₦airaland Forum

lexy2014:
So if u can't get up 2 100% of PMS from a barrel of crude, then y do u assume that a barrel of crude is a 100% PMS? If there are by products from a barrel of crude, there are. Y do u now decide 2 now round everything up as PMS and then base ur inference on assumption by discarding d facts?

How many of those other products and bye-products are as pricey as gasoline and diesel? Lube oil is pricey, but how much of it can you really make out of a barrel and what is the demand for it compared to gasoline?... My assumption of 100% PMS is actually generous and conservative, and I did that to cover for the extra value the pricier derivatives like diesel, jet fuel and lube would have added.

On average, 44.4% of petroleum becomes gasoline. There really are no waste products from petroleum. The lighter chemicals are natural gas, liquified petroleum gas (LPG), jet fuel, and kerosene. The heavier products are used for the manufacture of lubricants, plastics, and asphalt. If nnpc decides 2 put a price on these products in a barrel of crude, will they not get $80? I believe NNPC can still get its $80 after selling all these products

Knocking down the price of pms which is the largest derivative to N80, the amount gained by the sale of other derivatives (even if you leave diesel price at N220) would not cover up to $80. I wouldn't be able to give a detailed breakdown on that now to tell you by how much it would be short, but consider the average global price of PMS and it gives you a rough idea of what a profitable (or break even) price of PMS should be.

But yes, it's absolutely true that if Nigeria starts refining its crude, it can help to bring down the price in an economically viable way. That is because in addition to paying less for processing and shipping costs, a cessation of importation would have an unbelievably positive effect on our exchange rate.

djon78:
Now you are giving fact like an intelligent person. Your chart shows that actually Nigeria wasn't doing bad.
At least you have educated me with that. This you should have done since.
Kudos

[s]These are the way Buharists should argue by
Showing facts of what the President is doing
Not insulting people. Carry people along
If this regime had toned down its rhetoric, it would have won very many people over.[/s]

Point of correction, every single argument I made on this thread had absolutely nothing to do with buhari or atiku or gej or apc or pdp or any kind of politics whatsoever; it was never meant to be a political argument and in no way did I try to say anything to castigate or glorify any body or political group or political ideology. Nigeria's economy still suffocates under the burden of subsidy, PDP paid subsidy, apc is paying subsidy, and subsidy payments will continue by every govt until we get certain things right (especially when we fix our balance of trade problems and strengthen the Naira). Too bad, your mind was too politically charged, that's why you saw it all as politics.

@lexy2014,

Maybe if you look at it from another approach. The image chart below shows global petrol prices in countries around the world. The comparison already includes a lot of taxes and 'other costs' in different countries so might not give a very good picture. But from the list, we can only just assume what the base price might be if the extra taxes are excluded. The only reason I put this up is to illustrate where the N145 Nigeria pays for petrol sits with other countries around the world; it is far below the global average of $1.17 and that's because of the subsidies and lower taxes we impose.

The main factor of production which drives the base cost of petrol is the prevailing crude oil price. Now of course if the Nigerian government starts refining Nigerian crude and selling to Nigerians, it can afford to easily sell that fuel for N80 (roughly $0.26) since the primary raw material (crude) used in its production wasn't paid for. But the point I've been trying to pass across is, IF the Nigerian government alternatively decides to sell that crude in the international market, or IF it decides to refine and sell PMS to these other over 150 countries where PMS sells for far above $0.26, will the Nigerian government make more profit or not?

If you agree that the Nigerian govt will make more financial benefits by selling the crude or the refined products internationally at average international market prices, do you agree now that the government will be giving up/foregoing/forfeiting the extra financial benefit if it sticks to selling the petrol to Nigerians at $0.26 (N80)?

Gasoline prices, 05-Nov-2018: The average price of gasoline around the world is 1.17 U.S. Dollar per liter. However, there is substantial difference in these prices among countries. As a general rule, richer countries have higher prices while poorer countries and the countries that produce and export oil have significantly lower prices. One notable exception is the U.S. which is an economically advanced country but has low gas prices. The differences in prices across countries are due to the various taxes and subsidies for gasoline. All countries have access to the same petroleum prices of international markets but then decide to impose different taxes. As a result, the retail price of gasoline is different.

https://www.globalpetrolprices.com/gasoline_prices/

lexy2014:
Even with opportunity cost, u still contradicted urself. U derived ur N150 (N24,000 ÷ 160litres of PMS) by distorting d facts, by assuming that only PMS can b derived from a barrel of crude. at d same time, u acknowledged that PMS isn't d only derivative from a barrel. Despite u knew that u can get several derivatives from a barrel of crude, u went on to base ur analysis on assumptions instead of d ACTUAL yet u are insisting it is right cos madam oby said it.

Which point didn't I read? Aren't u d one who made this point?

"A barrel of crude is equivalent to 160litres. If we assume that we can convert the full 160 litres of crude to petrol, the maximum we can get from a barrel is therefore 160litres of petrol (take note, this is only an assumption cos we cant really derive up to 160litres from a barrel as there will always be other derivatives and bye products). But assuming we can get up to the full 160 litres of petrol from an $80 barrel of crude, that come out to about N150/litre."


If u use d 4 derivatives u get from a barrel of crude 4 ur analysis will u still end up with N150 as price of one litre of PMS?

Of the derivatives that come from crude, PMS has the highest demand and it's typically makes the bulk of what you can get. In reality, you cant even get up to 100litres of petrol from a barrel of crude, and yes! there are other derivatives which are more expensive than PMS (e.g. diesel, jet fuel, lubricants), but you don't get as much of these more expensive products as you can get of PMS from a barrel. Also, since you want to talk of every single derivative, remember there will also be much cheaper and even worthless bye-products (which I haven't considered)? All in all, the best value you can get from a barrel of crude depends on the quality of the crude and efficiency of your refining process. In summary, my assumption about getting the full 160 litres of PMS from 160 litres of crude (100% efficiency/utilization and no waste/bye-products) is a conservative assumption ; it doesn't in any way invalidate my argument.

lexy2014:
D same way u have also tried 2d best of ur ability to deflect and avoid d issue of what inputs go into d production of imported PMS as well as locally made PMS using N150 as ur base price. What are these inputs and what are their costs? If u can't give these, then how do u conclude there will b a loss selling at N80 and even with opportunity cost?

Lol... this dude doesn't give up; abi you be woman?...

Okay please, tell me, what are the inputs that go into the production of imported PMS vs Local PMS. Of course locally refined PMS (refined by NNPC) will be cheaper because the primary raw material (crude) will not be paid for by NNPC (this is common knowledge). I'm sure this all you've been trying to point out , TRUE or FALSE?

But all I've been trying to tell you all along is that cost of production isn't only about the direct cost of raw material inputs. When making economic decisions, economists determine costs by also considering the explicit (or opportunity) costs. So in this topic, the direct cost of raw material input to produce PMS isn't all that matters as you've been trying to claim. But it seems like this is where you've been dwelling on all along; "that NNPC wouldn't pay global crude prices".

If I'm given a car as a gift (free gift), or course if I sell that car for N1million, I have made a full profit of N1million (from a layman's perspective). But if the actual market value of that car was actually N1.5million, then economically, an economist would say I have made a loss of N500k, that 500k doesn't come from the money I paid for the car (of course I paid nothing for it), but rather it's the potential extra benefit I would have made if I had sold the car for the right market price. So in your case, you keep asking "what are these inputs and what are their costs", the cost of the main input here is ZERO if this helps.

lexy2014:
I haven't won anything. As 4 me, this isn't a contest& I didn't get into d conversation cos I wanted 2 "win". Its u who wanted 2 win. Remember, earlier u won d award 4d most economically literate person 2018.

I've tried really hard to the best of my ability to breakdown Madam Oby's point, I've tried my best to explain how economically, there would be losses if NNPC sells petrol for N80 even if the petrol is locally refined. The only thing that can change that is if there's a drastic improvement in the value of the Naira. You obviously have refused to read my explanations, so I dont have anything to say any more.

lexy2014:
If i tell u that Am not surprised at ur response, I will b lying. Its typical. It seems thats d only way u are able 2 express urself. This makes me understand that there's more 2 just being able 2 read&write (literacy). Water doesn't stay on stone, neither can it penetrate stone. That's y ur use of derogatory words don't stick neither do they penetrate. So in a way, u are right. I am stone.

D discussion isn't about whether I take drugs or whether am impaired. D discussion is about d contrasting statements made by two personalities. One believes PMS can b sold 4 N80. D other believes otherwise. So try 2 stick with d issues&stay focused.

As far as u are concerned, Nigeria will loose money if PMS is sold 4 N80. So d same way u say u have been talking of opportunity cost 4d past 4days, is d same way I have been asking u 2 let's us no what inputs go into d production of imported PMS as well as locally produced PMS. Cos if u say Nigeria will b at a loss by selling PMS below N150, then what's wrong in knowing d inputs that go into d production of PMS & d cost of those inputs? Unfortunately, u have deflected that question by perpetually recycling opportunity cost& latching unto ur penchant 4d mediocre.






Pls look at my statement above and look at ur response. With that, it kind of seems all this ur talk of drugs, learning impairment e.t.c, seem 2b ur own way of sharing ur personal experience.

This is u:

"A barrel of crude is equivalent to 160litres. If we assume that we can convert the full 160 litres of crude to petrol, the maximum we can get from a barrel is therefore 160litres of petrol (take note, this is only an assumption cos we cant really derive up to 160litres from a barrel as there will always be other derivatives and bye products). But assuming we can get up to the full 160 litres of petrol from an $80 barrel of crude, that come out to about N150/litre."

This is me:

" question I ask is y d assumptions? What is d fact? U dont need 2 assume d facts except u want 2 distort d truth which u were trying 2do. D fact is that u can get more than one product from a barrel of crude. In this part of d world, we are very familiar with 4 of those products, DPK, AGO, PMS and gas. And if this is d case, a litre of PMS cannot b N150. Based on what u said above, in order to get d price per litre of each derivative it is N150 divided by N. N being d number of derivatives. So 150 divided by 4 is N37.50k. So Atiku was right. PMS can b sold 4 N80 in Nigeria."

So what exactly are d economic implications of d above that u mentioned earlier?

Please its okay, you win. Petrol can be sold at N80 without any economic implications. I don't know what to tell you any more.

lexy2014:
[s]There's something I have noticed on this platform. When some folks run out of things 2 say, they embark on personal attacks. U made a contradiction in ur post which I brought 2 ur attention. u say Nigeria will loose money if it doesn't sell crude at $80 yet u say crude doesn't add 2d cost of production of PMS. How do u reconcile both statements?

I no u are a man of immense economic literacy, one who sees d big picture. Seeing d big picture could also b said 2 mean "birds eye view". So whether u are in a plane or u flying a drone or u are d bird itself, u can c far&wide. U can c d roof tops, d cars driving on d road and d trees. D question is do u from ur birds eye view c what's going on under d roofs, inside d cars and on d trees? I don't think so. That's where d earthworms view comes in. A view that is closer 2d ground, that sees d little little details.

Let's look at ur previous analysis:


"A barrel of crude is equivalent to 160litres. If we assume that we can convert the full 160 litres of crude to petrol, the maximum we can get from a barrel is therefore 160litres of petrol (take note, this is only an assumption cos we cant really derive up to 160litres from a barrel as there will always be other derivatives and bye products). But assuming we can get up to the full 160 litres of petrol from an $80 barrel of crude, that come out to about N150/litre."

D question I ask is y d assumptions? What is d fact? U dont need 2 assume d facts except u want 2 distort d truth which u were trying 2do. D fact is that u can get more than one product from a barrel of crude. In this part of d world, we are very familiar with 4 of those products, DPK, AGO, PMS and gas. And if this is d case, a litre of PMS cannot b N150. Based on what u said above, in order to get d price per litre of each derivative it is N150 divided by N. N being d number of derivatives. So 150 divided by 4 is N37.50k. So Atiku was right. PMS can b sold 4 N80 in Nigeria.

This is what djon78 was trying 2 say that u were twisting info. Cos here u have facts at ur disposal, right b4 u, but u chose 2 call d facts assumptions. This y u have been very defensive whenever I throw 2u d issue of what u called "explicit costs". In response to my request to u to let us no what goes into d production of PMS locally and imported PMS, u have at best resorted 2 petty personal attacks & tried 2 shroud d discussion with ur "opportunity cost".

Since u c d "big picture" as a world class economist, I was expecting u 2 unbundle ur big picture. What makes up ur big picture. PMS is a product and like every product, input goes into its a creation. So y are u scared of attempting 2 itemise what inputs these are and their costs? I believe d facts speak 4 themselves and they have spoken[/s]

It is not my fault you do not know how to read or comprehend simple English. I cannot continue to repeat the same sentence to a person like a hundred times as if I'm talking to a piece of stone; all for him to come back and turn my statement upstide down and then start repeating his same question. I do not believe you are autistic or have learning disabilities, I also do not want to believe you are on some kind of hard drug that impairs judgement and makes you forget things. I just believe you're deliberately being mischievous and feigning ignorance.

I've spent 4 days telling the same person the very same thing like a hundred times. I specifically told you that the $80 is not a part of the production cost, but rather, it is an is an 'opportunity cost'; i.e. the money Nigeria will not make if it goes ahead to refine and sell cheaply instead of selling the crude internationally.

But just look at what he's saying above?.. that I made a contradiction by saying the $80 was part of production cost? tufiakwa!

Oga if you are on hard drugs, QUIT. If you aren't on hard drugs, then go see your doctor. But please before you quote me again, go and first read my previous responses in the past 4 days, if you dont still get the point, then please let me be; I give up, You win! Atiku or anyone can make petrol sell for N80 without any economic implication. You win! You win!

www.nairaland.com/attachments/8086798_pe___1_jpegcdb223fb51ec9b180774c5e6ab845dc7
www.nairaland.com/attachments/8086799_pe___2_jpeg959727a097f27c0eac3254809b424e6c

Which man wouldnt want to know what this ukwu feels like?

lexy2014:
Congratulations on winning d economic literacy award, 2018. Meanwhile, according 2u, crude will not add 2d cost of production but NNPC will loose if it doesn't sell at $80. How do u reconcile that? What's wrong if I ask u about d "explicit costs"? Does ur economic literacy not extend 2 "explicit costs"?

Go and take you drugs please. Your teachers need all the accolades in the world. It must really be hard for your folks.

lexy2014:
Did I say u said anything about d crude adding to costs? So u mean refining d crude will not incur any cost?

If nnpc isn't selling its crude and it is refining it, is that a loss? Is refined product not just crude in another form? After refining, will nnpc keep its refined products of PMS, gas, kerosene and diesel stored up without selling them?

Lol... it's really interesting how low people can be intellectually. Talking to you is like talking to a piece of stone. See question a human is asking after my explanations? Bros, go and take your drugs.

lexy2014:
U tell me. Is being an illiterate a good thing or a bad thing?

It's a very good thing. Remain there.

blackgold90:
Mr Man if APC with Pres. Buhari as it leader suspend Kano state governor over the bribery video will the governor last a day.


Don't be behaving like someone those brain travelled

A rogue court judge grants an injunction preventing HOA from probing a governor, you are here blaming buhari; and you have the guts to insult someone else of having brain problem?... Your mumu strong!

Kennedy94:
You seems not to understand what is happening..Who is the head of all this parastatals you mentioned, he won't be investigated because he has to deliver 5 million vote for buhari...

Lol... the court or the judiciary is now a parastatal?... Judiciary = 'all these parastatals'?... smh!

lexy2014:
Great. Amazing stuff. Now u can still itemize d inputs that goes into d production of a litre of imported PMS as well as that of locally produced PMS. Y shouldn't I ask u about were NNPC buys its crude? What's wrong with that?

Are you an economic illiterate?.... or an all round illiterate?

Too many dull people in Nigeria!... Just imagine the half of the comments on the first page shouting buhari and APC. I never knew Buhari and APC were in charge of Nigeria's Judiciary.

djon78:
My friend I told you to go and look for whom to deceive. You have been spreading fake, wrong, impractical and real life unworkable things.
And that is what you and your likes have been doing to have kept this nation this way for many years by the kind of knowledge you peddle.

I stand for;

Transparency
Accountability
Doing things the right way

Because I have lived, studied, worked in well run Nations. All this your information turns my belly and nauseating

I gave you simple and verifiable facts, figures and explanations. But what I said obviously does not sit well with your preconceived notions which are driven by deep mistrust for government and just plain lack of understanding, that's why you have vehemently refused to accept a simple fact. If there's anything which isn't clear in my explanations, ask (rather than labeling me dubious or deceiver) and I will try to see if I can break it down.

1+1 will always be 2 in arithmetics, whether we like it or not, it's a law. I do not work with the Nigerian govt, I studied, worked and also live in a developed country like you and I also want the fuel prices to be cut down too. But that does not mean I should throw away simple economic knowlege to just join a crowd and blindly shout thief thief thief when I know better. Even Oby Ezekwesili who raised the question about N80 not being economically sensible is not in government; she's even contesting for presidency. But you dont expect her to throw away her knowledge of economics for the sake of politics to start saying sweet but unfeasible things Nigerians like you may want to hear.

djon78:
Me go and read my books? Haha.
I can categorically say that its your likes with the level of knowledge you bandy about that has run our economy, our oil industry and everything to the ground
You come and quote what you read on the back of basic economics book

I don't come to quote back of economics book's, I talk practical and all what I have said has been proven right. So go and look for whom to deceive

Once again I put it to you that NNPC will take a loss if it refines Nigerian crude and sells it for N80 and that's all the economist (Oby Ezekwesili) has explained. The loss is not necessarily in terms of cash it spent to produce the fuel (because it actually got the crude for free), but rather it's a loss the NNPC would incur by not choosing to sell the crude to foreigners for $80.

obailala:
Accountants calculate profits and losses using direct/explicit cost, but economists calculate profit and losses using opportunity cost.
https://www.enotes.com/homework-help/distinguish-between-accounting-cost-economic-cost-330970

If I pluck some mangos from my garden, and instead of selling them at the market, I choose to dump them in a pit, to an accountant, I have lost nothing cos I didn't buy the fruits, but to an economist, I have lost the money I would have potentially made if I sold those mangos in the market (that's looking on the big picture). The concept of loss does not only apply when I buy or pay for the input; that's why it is termed 'opportunity' cost.

Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over another.

NNPC might choose to refine Nigerian crude and sell it at N80 or N90 or even N30. But by not choosing to sell that crude at international rate of $80, NNPC misses out (or loses) the benefit it would have made if it did.

This explanation can't be too difficult for any objective person who passed through a secondary school can it?.. Even an illiterate market woman understands this concept; you don't need any economic textbook to know this.


By the way, the government never lied about paying subsidy, it only called it a different name (under-recovery) because it's now being paid in a different way; but the so called under-recovery in plain language still amounts to subsidy. In simple English, NNPC buys fuel at say N200 but sells it to Nigerians at N145. It was termed under-recovery because the NNPC no longer 'pays' it as cash, but rather takes it as a 'loss' which it computes in its operational losses.

djon78:
1. All your summation here shows that I have been discussing with someone that doesn't even understand even basic economy.

I never said that NNPC gives oil for free. What I was talking here is subsidizing the cost, to a punp lower margin of 90Naira as said by Atiku.

I also stated that this regime has been secretive concerning subsidy. It claimed it has removed subsidy.
And coincidentally today's early news this morning on how NNPC secretly diverted LNG revenue to pay for revenue. Totally agreeing to my summation.

In Jonathans era it was open, subsidy was paid, petrol was cheaper. In this regime they claim no subsidy, petrol is costlier, only now we are finding out they have been secretly paying it.


Now you can quote all your opportunity cost primary economics, to hoodwink those you want to, but my own stands is proving right by recent news emanating concerning NNPC, and this administration.


As for other things you quoted there I will not address it because you don't even understand basic international trade economic models. So you are completely off point.

Lol... from claiming that 'I said NNPC will buy crude,' now the new accusation is that I dont understand international trade.

You claim to understand international trade so well but you have no clue on the elementary principle of 'opportunity cost', 2 days later, you still just cant comprehend where the principle of opportunity cost comes into this discussion...Lol... What a bizarre contradiction! You believe there is no economic cost if NNPC refines crude and sells to Nigerians at ANY price because the crude was gotten freely within Nigeria. Oga go and read your books; reading is the bane of Nigerians and the black man in general.

lexy2014:
if a litre of imported PMS cost N150, what is d cost of d input needed to produce one litre of imported PMS? if a litre of locally produced PMS cost N150, what is the cost of the input used in producing one litre of PMS locally? if NNPC decides to do local refining, who is it going to buy crude from?

I never said the crude would add to cost of production so stop asking for the explicit costs which the crude would add to production.

What I have said like a thousand times which you've struggled to comprehend is the 'opportunity cost', i.e. the potential money NNPC would miss out on by not selling that crude for $80. Economist do not focus on only the explicit production costs which is just the little picture (as you're presently doing), economists think the big picture, economists consider the opportunity costs of taking a particular decision over the other; Oby Ezekwesili is an economist.

Anyway, it's obvious you have learning difficulties, cos I'm pretty sure you'd return again to ask about the direct cost of the crude and how it would not add to 'explicit' production costs.

lexy2014:
pls read my earlier post to which u responded with d highlighted. obviously, ur response to d leather analogy i gave is an emotionally outburst cos once again u have made a statement that has no relevance 2d discussion. take note of d words i used,"production", "procure" and "cost". since u are an economic scholar, am amazed that u arent familiar with these concepts and how they are applied. d analogy of d shoemaker is meant 2 give u a helping hand so u can breakdown ur product which is a litre of imported PMS. so break it down in terms of its inputs and then put a cost on each input d way a shoemaker will do 4 his leather, needle, sole, gum, his labour and transportation. for instance d shoemaker might say cost of leather= 20naira, cost of gum=10naira, cost of transport=15naira, cost of labour=50naira and so on. hope u get d picture now?

u are d first economist in d world to calculate profit and loss using opportunity cost. if nigeria will make a loss by selling PMS at N80 per litre, how did u do ur calculation to have arrived at that conclusion when u dont even no d costs of d input of producing a litre of fuel. its only when u can itemise d inputs that go into a litre of PMS and cost them like d shoemaker does 4 his shoes, that u can adequately say nigeria will make a loss or not. break down ur N80 vis-a-vis ur N150 in terms of their input. show us what d inputs cost. ur submissions are mere assumptions without any scientific basis. so opportunity cost has no relevance in d discussion. once again, ITEMISE D INPUTS AND PUT A COST TO THEM

u are d first economist in d world to calculate profit and loss using opportunity cost.

Lol... Now it all makes sense, just like I thought all along, you are indeed an economic illiterate. Oga, the first thing you were taught in elementary economics is that accountants calculate profits and losses using direct/explicit cost (as you're doing now), but economists calculate profit and losses using opportunity cost.
https://www.enotes.com/homework-help/distinguish-between-accounting-cost-economic-cost-330970

If I pluck some mangos from my garden, and instead of selling them at the market, I choose to dump them in a pit, to an accountant, I have lost nothing cos I didn't buy the fruits (myopic reasoning), but to an economist, I have lost the money I would have potentially made if I sold those mangos in the market (that's looking on the big picture). My nursery 3 niece wouldn't even struggle so much to grab this simple concept.

The concept of loss does not only apply when I buy or pay for the input; that's why I termed it 'opportunity' cost.

Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over another.

NNPC might choose to refine Nigerian crude and sell it cheaply. But by not choosing to sell that crude at international rate of $80, NNPC misses out (or loses) the benefit it would have made if it did.

I'm sure Oga will still come back and ask the same question about "where nnpc buys the crude from or how much cost the crude adds to the production". He still just cant figure out the meaning of opportunity cost; this is really interesting!

lexy2014:
Eyaaa...kpele. u are already spilling ur emotions. Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over another. what has that got 2do with what i asked which is about production and cost? how can atiku give nigerians PMS at N80 or how can he not give nigerians PMS at N80. isnt that what d discussion is about?

if a pair of shoes cost N150, what went into d production of those shoes that makes it N150? d shoemaker would have procured certain items to PRODUCE d shoes which form his costs whether they b variable or fixed. things like sole, leather, thread, needle, gum, and then he will factor in his labour and his transportation. this is what i said u should do with ur one litre of imported PMS which is N150, ur base price. ur unit of analysis. like i said ealier d issue isnt whether a barrel of crude can produce 166litres of PMS. what i asked u to do is to break down that one litre from d 166litres and tell us what went into its production. unfortunately u are talking of mango and opportunity cost. u are feigning knowledge but displaying gross ignorance. in ur economics, werent u taught that production is about input, process and output? a litre of PMS is an output (product). if it is a product, what were d input that went into its production? and for u to no y d product sells 4 N150, then u must no d costs of its input. thats all u are supposed to analyse. cost of producing imported PMS on one hand and d cost of producing PMS locally on d other hand by identifying their input. not to come here 2 b talking of mango

Oh yes I feel emotional, I feel terrible about the pathetic state of the educational system in Nigeria. Just imagine the simple concept I've been trying to explain to you for days? You are simply being an economic illiterate, that's why you feel the crude oil NNPC will use in producing petrol locally is worth nothing, that's why you feel the alternative amount NNPC can potentially make by alternatively seeling that crude is an irrelevant eonomic consideration when fixing the price of locally produced petrol. Probably if the FG sets up a body that makes leather shoes, you will also assume the international market price of the leather (assuming it was just exported) should not be a relevant consideration because the leather was produced in Nigeria. My goodness! how can people be this dull even after explanations?

A simple question for you, if NNPC sells 1000 barrels of crude at $80/barrel, it makes $80,000 right?.... So if the same NNPC decides to not sell that crude but rather just share it to Nigerians for free, how much did NNPC not make by not selling the crude?... The simple argument which Oby Ezekwesili put forward is that if Atiku decides to sell petrol at N80, Nigeria would be making a loss; and of course that loss doesn't come from money it spent producing the fuel (cos NNPC got the crude for free of course), rather the loss comes from the extra money it would have made had it sold the crude internationally for $80. That extra money not made is the opportunity cost (Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over another).

Even an illiterate market woman wouldn't find it this difficult to understand the principle of opportunity cost, but I'm sure this Oga would still come back and tell me how NNPC did not buy the crude and wonder why I mentioned opportunity cost. Even if you weren't taught basic economics in secondary school, you have the privilege of the internet to google things and gain knowledge. But you just can't, that's why you think crude produced in Nigeria has no value.

djon78:
All your analysis are very wrong.
Are you aware of basic laws of international trade?
How can NNPC pay for crude oil at $80 per barrel. Why will I pay $ for products I produce in my country
How do you even determine the exchange rate of a nation?
This is the problem we have in this part of the world. When even basic laws of international trade we can't understand and we want our economy to improve. While busy quoting Economics 101.


You said NNPC will pay $ for her crude.
Nigeria has OPEC quota of 2 million barrels per day. That quota is for export. It has nothing to do with the oil we use locally

During Jonathan period, at least I was aware that what Nigeria did was export crudes to refineries abroad and the same refined products is now imported back. And a lot of slush funds and misappropriation was done on that policy. But even with that Nigerians were paying less on petrol. But we don't even know how this present administration does her own. Everything is shrouded in secrecy. Now we pay more for fuel, and the oil bill is more now on the country's balance sheet.

Then that the NNPC will pay the $ equivalent. for a product you produce in your country in.
It doesn't make any economic sense.


Why does wise Nations encourage local production? Because when they produce locally, foreigners come to purchase from them and they come with $ to buy. The $ will be chasing there currency, thereby strengthening there currency against the $. It also strengthens local producers and protects/proofs the local consumer. And this is the secret of how China has lifted more than 500 million people from poverty. And this is the model wise Nations use.

But in your own analogy, NNPC will pay in $ for her oil she produces locally. chei person no go see anything for this Nairaland

I will say it again, Nigeria has no reason to be paying so much on fuel. But because of bad policies and no vision we do so.

Good gracious! We truly have a problem with our reading culture in Nigeria. Oga, kindly point out where you read in my entire write-up that NNPC will PAY for crude?.. If you can point that out, just send me your account number and I will credit you with N100k instantly.

How exactly did you read what I wrote above and conclude that I said NNPC will pay for crude?... Now read carefully, I said crude oil is worth $80/bbl and even if NNPC gets it free from Nigerian soil, it doesn't still change the fact that it is still worth $80 in the international market. So therefore, if for instance NNPC decides to use refine a barrel of Nigerian crude and share it to Nigerians for free as Christmas gift, even though it sourced the crude or free, the $80 it could have earned if it had chosen to rather sell that crude internationally will not be earned. That $80 not earned is indirectly a loss to NNPC, or you can call it 'the opportunity cost' of giving Nigerians free fuel. In economics, when you hear the word 'cost', it isn't always about physical money spent; money you fail to earn is also a 'cost'.

My goodness, what is wrong with our educational system in Nigeria that people cannot grasp this elementary economic concept of opportunity cost?... VEry soon you will ask me again what I mean by opportunity cost because NNPC gets the crude from Nigeria.

RALPHOW:
The only thing that reduced corruption is GEJ TSA AND BVN.
GMB/OSINBAJO has no working system,
Sincerity can not take country to anywhere but working system.
All the huge money generated by MDAs like JAMB, CUSTOMS are all effect of GEJ"s TSA
Corruption reduction is effect of BVN.
GEJ's Card Reader reduced rigging during election
However thanks to GMB for the implementation of TSA and BVN.
MY point is that only system put in place can turn around this country.

But you've just proven the VP's point 100%, BVN and TSA were conceived since 2012 under GEJ, but there was zero political will to implement them for obvious reasons till they left power in 2015. But the first thing the next govt did was to speedily implement those ideas. Having great ideas has never been a problem in Nigeria, rather it's the will to implement them

lexy2014:
I haven't argued with u. I only asked u simple questions. By d way this was d first question I asked u. So it wasn't an argument.

How did u arrive at N150 per litre of petrol 4 locally refined PMS?

Unfortunately, u were talking about opportunity cost. I didnt tell u are right or wrong neither did i tell u 150 is too small or too big. If u say a litre of PMS 4 imported product is 150 because a barrel of crude is $80, how does that same price automatically fit locally produced PMS? That's all am asking u 2 clarify by letting us no what went into d 150naira per litre of imported PMS and if those same inputs apply to locally produced PMS. Use ur 150naira base price as ur unit of analysis.

Can you swear on your life that I havent answered that question at least 3 times?... Are you blind to read my responses or are my responses invisible on your computer screen? Or are ypu just another internet troll that comes online to throw arguments around without bothering to read responses?.... How can I be answering the same question to the same person over and over again?.... Or could it even be I'm talking to a computer programme and not a human?

A barrel of crude is equivalent to 160litres. If we assume that we can convert the full 160 litres of crude to petrol, the maximum we can get from a barrel is therefore 160litres of petrol (take note, this is only an assumption cos we cant really derive up to 160litres from a barrel as there will always be other derivatives and bye products). But assuming we can get up to the full 160 litres of petrol from an $80 barrel of crude, that come out to about N150/litre.

Of course your next point is that NNPC doesnt buy the crude so therefore the crude is free or worth nothing. But that is where you are wrong because you have zero understanding of what opportunity cost means, s9 Im jot surprised you keep wondering why I talk of opportunity cost. If mangoes are sold for N10 in the market and I pluck a mango in my garden, to an illiterate, that mango is free because he believes I didnt buy it. But to an economist, that mango is worth N10. So if I fling that mango in the bush, I've simply lost the N10 I would have made if I sold it.

Likewise, even if NNPC gets the crude it refines from Nigeria free of charge, a barrel of crude is still worth $80 (not free like the economic illiterate would think). And if NNPC sells the derivatives of that local crude for any amount which is below the equivalent market price of $80, NNPC would be taking a loss (which comes in form of the opportunity cost of not selling the crude internationally).

I'm very sure he will still return with the exact same question on where N150 came from and why I talk of opportunity cost. If you still dont understand the gist, kindly go back to primary 5 please and try and listen in class.

lexy2014:
No one is saying Oby doesn't no what she is saying. D question is do u no what u are saying? It doesnt seem so. All this ur plenty grammar is unnecessary cos u are still recycling opportunity cost which has absolutely nothing 2do with d discussion. Ur brief is 2do a comparative analysis of how much it cost 2 produce a litre of imported PMS and a litre of locally produced PMS. Instead of doing that u are still talking of opportunity cost. U say d base price is N150 which I told u is d basic or smallest unit price of this discussion. That's were to start ur analysis. But u talking about mango.

I have asked u several times, take that ur base price of N150 and let us no d items&d cost of those items that went into d production of a litre of imported PMS that made it 150. If a barrel of crude is $80, does that automatically mean d cost of a litre will b N150 after its produced locally? U can't conclude without breaking down ur base price of 150 into smaller items so we can c what went into its production. Whether a barrel of crude = 166 litres of PMS or not isn't d issue. D issue is what goes into d production of a litre of imported PMS and locally produced PMS that gives it that 150naira price tag? That is what u are supposed to explain.

Okay, I should have asked this a long time ago, what exactly is your argument?... I re-read through all your responses and I noticed that all you've done is just say "you are wrong" without even defining what your disagreement is. So now you have the floor, can you define what exactly your point is? Is the N150 rough estimate too big or too small and please give a breakdown of your reasons.

lexy2014:
How can u teach when u don't no? That's were d problem is coming from. U erroneously think u are a teacher.

First of, let me give a background. Oby is saying that if Atiku becomes president, he wouldn't b able to make a litre of PMS N80 as he is claiming. Now all u doing is recycling info about how much it cost to buy a litre of imported PMS.

D smallest unit of this discussion is N150 which is d cost per litre of imported PMS. D question 4u is simple, if a litre of imported PMS cost N150, what are d items that go into d process of making a litre of imported PMS N150? After itemising those items, put a cost to those individual items then I will no u no what u are saying.

U are still talking about foreign exchange&global price of crude. D simple question I asked u earlier which with all ur teaching knowledge u have failed to answer is this, does NNPC import fuel 4d purpose of refining? Where does NNPC get its crude from 4 refining? Its cos of this d other gentleman djon78 asked u d same question I asked u which is what has foreign exchange got 2do with local refining? So clearly u don't even no where NNPC gets its crude 4 refining.

D reason y NNPC is important in this discussion is because 4 atiku to achieve his aim of low price of PMS, is by using NNPC. Dangote is a private establishment and not accountable 2d FG. Even if dangote was buying crude at $80 per barrel from exploration companies, does that automatically translate to N150 per litre? That's y I asked u to break down ur N150 of imported PMS let's no what and what makes up d 150?

@Lexy2014, I have tried my utmost best to explain basic economics of buying and selling which even a primary 4 pupil wouldn't struggle to grasp. I want to believe you're just intentionally running around in circles because you feel you want to win an argument.

The statement of Oby Ezekwesili is simple, Atiku becoming president and knocking down fuel prices to N80 would entail government taking a loss which can be viewed as subsidy. Even if NNPC refines all Nigeria's petrol locally, yes it might not have to physically pay any cash to provide Nigerians with petroleum products (as is the case today), but the revenue that should have accrued to govt coffers from the sale of that crude for $80/barrel internationally would be cut short if locally refined petrol is then priced at a non-commensurate rate.

I gave you an analogy using mangos but I doubt you bothered reading it; thats why you keep repeating your statement that NNPC wouldnt import crude for purpose of refining. If I pluck a mango from my garden, it might seem to be free or worthless to a lay mind. But if I can sell that mango in the market for N10, then it means the mango is worth N10.... #Economics101.

So it doesnt matter if I get it free from my tree, the most important thing is that I can exchange it for N10, and if for any reason I decide to exchange it with a friend for a discount rate of say N7, economically, that means I have foregone/lost N3 which can be termed the opportunity cost to me for pleasing my friend.

Same thing with crude, even if NNPC gets it free from the ground, that doesnt necessarily make the crude worthless; the true worth of that crude is determined based on prevailing global market price of crude. And for you to quantify the worth of the crude in Naira, you need the exchange rate to do your conversions. For crying out loud, how can this explanation be to difficult for anyone to grasp?....

NNPC might get the crude for free, but that doesnt mean the crude is worthless; the crude has a worth which is determined by its global market price and if Atiku decides to sell at any pump price which doesnt measure up to the equivalent market price of the crude, that means the FG/NNPC would be incurring losses.

Regarding the N150 which you keep asking of and which I keep explaining a thousand times, the market worth of a barrel of crude is $80 today. And a barrel produces about 160 litres of petrol; that is how I came about the N150 base price.

Once again, crude oil is not worthless, even if NNPC gets it free from the ground, it is still worth $80/bbl because that is what NNPC stands to earn if it sells it, and also if the NNPC/FG decides to sell the derivatives of the crude for any amount which is lower than the equivalent $80, NNPC would be taking a loss.

Dr Oby Ezekwesili has a brilliant understanding of these things and she's definitely not an idiot like some folks on this thread are trying to paint. She knows exactly what she's talking about and all I've been struggling to do here is to breakdown what she said. If you still dont understand the gist, then it's unfortunate. I'd leave it here by reminding you and your friend @djon78 that you aren't smarter or more knowledgeable that Dr Oby Ezekwesili.

lexy2014, djon78

.... Or looking at this from another angle. Assuming all our refineries are working and Nigeria refines 100% of the petrol it consumes. The government can arbitrarily decide to just peg the pump price of petrol at say N50/litre (I'm sure this is the logic on which you guys claim the pump price can be made N80 without a loss).

If the govt refines and sells fuel to Nigerians at N50 or even N80, given the prevailing global oil and petroleum product prices (and Nigeria's current exchange rate), are you guys aware that the govt would be making much more money if it chooses to export that same petrol instead of selling it to Nigerians?

Now in order to calculate how much money it would be losing by selling the petrol cheaply in Nigeria instead of exporting, you need to factor in the global price of crude and Nigeria's exchange rate.

If you guys at this stage cant still understand why the exchange rate and global oil price are important factors in determining the value and pricing template of even locally refined petroleum products, then its a pity, I give up!! Enjoy the rest of your wkend.

Same thing they did in 2015 and failed, 3 months to elections already, instead of PDP and its supporters to focus on campaigning and convincing people to vote their candidate, they deploy their entire arsenal looking for Buhari's certificate.

lexy2014:
Jesus Christ of Nazareth...C grammar. Its not about how much u are able to write, its about if u are addressing d issues. Let me make it easier 4u. What is d comparative cost of imported PMS and PMS refined in Nigeria? All u are saying have absolutely nothing 2do with that comparison. U are writing an epistle about opportunity cost. I didn't ask u about opportunity cost. u dont need all this grammar.

All u writing about are d factors that affect d price of imported products. All these factors don't affect locally refined product. If u say a litre of imported PMS goes 4 N150 cos of certain factors, are those factors still in play in d process of local production?

D questions I asked u are simple. Pick them one after d other and answer them.

1)U are talking about exchange rate and global price of oil. What has that got 2do with local production?
2)Does NNPC import d crude it refines?
3) What is d cost of refining a litre of PMS locally?
4)d price of a litre of PMS is N150 per litre, what and what goes into that 150 and in what proportion? What are those "unavoidable costs" and how much are they?
5) transportation, storage and other miscellaneous cost..what's d basis of all these costs and activities 4 local refining?

djon78:
You are still not addressing anything.
All that you typed there makes no sense.
What concerns exchange rate with local production?
Why shut up the modular refineries?
The truth is that government is not honest about solving local production. The kind of money they amass by importation is colossal!!

But they should continue
Fossil fuel is on its last lap in the world.
Then it will be too late for Nigeria.
Nigeria will pay severely for Every form of financial recklessness it had perpetrated all these years.
Time is running out for her to do the right thing
But they won't listen
When calamity comes, they should not cry!!!!

My goodness! It must really be one hell of a job being your teacher.

Okay, simple questions for you guys:
(1) if a barrel of Nigerian crude oil is worth $80 in the international market, how much is that same barrel of crude oil worth in the Nigerian market today?...

(2) If Mr Dangote wants to buy a barrel of crude for his refinery, and global crude oil price is $80/barrel, how much would he pay for it?... Would he pay less than $80 because the crude comes from Nigeria?

(3) If Dangote buys crude for $80/barrel and refines it in his refinery within Nigeria, how much is the least price Dangote can sell petrol in order to cover his cost price?... (1bbl crude = 160litres of petrol)

(4) If the Nigerian govt chooses to sell its crude to Dangote at a cost of $40/barrel in order for Dangote refinery to be able to offer cheaper petrol to Nigerians, how much would the government be foregoing (or losing) per barrel of crude by choosing to sell to Dangote at $40 instead of the global $80?

2)Does NNPC import d crude it refines?

Irrespective of where the crude is produced, it still has the same price tag of $80/bbl. It doesnt matter whether NNPC buys the crude from abroad or if it digs it up the ground in our backyard, a barrel of crude is still worth the same $80. If NNPC picks up a barrel freely from our backyard and pours it into the sea, NNPC has just wasted $80 which it could have made. Hope you get the logic?

It would really be bizarre if you guys still can't figure out the reason why the exchange rate and global price of crude is important in calculating the economics of petrol pump price.

lexy2014:
U are talking about exchange rate and global price of oil. What has that got 2do with local production? Does NNPC import d crude it refines? D N70 u say NNPC will loose, were is it from? What is d breakdown? What is d breakdown of ur N150? What is d cost of refining a litre of PMS locally? Transportation, storage and other miscellaneous cost..what's d basis 4 all these costs and activities 4 local refining?

lexy2014:
U haven't given any explanation my dear. U said absolutely nothing. U are using d indices of determining d cost of imported product to determine d cost of locally refined product. Does that make sense? If we are talking about local refining, then what has local refining got to do with foreign exchange and d global price of crude oil? Does NNPC import crude oil 4d purpose of local refining that u are talking about price of crude on d global market and foreign exchange? What has cost of transportation, storage got to do with local refining? What do u mean by miscellaneous costs? U need to break things down. So take ur time to read my last post and this and answer d questions I asked

'Opportunity Cost', are you aware of that economic concept?.... If a fruit seller has 50 mangos which he intends to sell in the market place for N10 each, those 50 mangoes would fetch him N500 in total. But if he puts 20 of those mangoes aside and sells them to his family members for N5 each, his total income at the end of the day would be N400 (because he sold 20 mangoes at half the market price). N500 - N400 = N100; the seller has eventually lost N100 because he chose to 'subsidise' the price of the mangoes he sold to his family members. That N100 is the opportunity cost (or subsidy) the fruit seller incurs for providing cheap mangoes to his family.

Hopefully you now understand the concept of opportunity cost; so permit me to painstakingly go through my previous explanations again since you claim you didn't understand it.

You ask what exchange rate and global oil price has to do with local production. The first question you should ask yourself is, what exactly is the price value of crude?... At $80/barrel, that amounts to N24400 (at an exchange rate of N305). Now if 1 barrel of crude typically produces ~160 litres of petrol, what that means is that 1 litre of petrol has a base price of ~N152 (note that this amount is the barest minimum which even EXCLUDES the cost of refining, transportation, storage and other miscellaneous cost which are all inevitable; if we are to add those extra unavoidable costs, the base price of petrol will be well more than that N152). So in summary, this paragraph has explained that $80/bbl crude = N152/litre petrol; I hope you now understand where the N152 figure came from?

This then brings us to the next point; "What has that N152 got to do with local production?" This is where the basic economic concept of 'OPPORTUNITY COST' comes in to play. Nigeria sells it's oil in the global market at global price of $80/bbl crude (which is equivalent to N152/litre petrol). Even though Nigeria is a producing country, crude oil isn't an infinite commodity which we can just churn out a limitless volume any time we want; at each point in time, Nigeria only has a limited quantity to sell. So therefore, if Nigeria now decides to reserve some of that crude which it could have sold internationally for $80/bbl (N152/litre petrol), and then refine it locally and sell petrol locally for N80/litre (as opposed to the N152/litre which it could have been sold for if it was sold internationally), instead of making ~N152/litre, the government will now make only N80/litre; i.e. a loss of N72 for every litre of petrol sold locally. That loss of N72/litre is the opportunity cost the govt incurs for selling petrol cheaply at a price which is lower than the international going rate; that's N72 will invariably be a SUBSIDY paid by govt to give Nigerians affordable petrol.

I sincerely hope you now get the logic.

lexy2014:
U are talking about exchange rate and global price of oil. What has that got 2do with local production? Does NNPC import d crude it refines? D N70 u say NNPC will loose, were is it from? What is d breakdown? What is d breakdown of ur N150? What is d cost of refining a litre of PMS locally? Transportation, storage and other miscellaneous cost..what's d basis 4 all these costs and activities 4 local refining?

So you mean you did not understand a single thing in that explanation I gave earlier?... You probably were just in a hurry to respond, I doubt you read what I wrote. Kindly go back and re-read it (this time do it slowly), you will get all the answers to your question.

lexy2014:
How did u arrive at N150 per litre of petrol 4 locally refined PMS?

EasternActivist:
Stop deceiving yourself Mister...

If we have what it takes for other countries we refine our product from to refine ours then there is no means importing it and paying for Landing cost and other expenses. Tell me what will keep the petrol from being free even, let alone sold at a high price of N80? And yes without any form of subsidy.
https://www.awesomeinventions.com/wp-content/uploads/2016/03/Time.jpg

Global oil price is ~$80, and a barrel of crude can produce roughly 160 litres of pms. At current official exchange rate of N305/$, $80 = N24400 for 160 litres. That comes up to roughly N152.5. Note that the figure above has not considered the cost of adding value to the crude; i.e. refining, transportation, storage and other miscellaneous costs.

So with the above in mind, if Nigerian govt refines it's crude and decides to drop the pump price to N80, it would be losing over N70/litre which it would have gained if it decides to alternatively just sell the crude internationally at $80; in essence, Nigeria would be foregoing about $37 per barrel of crude it uses for local consumption. That foregone figure is already subsidy, and it's something no Nigerian govt would willingly want to go back to if it can be avoided. Oby Ezekwesili does not blab.

@EasternActivist
If you're ignorant of a subject, the honorable and mature thing to do is to ask for an explanation rather than jump around calling people liars.