The best way to remove the fuel subsidy

If the fuel subsidy must be removed, then the most humane way to remove it is to adjust the price by a very small amount every week for a few years. This will give the masses (poor individuals and small businesses) enough time to adjust to the removal of the subsidy with minimal hardship.

If the current true cost of petrol is ₦141 per litre, then in 3 years at an average inflation rate of 12% the true price of petrol should be about N198.1 per litre.  If we start from 65 naira, and increase the fuel price by just 85k every week, then within 3 years, the subsidy would be gone.  If we start from 65 naira and increase the fuel price by ₦1.07 every week, the subsidy will be gone in 2 years. If we increase the fuel price by ₦1.78 every week, starting at 65 naira, the subsidy will be gone in 1 year.

According to some reports, the NLC is fighting for an initial price of 90 naira. If we start at 90 naira, then we only have to increase the pump price by 69k per week to remove the subsidy in 3 years, 83.5k to remove it in 2 years, and N1.31 to remove it in a single year!

If the price of fuel is increased by such small amounts every week, most people will be able to cope, because the sudden inflation in prices we've seen won't be. Instead of prices going up all at once in every sector, price increases will happen gradually over a very long time.

During those years, people will be able to replace their petrol generators with diesel generators, import diesel-powered cars and more fuel efficient cars to replace petrol guzzlers. Every business will have enough time come up with new ways to cut costs and increase their productivity.  The privatized power sector would start working better and better, so the need for petrol to power small generators will gradually disappear.

Some people have considered a phased approach: increase the price from 65 naira to 90 naira, then 120 naira, and finally, deregulate. That's a mistake because it will lead to hoarding. If fuel price is to be increased to 90 naira per litre next week, marketers won't want to sell at 65 naira per litre this week because of the huge profits they can get by doing nothing (N25/l). The same thing will happen sometime before the price is increased to 120 naira and sometime before full deregulation.

A more graduated increase in the fuel price will eliminate the problem of hoarding, because you would have to hoard the fuel for a very very long time to achieve significant profits.  For example, if the price is increased by 85k every week, you would have to hoard the fuel for more than 7 months, to earn the same N25/l.  During that time, a marketer selling regularly would have made more than that. So, a weekly price bump is better than a 3 step price bump, because sharp increases in pump price encourage hoarding, causing fuel scarcity.

Summary: Starting at 65 naira, if the price of petrol is increased by 85 kobo every week, the subsidy will be gone in 3 years. If the fuel subsidy must be removed, this is the most humane way to go about it. This is probably what we should be fighting for.

Other ideas:
- Increase Petrol Price By 85 Kobo Every Week For 3 Years
- Privatize Public Schools And Distribute Their Shares To The Masses

it wouldn't work cos prices of goods and services will skyrocket almost daily

With this suggestion, e go become real RAT RACE economy!

toba:
it wouldn't work cos prices of goods and services will skyrocket almost daily

Prices will go up slightly once in a while, but they won't go up sharply like what we saw earlier.

Lame man's understanding of fuel subsidy, NEXT pls,

Seun This is not viable!!! this will only bring about a non-uniformed price and chaos.

What happens if Marketer A buys this week and hasnt finished selling before the price increases? He will be forced to sell at the prevailing price!

This will in turn make marketers create artificial scarcity because they will buy and wait for the price to go up before they sell.

Then we shall be faced with the problem of scarcity, as dealers will just accumulate and hoard products and sell at a future date, to make excessive profits.

whirlweend:

Then we shall be faced with the problem of scarcity, as dealers will just accumulate and hoard products and sell at a future date, to make excessive profits.

Can you read?

, and then we'll experience repeated fire outbreaks here and there, all in the name of hoarding petroleum products!

Seun:

Prices will go up slightly once in a while, but they won't go up sharply like what we saw earlier.

I laugh in Malay.

We are both aware that Nigerians are exploiters.

Ok this way. You'll go to the market and the mama oloja will tell u  'won ti fi N1 kun owo opo'

so this theory wouldn't work

whirlweend:
Then we shall be faced with the problem of scarcity, as dealers will just accumulate and hoard products and sell at a future date, to make excessive profits.

Hoarding is unavoidable if the subsidy is ever to be removed. But a gradual increase minimizes the profits that can be gained by hoarding because to make significant profits you will have to tie down your resources (tankers, etc) for a very long time.  If a marketer is making significant profits in the normal course of business, then hoarding may not be as profitable as providing a normal service over the same time period. The only way to eliminate hoarding completely is to eliminate the subsidy right now, but we can minimize it using this approach.

WTH?! :O  

idiagbon wept

Me no likey. Why?
1. Postponing the evil day.
2. Marketers will take advantage of d situation. Eg sell only 4 days in a week and hoard for the next 2 days in order to make more profit the next week.
3. The worst: How can you tell what the price will be in 3 yrs time? It may end up to be a race to no destination besides the refineries will have to wait till the market is settled.

Seun where do you get your subsidy removal alternative ideas from sef.     so the domestic market will now have to adjust to daily price distortions leading to hyperinflation?

Guy abeg e don do. You don try.

Why not levy Nigerians to pay N200 for the construction of a new refinery/revamp the old ones?

We are saying that all petroleum products should be refined here and no single drop imported. This way, Nigerians will not be paying more than N40 per litre for it.

How can Seun be advocating price increase? Is it that he isn't following the arguments against the government's position all this while?

Seun is pregnant again and can't see his feet.Where sir,do you propose we get N1 notes for the daily price mark up?

Marking up once a year is cool.N80 this year,N100 next year etc.

Anyhoo,the NLC boss is already singing a new song.I just hope all the sweat and screams of the week gone won't be a mere rat race;nothing gained nothing won.

agree[img]http://2.s07.flagcounter.com/count/DymW/bg=E6E6E5/txt=E6E6E5/border=E6E6E5/columns=1/maxflags=1/viewers=3/labels=0/[/img]

@Thekrafter. I can't read,please lend me your eyes.When I wrote 'dealers',I am actually referring to importers that own tank farms and not your local petrol dealers

2. Marketers will take advantage of d situation. Eg sell only 4 days in a week and hoard for the next 2 days in order to make more profit the next week.

That's absurd. How will 85k per liter compensate them for profits lost by closing shop for 2 days every week?

I already forgot the Kobo was part of our currency. Is this a history lesson Sir?

naija traders are not scrupulous or rational. they would just jerk their prices up by 5/10 naira each week (whichever denomination happens to be feasible)

very funny idea,suggestion
as mentioned by earlier contributors,hoarding and scarcity of fuel would be the order of the day, cost /prices of goods, transport fares and other services will be varying on a weekly basis etc. Its just tantamous to chaos,

@op, or are you trying to create a comic relief of the present impasse/imbroglio

sounds reasonable

U had to shoot this kobo kobo idea of yours to d frontpage bc na u get Nl.
I bet u if marketers know there will b a weekly price increase,we wudnt see fuel to buy in dis country.Oga Seun u didn't think this trua at all at all.

hahahaha  

hehehehe  

naija traders are not scrupulous or rational.

You can't really succeed in business if you're consistently irrational. If 80% of Nigerian traders are irrational, and only 20% are rational enough not to increase prices beyond what the minute increase in petrol price merits, then consumers will only patronize the rational 20%, since they will always buy from the cheapest source. This will force the irrational 80% to reduce their prices in order not to go out of business. It's a self-correcting problem.

Seun's opinion

You think the federal government don't know all this? or they don't know a way to even solve the problem without increasing fuel prices at all?? They are just a bunch of criminals who doesn't believe there's heaven . If a woman gave birth to a child and the child turn into something else the woman will say MO TI FI ABE JONA and if you vote for a man and he turned out to be a criminal what will you say?? MO TI FI IKA JONA that's what is happening here all gej voters don FI IKA JONA

Great plan. Station dealers can't sensibly hoard products for even a single day caused they'd end up making just 85k x 35000 on a present stock assuming they sell up to a truck a day.

The only stumbling blocks I see are on the governments side. Paying reducing subsidies and the stress it might involve. Me I don't know sha but I feel some people somewhere will find a way to make mago mago out of the process.

Just tot of one. Would importers be paid as @ when their vessels get to the ports or as @ when they're cleared and products loaded into the the tank farms? The thiefs @ NNPC estimate 31 days demurrage per vessel, which means @ least a N2 loss just by waiting @ the ports alone.

Overall, its a sensibly plan sha. But whether enforceable in a country like Nigeria is another matter.

Seun ur idea is very brilliant and wonderful.u really did ur homework I must say.this issue is now past d issue of subsidy/deregulation.what we are now asking 4 is 2 revamp old refineries or build new ones,arrest d so called faceless cabals and prosecute dem,24 hour power supply,cutting down d cost of running d government, etc.is dat 2 much 2 ask 4?.dey want us 2 make sacrifices 4 d greater good while they can't even bear 2 reduce dia salaries and allowances by 25 percent.so Seun save d maths class 4 another day