I hope nobody thinks the solution is as simple as removing the subsidies - still this is a mind-twisting observation.

http://www.punchng.com/Articl.aspx?theartic=Art201108284132946
By Omobolaji Solagbade
Sunday, 28 Aug 2011

Following the plans by the Federal Government to completely withdraw subsidy on petroleum products, investigations by SUNDAY PUNCH show that Nigeria spends about N72.8bn monthly on petrol subsidy.

According to the pricing template of the Petroleum Product Pricing Regulatory Agency as at August 15, 2011, the landing cost of a litre of petrol is N129.21; the margin for transporters and marketers is N15.49; the expected pump price is N144.70; while the official pump price is N65.

This means that the FG pays N79.70 as subsidy on each litre of petrol consumed in the country.

With about 32 million litres of petrol consumed daily across the country, it also means the government is paying about N2.6bn as subsidy every day, which translates into N18.2bn per week and N72.8bn per month.

The Minister of Finance, Dr. Ngozi Okonjo-Iweala, while unveiling her economic blueprint for the nation, however, did not give any timescale for the withdrawal of the subsidies.

“There has been a lot of debate on fuel subsidies and we have all resolved that (removing it) is a good direction to go on. You have to leave it to us to decide when it is prudent to do so,” she told reporters.

The issue of fuel subsidy removal has been contentious over the years with the citizens saying that the removal of subsidies will further impoverish them.

The country currently imports most of its petrol with the refineries all working far below capacity.

Nigeria has an installed crude refining capacity of 445,000 barrels per day but the refining output is insignificant when compared to the national demand.

However, experts are of the opinion that removal of the subsidy without putting in place basic infrastructure like increasing the local refinery capacity, improving the rail system and good road network will not augur well for the common man.

Spokesman of the Petroleum and Natural Gas Senior Staff Association, Mr. Babatunde Oke, said the direct impact of the subsidy removal would be an immediate increase in the pump price of fuel.

According to him, it is not that the workers are averse to deregulation but they want the government to put in place basic infrastructure that will provide succour to the masses before the removal.

He said, “What we want the government to do is to increase the local refining capacity of petroleum products and provide succour to the pains that may arise by the removal. For example the rail system should be working properly.”

An Associate Fellow, African Institute for Applied Economics, Mr. Manson Nwafor, also said, “It was found after a study that subsidy removal, without spending the associated savings, would increase the national poverty level. This is due to the consequent rise in the cost of inputs relative to the selling prices of products sold by most firms and farms.

He said, “The posture of the government’s fiscal policy stance following subsidy removal will be important in determining poverty effects. For example, the inflation resulting from subsidy removal can be considerably reduced with a conservative fiscal policy response.

“In this case, inflation comes from two sources; the initial increase in general prices due to the higher cost of fuel and more spending by the government as funds are freed up. Therefore, if their goal is to reduce the inflationary effect, the government will want to keep spending to a minimum, focusing on areas that can increase the country’s productive capacity.”

The earlier we remove the subsidies, the better for us but there must be at the same time an accelerated program to build local refining capacity, rail network, power and other key infrastructure as identified.

lmao

Spending nearly $500 million a month on subsidizing Benin Republic, Niger Republic, Cameroon and the few lucky connected individuals who are fortunate enough to be able to profit from this.

What a tremendous waste.

You'd be better off writing a welfare check each month to the 50 million poorest Nigerians.

@ekt, that has been the exact point I've been making for ages. There are more efficient ways to use that same money. It is better we increase the minimum wage to 50k and leave the senior staff at their current pay level or declare a "fuel allowance" for lower level staff.

I even wish that this money were divided up into 6 slices, one for each zone. Let each zone decide if its wants to provide a fuel subsidy or not. I want to be like BR, Cameroon or Niger Republic and profit if my neighbor mistakenly implements a stupid policy like a fuel subsidy.

efisher:

The earlier we remove the subsidies, the better for us but there must be at the same time an accelerated program to build local refining capacity, rail network, power and other key infrastructure as identified.

i disagree totally

the government can not remove this subsidies unless some conditions are meet

the masses cannot talk another high fuel price

school, rail etc can wait until they build a refinaery,

check it's production

know the price it takes to produce

do some economics

then think of a way of removing the subsidies such that it is cheaper than 50N about 21N per liter if not do not touch the subsidies

ekt_bear:

lmao

Spending nearly $500 million a month on subsidizing Benin Republic, Niger Republic, Cameroon and the few lucky connected individuals who are fortunate enough to be able to profit from this.

What a tremendous waste.

You'd be better off writing a welfare check each month to the 50 million poorest Nigerians.

makes sense but instead of wrting it off to poor nigerians, why not make a security force or authority that ensures this subsidies are not taken to other countries

We can list a million more efficient ways to use that money. Subsidy is so foolish! I personally do not need FG subsidy and many more do not even if they refuse to say so. Those who really need it do not even drive cars so who is really benefiting? How many liters of fuel does the average villager consume in a day?

N600 billion a year.

How about we let the SW zone opt out. Cut a check for N100 billion a year to the zone, and then eliminate the fuel subsidy from our zone

Hehe

EDIT: Sorry, was converting from dollars to naira and miswrote/confused myself. Should be USD6 billlion/year, cut us a check for $1 billion. . .

alj harem:

makes sense but instead of wrting it off to poor nigerians, why not make a security force or authority that ensures this subsidies are not taken to other countries

That never works. It is impossible. What security force on earth can prevent fuel smuggling? If fuel costs N50 in Nigeria but costs N200 in Benin Republic, how do you prevent smuggling from happening? You'll probably spend more money on preventing the fuel from being smuggled than the value of the subsidy!

Wiser to just eliminate the subsidy and spend the money more intelligently. Rather than letting your neighbors reap where they did not sow.

Is $600 billion a year in subsidies really the problem? Or that their are so many obvious holes in the current system that need to be tackled in order that those these subsidies are really meant to benefit can actually benefit from em?

I mean one could also argue that agricultural subsidies be eliminated completely since the vast majority of the money alloted goes to lining the pockets of the already rich in the country. Heck, we might as well elminite subsidies all together so that the Federal Government can have 100% of the funds to use as it chooses. Only problem is there is still no guarantee the money will go to better use.

The level of corruption in customs should give u an idea about why stopping the smuggling will not work. You only give those thieves more room to collect bribes. It's best to make it non profitable to smuggle and it will die a natural death with less problems to worry about.

ekt_bear:

That never works. It is impossible. What security force on earth can prevent fuel smuggling? If fuel costs N50 in Nigeria but costs N200 in Benin Republic, how do you prevent smuggling from happening? You'll probably spend more money on preventing the fuel from being smuggled than the value of the subsidy!

Wiser to just eliminate the subsidy and spend the money more intelligently. Rather than letting your neighbors reap where they did not sow.

very good point as well

efisher:

We can list a million more efficient ways to use that money. Subsidy is so foolish! I personally do not need FG subsidy and many more do not even if they refuse to say so. Those who really need it do not even drive cars so who is really benefiting? How many liters of fuel does the average villager consume in a day?

trust me brother. I know u are probably part of the comfortable Nigerians

but by the time it is dawn on you u would see

1. the cost of commodities such as ur daily insectide et would go up

2. cost of car and generator will go up/ price of fuel

3. food cost would shout up. a loaf of bread now 200N would be 250N

Yes, commodity prices will go up but come to think of it, has there ever been a time prices did not go up? My argument is simply that the money should be used more efficiently. Let that cash go into the power sector and manufacturing costs will definitely come crashing down. With time, the markets will stabilize and we will be fine.

. . . Would you not prefer 100% power availability to subsidy?

^--What % of this money does your typical poor man see?

Won't he see a higher fraction if you directly cut him a check? Rather than indirectly cutting him the check through this blanket subsidy?

If your goal is social welfare, providing for the poor, etc, then this isn't the most efficient way to do it.

If we eliminate fuel subsidies, that will free up more money for the Abuja bigwigs to embezzle. You guys must be daydreaming if you think that the government will channel any money to other areas like the power sector if the fuel subsidy were removed.

Well, for those of you who imagine things will always be done the way normal thinking people do. You get it wrong. Building good infrastructure in Nigeria has never been a money issue but lack of commitment and high level of corruption.

No right thinking Nigerian will trust these people in leadership any more, no not so soon. If you think removal of Petroleum subsidy will automatically fix the refineries, build the roads, fix the schools, Restore electricity, create the jobs for the youths etc You are wrong.

You will rather see the inept house of assembly double again their so called constituency allowance from N43million to N86million per quarter.
The governor will immediately double their security votes and even produce reason why they cannot pay a paltry sum of N18,000 as minimum wage. So many of them are even so ignorant of how to create job for the youths, that they buy 10,000 motor cycles and distribute and lay claim that they have created 10,000 jobs. It use to be MTN yellow umbrella/GSM handset distributed to people that was initially called job creation.
For your information Nigeria is soon running short of artisan/technician because of poor electricity supply. Every home in Nigeria generate their electricity with petrol.
Think of it if we refine the crude in Nigeria, Would it be at a finishing cost of N130/liter? with all our cheap labour? No it will be far low. Did you consider the cost of transporting it offshore for refining and bringing it back as finished product?
Madam Ngozi, your idea is laudable but let us see the commitment from the entire leadership in prudence etc

Ndu2000:

Well, for those of you who imagine things will always be done the way normal thinking people do. You get it wrong. [size=14pt]Building good infrastructure in Nigeria has never been a money issue but lack of commitment and high level of corruption.[/size]

I didn't expect, that in the year 2011, after we all we now know of the situation in Nigeria, one would NEED to re-state(for the umpteenth time since I joined nairaland) that obvious fact at to any Nigerian . . .  it's mind-numbing.

THE DOGS ARE REPEATING SAME THING EVERYDAY, NO NEW THINGS IN THEIR HEAD.

WHITEMAN BUILT REFINERY FOR US, STILL WE CAN'T RUN IT, NOW INVITING PROF OF ECONS TO ADVISE!

WHAT A SHAME DUMB PRESIDENT!

like public enemy said dont believe the hype l dont believe and l refuse to buy this who really is spending the money.This what you get when looting united,corruption fc and embezzlement inc jostle for the national cake

If they remove the subsidy and save the money. What will they do with it? Will they not share it among themselves as they usually do? Why not leave it since it is only way the national cake reaches the poor masses!!! Afterall, they too still enjoy it more than the same poor masses with their big cars and generators generating electricity for them 24hrs!
Abeg, make them remove their attention from this money oh! And think of other means of moving this country forward!!!

@efisher! So you think we have been short of money that is why we dont have constant electricity? Abi them dey divide some the money reach you?
Let them use the the money they have and make reasonable progress. Then we will see the need to source for more money elswhere!!!

There is only one way out of this mess and that is for refineries to be privatised in Nigeria and for the subsidies to be phased out gradually.   There is absolutely no need for a Nigerian government that cannot run any commercial enterprise successfully to be running refineries.   To the advocates of the retention of the fuel subsidy, just think about the number of jobs that could be created in Nigeria with more refineries and the foreign exchange that will be saved.   At the moment,  a large proportion of the subsidised fuel in Nigeria simply gets smuggled out to neighbouring countries.  Do you guys actually realise that Nigeria has just reached an agreement to import fuel from a refinery in Niger Republic.   Think about it.  Nigeria is OPEC's 7th largest oil producer, while Niger has no oil, yet we are importing petrol  from them.  We really have no shame in this country.

FELLOW NIGERIANS ;;FASTEN YOUR SEATBELTS & GET READY TO EXPERIENCE THE HARDEST TIMES OF YOUR LIVES. FUEL SUBSIDY SHOULD'NT BE A PROBLEM TO NIGERIA IF ONLY THE ExCESSES ACCRUED FROM IT IS ADEQUATELY UTILIZED. THE BIG GUYS ON TOP SHOULD FOR ONCE HAVE THE INTEREST OF THE MASSES @ HEART BY INVESTING THE EXCESSES COMING FROM THE SUBSIDY INTO SENSITIVE AREAS LIKE POWER, SMALL & MEDIUM SCALE INDUSTRIES (SMCI) DEVELOPMENT & RAILWAYS CONSTRUCTION & MAINTENANCE, THESE WOULD HELP MINIMIZE DRASTICALLY THE EXPECTED INFLATION & POVERTY THAT WOULD HAVE OTHERWISE SPEARED UP. , THESE WOULD HELP MINIMIZE DRASTICALLY THE EXPECTED INFLATION & POVERTY THAT WOULD HAVE OTHERWISE SPEARED UP.

so when exactly are they removing the subsidies

i really dont understand what is wrong with us in this country, the selfishness, greed and corruption has blinded us from using common sense to archieve ordinary fits.

how much does it really cost to build a refinary with say a capacity of 60,000bpd. am sure if you calculated what we have spent in the last 10 years on TAM and subsidy, we would have been able to atleast put a refinary in the 6 geo locations in this country.

people need to die before somethings would be set right in this country.

i could have sworn licenses were given for the building of private refinaries about 8-10 years ago. Wetin don happen, where are those refinaries, or better still what level are they.

It now takes 10 years to build a refinary abi.

We keep on doing ourselves in just because of selfish reasons, am sure someone would have frustrated the process because he was not settled or one very annoying reason like that.

We dont see the common good of all, just selfish and greedy interest that has not gotten us anywhere.

Now we want to import fuel from Benin and Niger Republic

removing subsidy is the list of our problems, tackle corruption!! subsidy is the only benefit the common man enjoys, for decades we have seen all sorts of govt failed projects with no account for the allotted budget, honestly what is the big deal in building refineries, the biafrans had 6 major refineries and several other during the civil war! correct me if am wrong . all am saying is free up money from subsidy and watch their personal accounts get fatter with more doomed to fail govt projects. its a shame to live like a slave in my fathers land

ekt_bear:

lmao

Spending nearly $500 million a month on subsidizing Benin Republic, Niger Republic, Cameroon and the few lucky connected individuals who are fortunate enough to be able to profit from this.

What a tremendous waste.

You'd be better off writing a welfare check each month to the 50 million poorest Nigerians.

@ekt_bear, I am so mad this morning that I am worried that I may actually rain curses on our leaders when I go to church today, instead of praising God for his mercies.  Apparently the total cost of the Zinder refinery in Niger Republic from which we would soon be importing petrol is $600 million.  That is just slightly above our monthly fuel subsidy in Nigeria.  This is the link from where I got the information: http://www.afriqueavenir.org/en/2010/04/06/chinese-ambassador-praises-sino-niger-cooperation/

This means that Nigeria could build at least 10 brand new refineries for the cost of just  one year's fuel subsidies!   And to think some people are still mouthing off about subsidies  remaining  in place for the sake of the common man    What about the common man in Niger Republic, and Cameroon? How have they survived all this time without fuel subsidies?   How did the common man survive in Nigeria without fuel subsidies before we started producing oil?  Just asking.
All we need to do is to demand that the government set aside just over a month's fuel subsidy and use that to build one new refinery every year.  Simple.

In a situation where we have good leaders who have the welfare of the citizenry at heart,then we can remove subsidy.but as it is,subsidy is the only thing ordinary folks like me see as benefit from the government.