out of Nigeria. They share that same luxury with the dirty politicians they bless and celebrate with front row seats in their churches.

We need to ask our government what they are getting paid for. Is it the national pride that we currently enjoy or our infrastructure that is out of this world? We still have polio in Nigeria in 2012. We have hospitals that are not fit to treat animals. No government primary school competes with a public school in South Africa. Our universities provide better criminals than scholars. We do not have roads. in the place of roads we have long stretches of death traps designed to keep the population in check through untimely death. We do not have electricity. We have lost our factories to Ghana. Just a few grumbling manufacturers remain, who are yet to get land in Ghana.

We have lost everything we met on the land. Cocoa, palm oil, groundnuts, cotton, cashew and rubber have been forgotten and are better produced by nations who came to learn from us. We have lost our moral compass, our society is fractured, our statehood is threatened. Our citizens are in all prisons around the world. Some of them prefer foreign prisons to Nigeria. Our passport is treated with disdain everywhere you present it. Why should our Senate Leader earn 600 million naira per annum? Why should our senators earn 30 million naira per month? Why should our National Assembly gulp 1.2 trillion naira per annum while we try to save 1.4 trillion from subsidy removal ? Why should our government be this big with special advisers on cassava and beans affairs? Do we need 72 ministers and 36 states? Do we need a Minister for Water Resources when 95 percent of Nigeria cannot recognize a water faucet? Why would our president spend close to a billion on food while close to eighty percent live on less than a dollar a day? Why should he budget a billion for generators and diesel when he is urging us to believe in his power sector reform? Why does our President need 6 private jets? Why do our governors move around with twenty-vehicle convoys while David Cameron has just two vehicles and one outrider?

Why should our politicians keep their salaries when Obama slashed his? Why should we continue to be wasteful when the handwriting on the wall says “danger”? Why should we believe this government when it says the subsidy gain will be properly reinvested? Despite my utmost respect for Christopher Kolade, I have this ominous feeling that he is being set up to be rubbished. Same for Alfa Belgore!

Labaran Maku must be suffering from foot and mouth disease if he really used that cavity to announce 1,600 buses as palliative measure for 170 million people. Lagbus has 5,000 buses. What impact will that make? You mean the government of Nigeria needs to subject her citizens to hardship in order to buy 1,600 buses. On the strength of the initial information on how the savings will be invested, given by Labaran Maku and the minister for Labour, the government is bereft of both ideas and dictionaries!

To move Nigeria forward, we must do the following:

· Demand more transparency from the government especially in oil dealings and allocations. Remember the way Okonjo Iweala was publishing the allocations to all tiers of government.

· Demand immediate reduction of the size of this government and its wasteful ways.

· Demand specific prioritized projects which should be tied to the subsidy savings (if we negotiate a reduction instead of outright reversal).

· We need to demand same from our state governments, prune down the waste.

· We need to ensure our protest is peaceful and organized to avoid loss of life.

· We need to resist provocation and divisionist tendencies.

The goverment is based on lies.

I dare Mr Jonathan to probe and disgrace the cabal. That's when some truth will come out (e.g.):

1. How the subsidy went from less than N300b to over N1.3trillion.

2. How the number of fuel importers increased overnight.

3. Who granted approvals to importers without storage facilities for fuel?

4. The source of funding for the elections.

5. Why governors supported the removal of subsidy.

6. Why some suspected members of the cabal are indebted to banks in spite of the collection of all the subsidy payments. They were also able to donate to the election funds in spite of the indebtedness. etc

Can he dare them? Will he tackle them?

Waiting.

Still no concrete response?

Or we should just accept Govt figures of 1.3trillion