₦airaland Forum

Light, sweet crude for June delivery recently rose as high as $100.49 a barrel before settling 76 cents, or 0.8%, higher at $98.97 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange ended 41 cents higher at $112.98 a barrel.

http://online.wsj.com/article/BT-CO-20110512-716574.html

Googling around a bit, "Light, sweet crude" appears to be a different product from Brent crude. Doesn't look like the price differential represents a subsidy. Just different goods being sold.

One other quote from that same article on The Economist

Better to eschew comparisons and concentrate on the straightforward case against the fossil-fuel subsidies, which is overwhelming. They encourage inefficient energy use, and they represent a lot of foregone export revenue in countries that produce oil and gas and at the same time subsidise their home markets (a common arrangement; Iran, Saudi Arabia and Russia are the three countries most invested in subsidising). Though they are often justified in terms of helping the poor, the lion’s share of the benefits—85% to 90%—typically accrue to those on middle incomes and the wealthy; the poor are typically not big energy users, and rarely drive. Money that could be invested in services the poor do need and use is spent on subsidising energy for the rest. And as Mr Koplow and his colleague Steve Kretzmann point out, subsidised fossil fuels for the rural poor can tip the balance away from renewable energy sources, such as solar, in the off-grid applications to which they are particularly well suited, and where they would otherwise be most competitive.

This also makes intuitive sense. The wealthier you are in Nigeria, the more you likely benefit from the fuel subsidy. If I spend $100,000/year on gasoline, I'm basically getting a $100,000 subsidy from the government (buying something for N65 which is worth N130.) But how much does your average/median Nigerian spend on gasoline per year. . . $100 bucks?

So the existing fuel subsidy benefits the rich far more than the poor.

Katsumoto:
I don't really get the point about state and federal taxes. The consumer is only concerned about the price at the pumps and not the level of taxation. If govt reduces taxation by 30% but the price remains the same because the supplier increases its own price, then the tax reduction would have made no sense. The key factor is the price.

Right. But the tax is a transfer from the consumer and oil companies to the government. The subsidy on the oil companies is a transfer in the other direction (government to oil cos). In aggregate, more money flows to the government than to the oil companies.

Again, see the graphic I linked to and compare to that calculation I made for the subsidy per barrel of $0.68.

Secondly, the price of crude is global. US Nymex is currently trading at $98 while brent crude is trading at $113.

Are you saying this difference in price between the two sources of oil represents a subsidy? Or not a difference in say quality of oil, etc, etc? If you are claiming that the difference in price represents a subsidy, justify this statement.

If you compare the price at the pumps in the US with the price in other developed european countries, then you will realise that there is a subsidy.

Price at the pumps in "developed european countries" is because they heavily tax on top of whatever the price would be w/o taxes. That there is a difference in price between the US and developed European countries does not mean that the US is subsidizing oil at all. As I showed, in aggregate oil is not being subsidized.

Tax breaks, oil subsidies, etc, its all the same. The oil companies get a cash reduction in money going to the govt.

Addressed above.

Heh. He makes sense. . . it is pretty intuitive stuff. There is no way that spending $4.2 billion/year on fuel subsidies is the most efficient way to spent that money. But I think that he is talking a bit too ambitiously. . . no way it could be phased out in one year alone.

I would suggest phasing out the subsidy over time, say over a 8 year period or so. And this has to be coupled with increased electricity in Nigeria as well. Otherwise, the shock will be too much.


Regarding this:

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

Jesu Kristi! I can think of at least a few ways to game that system out of millions of dollars. And no doubt very bright fraudsters and corrupt politicians are already doing so, lol.

Nice article here on fuel subsidies for developing countries btw: http://www.economist.com/blogs/newsbook/2010/11/fossil-fuel_subsidies

An attractive cut
One of the striking aspects of the IEA’s $312 billion figure is that more than a fifth of it comes from a single country: Iran. To get fuel prices as low as ten American cents a liter for gasoline (two cents for diesel) cost the government some $66 billion in 2009, according to the IEA: that’s $895 per person, or 20% of GDP. Saudi Arabia’s subsidy is actually higher per capita, but lower overall and under 10% of GDP; Uzbekistan’s is a remarkable 32% of GDP, but only $11 billion in total.

Pretty wild, no?

Contrast with some other countries:

Elsewhere there has already been some progress. The fall back of oil prices from their 2008 peak gave nations the possibility of reducing subsidies, which some, including China, took advantage of. Indeed while China’s subsidy is still quite large in absolute terms ($18 billion) consumers are paying 96% of market prices. Russian subsidies are falling; Indonesia hopes to get rid of its altogether by 2014.

:/

lmao @ "oyibos of Nigeria and Africa"

More cheap talk

roflmao @ "sissy clowns"

bump

lmao

I hope that he sees this and responds

hrm

ezeagu:
Isn't the idea of 'distinction' and 'connected'? You talked about me trying to blur the distinction, how is it a straw man when I tell you there is no distinction because people are interconnected? What we know is that many people on Bonny claim Igbo and Ijaw ancestry, again if you want, call Ijaw_Girl to come and tell us there is 'distinction' between Igbo and Ijaw on Bonny.

Eh. . . it is one thing to say, "my grandma comes from ethnic group X", and "I am from that same ethnic group." Connection != same

Anyway, I'll leave it at that. . . no doubt they'll speak up clarify. I wish there was a private messaging system on this forum.

interesting

Interesting.

ezeagu:
Who owns the Suez Canal? With the industrial might of a potential Igbo country, what international organisation/corporation will support cutting off the Igbo from the coast short of 45 km? The Bonny river isn't one of the 100 largest rivers in the world, the estuary is right next to Port Harcourt. If there's hostility for some reason in the Bonny River region, there's little land owners can do to stop ships on coming in to Port Harcourt on water.

Eh. . . if the territory south of you ends up in a different country and you violate the rights of that country, then all I can wish you is good luck.

Well by the fact that they're still practising Igbo culture, by the fact that they only speak Igbo, and by the fact that they have a strong connect to the southern Igbo, intermarrying heavily with those especially from places like Umuahia, this blurring has already happened hundreds of years ago. Go and call Ijaw_Girl and tell her to tell me the Ijaw and Igbo haven't blended in Bonny.

You are beating a straw man. Nobody is claiming that there aren't interconnections. But if they say that they aren't Igbo, who is to tell them otherwise? It is their right to make that decision, is it not?

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

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

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

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

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

Bolded is 100% incorrect.

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

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

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

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

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

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

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

@EzeUche_: Any progress on those 3 LGAs in Benue?

ezeagu:
Not if that 'other man' travels to your hinterland to visit the home of his forefathers. There's no land to go through, just the bonny river with a few empty wet island's.

But If I have a boat, I cannot just sail from Nigeria to Minnesota say up the Mississippi river. Someone owns the rights to that river.

In a hypothetical post-Nigeria situation, those down the river would also own the rights. You won't be able to sail up and down it w/o their permission.

Some consider themselves Igbo, some Ijaw, most just Ibani (Bonny) or Opobo, but Igbo identity is becoming attractive.

They have a half Igbo, half Ijaw culture, I wouldn't call speaking the Igbo language natively as some Igbo connections.

Eh. . . what you say contradicts what some of them have said about their own identity. Then again, you have a vested interest in blurring the distinction. . . and perhaps they have an interest in making it more distinct.

In any case, it is up to them to decide. Nobody can claim them unless both sides agree.

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

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

You are guessing here. Please use real figures.

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

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

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

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

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

ezeagu:
The mangroves that are already disappearing and in danger. There small towns dotted around wherever there's enough land on those islands.

But so long as those towns remain intact, then anyone sailing past will be going through another man's territory. They don't lose control of that territory even if it turns to water.

They speak Igbo natively and have a very 'Igboid' culture, even their founders are Igbo. The people that identify Igbo amongst them though would be recent traders that go there. Even in the case that they don't identify as Igbo, there's no transition for them to be part of Igbo culture and they are closely linked to the southern Igbo groups.

That wasn't my question. I asked if they consider themselves Ijaw or Igbo.

If some of the bonny island indigene posters (e.g., ijaw_girl) here are any indication, at best they'll say "Ijaw with some Igbo connections." Which is different from "Igbo."

zstranger:
Well it all depends on your "Chicago" connection.

Do drugs in Chicago and Yorubaland is all yours.

I doubt he did drugs himself or even sold directly. Just a money launderer proly

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

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

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

ezeagu:
What haven't you learnt from nairaland? What you're calling coast land is mangrove/marshland that will disappear in the next 20 years. Why do you think Port Harcourt was built 40 km from the coast line? Because there's no suitable land below Okrika.

No one lives in those marshes? Why would they disappear within 20 years? Are you saying the marsh would disappear, or the inhabitants. . . ?

Port Harcourt is linked to the sea through a series of rivers, the most important is the Bonny River, guess where that links to? Igbo speaking Bonny island. Guess where that's next to? Igbo speaking Opobo.

Both Opobo and Bonny Island consider themselves Ijaw rather than Igbo, I thought.

zstranger:
^^^

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

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

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

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

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

[quote author=edo.girl link=topic=666128.msg8314591#msg8314591 date=1305304581]1) A Lagos - Ibadan train line, that heads westward instead of northward, will not be viable. How will it?. If you take the north-bound trucks off the Lagos - Ibadan motorway for example, traffic on the motorway will be sparse. There's simply no demand, or urgent need for an alternative way of moving goods or people between Lagos and Ibadan. So, who will the train line heading solely westward (instead of northward) from Lagos serve?[/quote]What do you mean by "westward" vs. "northward" in this context? Will need to head north either way, right? The map looks like this: http://i55.tinypic.com/t7if5c.png

Where would you envision the westward route heading versus the northward one? And I guess you are saying that one of them is viable, but the other is not.

2) Re your second point, where are these great 'population centres,' you referred to other than Ibadan? And what level of economic activities exit in these places? Ilesha, Akure, Ife, Ado-Ekiti, Oshogbo are small towns whose economies depend largely on civil service salaries, subsistence farming, and small-shop buy & sell businesses. Where is this great & urgent need to connect these towns by trains?

1. First, you might be greatly underestimating how much each of those small towns imports/exports/consumes on a yearly basis. These towns are not islands.
2. Second, there is a bit of a chicken and an egg issue here. With greater connectivity, then the volume of trade will increase. Those shops will now be able source a container worth of goods directly from Lagos. And as you probably already know or have heard, rail is a cheaper way of transporting freight than roadway is.
In short, it isn't clear to me a priori that rail to those towns is not viable. It might be only marginally viable. . . in which case the state governments will have to take the lead. But that is fine; they do the same for certain other public goods like roads/schools/healthcare anyway.

And how can you embark on a massive project of this type on the basis that it will be economically viable 'at some point in the future.' You mean 10, 20, perhaps 50yrs?

Please tell me of a bank in California where you are that will lend me just USD100k on the back of a promise that my proposed venture will be economically viable sometime in a vague future. If you can find one, I will get a ticket tonight & be in the US next week.

The comment wasn't meant to be as vague as that. . . one could estimate current traffic (again, not just between two tier-2 towns, but also traffic flows from Lagos->tier #2 town, and all other towns on the path), then estimate how much it'd increase due to electricity making certain rural parts more attractive as places to locate business, population growth, then figure out how much of that market the rail would likely capture. I don't have a specific # yet, agreed. But that it is vague now doesn't mean it would be when pitching for money.

Like Gekko said, lets start with the basics. Most of our people in this country cant afford more than a meal a day - the last thing they need now is yet another expensive folly from politicians.

From the #s I've seen so far, the cost per-mile is cheaper than (or at worst, comparable to) that of roadways. So not clear to me at all that this counts as "expensive folly". . . unless we also think that the additional roads they are building in rural states is also unwise.

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

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

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

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

Not sure if you are missing the point here. The goal is to connect secondary towns in the SW with Lagos, not with each other (though that is a nice side-benefit, I suppose.)

If Ilesha (for example) has linked onto a rail network connecting it indirectly to Lagos (say via Ibadan), one is not going to extend the rail network to Ado-Ekiti to facilitate trade between Ilesha and Ado-Ekiti.

The point is to facilitate trade between Lagos and Ado-Ekiti.

Now, granted. . . it may turn out to be more cost effective for someone to simply have freight deposited in Ilesha and than moved via road to Ado-Ekiti. One would have to analyze things a bit.

But it seems reasonable to guess that:
1) Lagos->Ibadan rail is economically viable
2) Ibadan->some other population centers in Osun/Ekiti are also economically viable, or will be at some point in the future.

I think you are envisioning some scenario in which Ekiti decides by itself to build a railway from scratch between the two states.

That is obviously not the most cost-effective way of doing this.

You'd want to start from the south and start linking major cities. Then within Ekiti, you aren't laying track directly leading to Lagos, but to some other major town nearby.

So if the other stages are complete, you'll pay a fairly small amount. It might be Ado linking to Ilesa, Ilesa->Ife->Ibadan->Abeokuta->Lagos etc.

Each of those smaller distances are pretty affordable.

Anyway, that is just an example.