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Nairaland Forum / Nairaland / General / Business / PART 2: NIGERIAN OIL INDUSTRY AND FUEL SUBSIDY: FACTS, MYTHS & HIDDEN TRUTH (11901 Views)
Remove Fuel Subsidy Now! World Bank Tells Buhari. / Small Nigerian Oil Producers May Merge To Survive Price Slump / PART 1: NIGERIAN OIL INDUSTRY AND FUEL SUBSIDY: FACTS, MYTHS & HIDDEN TRUTH (2) (3) (4)
PART 2: NIGERIAN OIL INDUSTRY AND FUEL SUBSIDY: FACTS, MYTHS & HIDDEN TRUTH by Midas02(m): 7:57pm On Dec 12, 2011 |
PART 2: NIGERIAN OIL INDUSTRY AND FUEL SUBSIDY: THE FACTS, THE MYTHS AND THE HIDDEN TRUTH! by Olumide Iluyomade This will be the second and final part of an article that presents an insightful look at Oil industry in Nigeria! The first part divulged industry practices, unknown secrets and the corruption surrounding it! The background history of the industry was also reviewed in details while privileged inside information on the current state of affairs and the status quo were divulged! In furtherance to the conclusion and verdict reached in the first part, I promised to proffer solutions to the debacle and the ugly situation that has been a pitfall and a debilitating deadlock for Nigeria’s economic prosperity! I have always maintained that the persistent problems surrounding fuel subsidy as is practiced in Nigeria today, are an entirely self-inflicted wound! Other attendant issues, difficulties and problems which have arisen from this unnecessary debacle and predicament include an untenably high cost to government, epileptic supply of fuel, poor trade balance, foreign exchange deficit and corruption of mythical proportions! The incumbent administration insists and maintains that the only way out of the deadlock is to eliminate fuel subsidy and deregulate the downstream sector! Needless to say, I am of a different opinion! Privatization and deregulation are indeed very effective means for dealing with inefficient and ineffective management of public assets. On the other hand however, privatization and deregulation does not always present a socially palatable, humane and balanced solution. In Nigeria, privatization has often become a tool and a vehicle for devious self-enrichment, corrupt aggrandizement and the systemic enslavement of the proletariat by the ruling elites! It has become the universal elixir and antidote, the default response and the all-in-one solution proffered for any challenge or difficulty encountered in the process of governance! Nigerian public officials have now sunken to an all time low, demonstrating unprecedented intellectual laziness, complete impotence, absolute indolence and an unwillingness to work diligently and steadfastly on simple problems with common sense measures much rather preferring to pilfer and fritter away scarce resources on asinine and selfish solutions that continually make life harder for the longsuffering population! I neither agree nor believe that subsidy removal and market deregulation are the only viable solutions to existing problems. However, it is most certainly the easiest way out! I do believe that there are better alternatives and solutions which will allow the government to, in essence, have its cake and eat it. A solution that will neither deprive the people of the only benefit they know and enjoy nor burden the government with an insurmountable and debilitating expense! For my claim to be valid however it must be backed up with facts. It must also be backed up with viable and workable solutions! Before proceeding, it is important and logical to take a look at several similar countries with comparable socio-economic circumstances with Nigeria. Let us observe how the benefit of cheap fuel is handled and made available! We shall also seize the opportunity to take a peek at both petrol and diesel prices in such nations: NATION CURRENCY (US Dollar) Algeria; (Petrol) $0.41/litre (Diesel)$0.20/litre Bolivia; (Petrol)$0.54/litre (Diesel)$0.54/litre Egypt; (Petrol) $0.31/litre (Diesel)$0.27/litre Guatemala; (Petrol)$0.64/litre (Diesel)$0.54/litre Indonesia; (Petrol)$0.59/litre (Diesel)$0.59/litre Iraq; (Petrol) $0.38/litre (Diesel)$0.34/litre Libya; (Petrol)$0.17/litre (Diesel)$0.15/litre Malaysia; (Petrol)$0.61/litre (Diesel)$0.56/litre Nigeria; (Petrol) $0.41/litre (Diesel) $1.00/litre Venezuela; (Petrol)$0.04/litre (Diesel)$0.03/litre I have decided to carry out this task in a logical and organized manner so as to enable readers to have a clear and concise understanding of the logic and economic principles being adopted and applied. I am going to proceed with a layout and list the recommended actions that the government needs to pursue and adopt, after which I will go on to pick on each point, elaborating and fleshing it out for a comprehensive and fuller understudy of the details entailed there-in. For a solution to the perennial problem of fuel subsidy costs and fuel supply issues, the FGN must adopt a lasting solution that will not only stand the test of time but must also encompass and anticipate future challenges! Such a policy must be pursued actively and it must be viable, comprehensive, scalable and robust! The full scope of the objectives earlier stated must be met and implemented without equivocation in principle or in policy! To accomplish this noble and admirable feat, the FGN should pursue and adopt the approaches recommended below - : 1. Establish and Develop a Comprehensive and Viable Power & Energy Policy 2. Stabilize and Revitalize Refineries for Domestic Production 3. Re-organize Ownership and Operational Structure of Refineries 4. Restructure and Re-organize NNPC and Petroleum Sector 5. Expand National Oil-Refinery Capacity and Improve Efficiency 6. Disinvestment, Privatization and Transfer of Assets and Infrastructure 1. Establish and Develop a Comprehensive and Viable Power & Energy Policy:[/b] This is the first critical objective and step, and it sounds simple enough! However it represents a very powerful and potent method and approach to governance that is seemingly barely understood in the domestic political landscape. I cannot over-emphasize the absolute importance of having a clear, articulate, comprehensive and well integrated policy on both Energy and Power! It is absolutely essential and necessary to understand the correlation and inter-relationship between the issues being experienced in the power sector and the problems existing in the nation’s energy sector. Quite naturally, the Energy sector encompasses a broad swath of the Petroleum Industry along with other sources of Energy which include all fossil fuel! Fortunately, Nigeria recently passed a decent Petroleum Industry Bill (PIB). This could be updated and integrated into the broader scope represented by a comprehensive Energy Policy. Beyond the petroleum industry, the proposed Energy Bill or policy should encompass the development, management and regulation of the Nation’s comatose Coal Industry. About a year ago, I wrote about and treated the issue of developing a viable Power Policy separately and extensively and as such I will not be doing an extensive review of the Power sector here. I will however touch on the areas of the policy that are vital and relevant to the current discourse, which is generally Energy related and specifically deals with the downstream oil sector! For Nigeria to experience success in her quest for sustainable economic development and growth, the troublesome dual-headed challenges of Power and Energy must be confronted and resolved! Needless to say, one cannot have one without the other – Power requires and demands a well articulated and targeted Energy policy and vice versa! The Energy policy of Nigeria should encompass the use of all fossil fuel which includes petroleum products, coal and gas! In this article I will focus on the petroleum products and gas. In the first part of this article (Part 1), I pointed out that in 2009, Nigeria consumed 255 billion cubic feet (bcf) of natural gas, mostly for the generation of electricity. In the same period however, over 530 billion cubic feet (bcf) of natural gas was flared – this unfortunate reality amounts to a colossal waste of valuable energy resources, to say little of the massive environmental impact! Essentially, this means in the absence of a focused and meaningful policy drive, Nigeria flared away twice the amount of natural gas than was consumed for Power generation, while her citizens, industries and economy suffered profusely for want of adequate Power supply! For a nation with Nigeria’s resources and energy use profile, the crucial and immediate target should be the prudent exploitation of abundant gas resources for electricity generation and greater economic participation, as laid out in the Gas Master Plan. Coincidentally, this means of electricity generation (Gas) also happens to be the most environmentally friendly, the cheapest in terms of capital expenditure and the quickest in terms of construction and installation time! It is been estimated that upwards of 20% of Nigeria’s current domestic demand for petroleum products (particularly petrol and diesel) are directly attributable to the need to provide alternative power supply through the use of back-up generators! Hence the inter-relationship between Power and Energy becomes very obvious and the need to resolve Power deficits in a more wholesome and efficient manner becomes critical! The proposed Energy policy shall encompass and comprise the gains made in the Petroleum Industry Bill (PIB) which includes the Gas Master-plan and the integration of a newly proposed Refinery Concession Act (RCA). The RCA shall be explained in greater details later on in this article. Also provisions should be made in the Petroleum Industry Bill to allow for the creation of Independent Oil Marketers Co-operative (IOMC) – these are accredited co-operatives or organizations which shall become an alternative to PPMC as an avenue for the distribution of finished petroleum products by lifting bulk products directly from refineries. All in all, the proposed Energy policy should incorporate the following objectives into existing policies: Energy policy shall detail, define and organize the Coal mining industry in a similar manner to the Petroleum Industry Bill (PIB). Encouraging and allowing for a cheap and readily available alternative energy source for the generation of electricity. Energy policy shall incorporate and integrate the Refinery Concession Act (RCA) into the Petroleum industry Bill (PIB). Gas Master Plan shall be singled out for aggressive implementation and enhancement to help achieve a more suitable and ideal National energy-use profile. A predominant proportion of Nigeria’s future electricity production shall be provided for and satisfied through the use of Natural gas. Gas Master Plan shall also be expanded to integrate a pilot drive for the introduction and proliferation of petroleum gas powered vehicles! The main thrust of this program shall include several incentives such as low importation tariff for Dual-fuel or Liquefied petroleum gas (LPG) vehicles. Furthermore, LPG shall be sold at an amount not to exceed 60% of the pump price of equivalent petrol. Energy policy shall make provision for the establishment, creation and accreditation of Independent Oil Marketers Co-operatives (IOMC). These cooperatives shall help improve and expand marketing logistics and domestic distribution of petroleum products. They shall serve to compliment the activities of PPMC. 2. Stabilize and Revitalize Refineries for Domestic Production: Achieving this objective is absolutely necessary and essential! Given the straightforward nature of the objective, it is difficult to understand why it has been a near impossible feat for the government to achieve this – perhaps a clear indicator of the scale of corruption within! While it may be true that the government is not the best suited organization for running and operating a refinery or any other enterprise for that matter, it still goes without saying that the government is perhaps the best suited source for financing and executing such a cost intensive project! Privatization pundits and activists often cite and use Western nations as examples of successes in infrastructure privatization however, what they fail to point out is that many of the stated examples are successes that are based on an initial government investment! Until leadership comes to an absolute understanding of the importance of demonstrating faith in one’s own market and shows a willingness to invest in self, Nigeria will continue to experience difficulties in attracting foreign investors! British Rail may be celebrated as a successful public-private partnership today, but it would not have been possible if the British government had not taken the bold step to invest in the necessary infrastructure! Gatwick Airport today, is celebrated as a successful example of privatization however the Airport first had to be built by the British government before being privatized! All over the world, investors are only interested in investing their funds in established and proven ventures that represent minimum risk to them! Hence, the best way for Nigeria to project a favorable climate is for the Government to demonstrate leadership and take on the capital risk, stabilize and actualize the market, before eventually exiting the scene! To stabilize and resuscitate refineries, the government must do the following: Renovate and restore three (3) of the existing Oil Refinery facilities to original state of optimal performance and production output. These refineries should include: PHRC II in Port-Harcourt, WRPC in Warri and KRPC which is located in Kaduna. These should give the nation an automatic and immediate refining capacity of 385,000 barrels per day (Bpd). Repair, restore and secure all oil pipelines that transport feedstock to refineries. Special attention should be paid to the 600km of pipeline between KRPC (Kaduna) and its feedstock source in the Niger-delta. In this way, the unimpeded supply of crude oil feedstock is secured and assured to all refineries at all times. 3. Re-organize Ownership and Operational Structure of Refineries: Federal government must re-organize the ownership and operational structures of the refineries so as to optimize efficiency. The NNPC refinery subsidiaries and entities called PHRC, WRPC and KRPC shall all be dissolved and liquidated! Subsequent steps shall be taken to establish new structure and management and they include: Restructure the three (3) newly renovated Refineries such that each one is separately offered on a concession basis to experienced and qualified refinery operators. The terms of the relationship between concessionaires and owner which is the FGN, would be defined as an integral and essential component of the Refinery Concession Act (RCA) which will in turn be integrated into the existing Petroleum Industry Bill. Refinery concessionaires are guaranteed and assured supply of crude oil purchased directly from Products and Pipelines Marketing Company (PPMC) under the special terms of Domestic Supply Obligation (DSO). Crude Oil feedstock that is derived from Domestic Supply Obligation (DSO) shall be priced to the Refineries at an amount fixed at N4000 per barrel ($25 per barrel). Refinery concessionaires are guaranteed and assured a pre-negotiated and pre-determined margin on each liter of finished petroleum product. (For example: N5 per liter). Refinery concessionaires are compelled and mandated by the Refinery Concession Act (RCA) to sell back all production output to PPMC or accredited IOMCs. If and when domestic demand for a petroleum product has been satisfied and exceeded, any excess shall be channeled by PPMC into the coffers of the federal agency for Strategic National Fuel Reserve (SNRF) In the event that the Strategic National Fuel Reserve (SNRF) gets saturated, petroleum products shall be marketed worldwide at current global market price by PPMC. Profits from such sales shall be remitted back to the federal government or relevant agencies. Exportation of finished petroleum product shall be strictly prohibited for concessionaires! Any such venture will be regarded as illegal and illicit under the (RCA) law. Any proposed or independent Refineries may however apply for an export permit although such ventures will neither be eligible for DSO supply nor subjected to RCA laws! 4. Restructure and Re-organize NNPC and Petroleum Sector: The nation’s primary representation in the oil industry is the Nigerian National Petroleum Company (NNPC) and it has become an over-bloated, overburdened and inefficient agency which can best be described as a can of worms! NNPC should be dismantled and broken into different independent agencies and companies. The following actions are advised for optimal performance: The NNPC subsidiary currently called Nigerian Petroleum Development Company (NPDC) should be rebranded as Petroleum Exploration Company of Nigeria (PECON). Essentially, the repackaging and re-purposing of NPDC to PECON will allow the company to transition from its current structure and function of being the subsidiary of an agency, forging it into a formidable oil exploration and development company with a marketable and recognizable brand! Company will be recapitalized, enhanced and refocused with the objective of not only developing indigenous expertise and independent Oil and Gas exploration capabilities, but to also increase current output from 15000 Bpd to a production output that accounts for 10% of Nigeria’s total oil production! After 54 years of oil production, it has become imperative and a matter of national security for Nigeria to possess such capabilities in other to be able to fully exploit and control her resources independently, to the benefit and the best interest of the people! Under the new dispensation, NNPC’s subsidiary – National Petroleum Investment Management Service (NAPIMS) shall retain its current role, mandate and structure with the exception that it shall no longer be a subsidiary of NNPC, but shall be newly reconstituted and rebranded as National Oil Company (NOC) – this is very similar to what is prescribed by the Petroleum Industry Bill (PIB). After dissolution, NNPC’s role as a regulatory government agency shall also be transferred to the Federal Ministry of Petroleum and its attendant agencies. Commercial mandates should never be mixed with regulatory mandates and obligations, else there will be a conflict of interest as is being witnessed in Nigeria’s petroleum industry today! The regulation and control of the Oil and gas industry would become the primary focus, purpose and essential function of the Petroleum Ministry. The Petroleum Ministry through the numerous agencies under it (NPD, NPI, PPRA etc) shall monitor and regulate the Petroleum industry in accordance with the mandate laid down in the Petroleum Industry Bill (PIB) Product and Pipeline Marketing Company (PPMC), shall cease and desist from being a subsidiary of the defunct NNPC and have its operations expanded in scope, thus becoming a stand-alone venture and enterprise. Operational scope shall be limited to crude oil and finished product transportation and marketing. In accordance with the objectives of the Petroleum Industry Bill, the federal government through its proxy in PPMC shall independently or in collaboration with private sector stakeholders, invest in the building and maintenance of oil pipelines to distribute essential petroleum products to all strategic and established market zones within the federation and beyond! PPMC shall be fully commercialized in operation and the primary source of income would be through the negotiated transportation fees, commissions, pipeline fees and surcharges - this is the practice in oil industry worldwide! Nigerian Gas Company shall also cease to be a subsidiary of NNPC. NGC shall become the primary executor of the proposed ‘Gas Master Plan’ which shall become the center-piece of its operational objective. In accordance with the objectives of the Petroleum Industry Bill and National Gas Master plan, the federal government through its proxy in NGC shall independently or in collaboration with private sector stakeholders, invest in the building, installation and maintenance of gas pipelines to all established market zones within the federation. NGC would also be fully commercialized in operation with a view to future federal government disinvestment and disengagement! Other current Subsidiaries of NNPC which include IDSL, NETCO and HYSON, shall be duly commercialized and liberated into wholesome, independent and viable enterprises. The eventual targeted objective for these newly liberated subsidiaries would be for the federal government to divest ownership and control to somewhere between 0% and 40% ownership and equity! This objective can be achieved through the nation’s capital market in less than 36 months with a focused and astute enhancement and repackaging of the products and services provided by these companies. 5. Expand National Oil-Refinery Capacity and Improve Efficiency: An intelligent assessment of the nation’s downstream sector up to this stage will reveal that the 385,000 Bpd refinery capacity achieved so far might quite possibly fall short of domestic demand! There is also a pressing need to direct or target refinery capacity to produce according to the nation’s energy-use profile. For instance, using the domestic consumption data provided in the first part of this article, Nigeria’s daily domestic demand for petrol at 32 million liters accounts for nearly 60% of all petroleum product consumption (excluding Gas)! This in essence means that Nigerian Refineries must be geared and equipped towards the production of a high proportion of PMS (petrol) from every barrel of crude oil! This therefore brings us to the second phase of the Nation’s refinery capacity development as represented in this proposal. Oil Refineries are often designed with a specified crude feedstock in mind. The chosen design and construct of a refinery could also be largely influenced by the investor or owner’s intention with regards to final product output! For instance, most oil refineries in the USA are geared and equipped to produce a high proportion of PMS (petrol) from their feedstock which may vary from the West Texas Intermediate crude oil to Saudi’s Arab Heavy crude oil. Other crude feedstock may include Nigeria’s Bonny Light crude or Canadian Heavy crude oil. Because of the high demand for PMS (petrol) in the US domestic market, refineries on the average are equipped to yield between 45% - 49% of their final product as PMS or petrol! This high yield in petrol (PMS) content however, could not be accomplished with a ‘basic’ refinery. Such refineries must be equipped with additional refining components and subjected to specialized treatments such as ‘Catalytic Cracking’, ‘Delayed Coking’ and ‘Hydro-treatment’. In the Nigerian scenario, local consumption will be comprised entirely of local crude feedstock which is primarily Light sweet crude oil variants - valued worldwide for their low sulfur content and high content yield! Using available statistics and data from an Assay analysis of Nigeria’s most popular light sweet crude oil - Bonny Light, it can be surmised that a barrel of Bonny Light crude processed in a ‘straight’ or regular refinery will yield approximately 28% in Petrol or PMS; 22% in Diesel or AGO; 13% in Kerosene (all types); 30% in heavier Fuel Oil and the remainder as Asphalt, Carbon black and others. A crude oil ‘Assay’ is essentially a chemical evaluation of a crude oil feedstock by qualified petroleum testing laboratories! The need for improved efficiency so as to maximize output in meeting domestic demand is hence made obvious by the limited PMS yield! Nigerian government should therefore increase domestic refinery capacity and likewise, Nigerian refineries could also easily improve and increase the output for high demand products such as petrol. This could all be achieved in one giant swoop by implementing the following: The old Port Harcourt refinery called PHRC 1 should be assessed for the most cost effective and efficient approach so as to accomplish a complete revitalization and expansion of its capacity. PHRC 1 Refinery shall be revitalized and have its capacity expanded to 100,000Bpd alongside being given a top to bottom overhaul and reconstruction! A Greenfield refinery project shall be commissioned in the new export processing zone of Lagos state. The strategic importance and the huge daily consumption of petroleum products in Lagos state, necessitates such an investment. There will also be an automatic improvement in the logistics of petroleum product distribution nationwide. The proposed refinery would have a capacity of 125,000Bpd. Both newly built Refineries, shall be equipped and optimized for high yield production of PMS or petrol of at least 40% so as to meet the nation’s growing domestic demand. Existing refineries would also have their operations optimized by the addition or integration of advanced technological processes such as adding ‘Catalytic crackers’ and ‘Coking units’ as may be required to achieve a minimum PMS yield of 40%! PHRC 1 and the new Lagos refinery, like the other three refineries would be offered on a concession basis to qualified and experienced refinery operators. With the building of two new Refineries completed, Nigeria’s total refinery capacity would now be 610.000 barrels per day (Bpd). 6. Disinvestment, Privatization and Transfer of Assets and Infrastructure: This is the all important final step in a meticulously planned and targeted six stage, six phase process that is aimed at achieving a sustainable, comprehensive and viable solution to the debilitating and perennial issue of fuel subsidy and its attendant problems. Once the FGN has attained and accomplished its primary objective of facilitating and establishing a comprehensive and viable Energy policy and a fitting capacity for domestic crude oil refining, the stage is now set for the federal government to start the process of divestment and withdrawal from active involvement in the midstream and downstream sectors of the nation’s petroleum industry! After 48 months of operation under the RCA act, each refinery should be offloaded and transferred off the FGN’s balance sheet by the simple process of disinvestment through public offerings. Aside from the fact that the FGN would have benefited directly and indirectly from its investments, with benefits such as Energy supply stability, employment, reduced foreign dependency, foreign exchange savings and improved trade balance. Other benefits could be accrued directly from the sale of shares and liquidation of earlier investments, this will result in a net gain or profit in the final balance sheet of the federal government! In other to accomplish this final step, it is recommended that the FGN do the following: By issuing shares through public market offering in the Nigerian Stock Exchange, FGN should disinvest 60% - 80% of all its investment in the five (5) refineries Any concessionaire engaged in the management of a Refinery shall have the first right of refusal in investing in the refineries which will be at a preferred rate. Members of the public, indigenous Corporations, Multi-national oil Companies and State governments shall also be given opportunities to invest. As such, the Nigerian public will largely be the beneficiaries of such a privatization drive. FGN should maintain and hold 25% - 40% of Refinery ventures and enterprise while recouping investment on the rest of the market value. In this way, the FGN would still retain some measure of control and influence in the affairs of the refineries through its proxy. Federal Government should continue to maintain a policy of high incentive for private investments into both the Power industry and the Energy industry. Such incentives should include government guaranteed loans and soft loans, import and export incentives, guaranteed market protection, stability and low risk assurances. The ultimate objective is to encourage an economic shift from crude oil production to the enhanced and added value of finished petroleum products. Federal incentives and policies shall encourage further private investments in the midstream sector which could bring refinery capacity from 610,000Bpd to over 1,000,000Bpd. Just how much Crude Oil do we really consume daily?: The Domestic Supply Obligation (DSO) which was treated and talked about earlier would be the tool and method by which the FGN shall effect and maintain a low price in the domestic petroleum products market. With an official estimate of 280,000 barrels of crude oil per day being allocated to DSO currently, the allocation should equate to a sizable and generous sized local supply of finished oil products. But just how sizable and generous does it equate to in the face of current daily domestic consumption? Using the data in the Assay analysis given earlier, the daily yield from the ‘straight’ refining of the 280,000 barrels of Bonny light crude oil being allocated to DSO currently would approximately equate to 12.5 million liters of petrol,10.1 million liters of diesel fuel and 5.9 million liters of Kerosene (aviation fuel & kerosene) daily! An improvement to the refineries output as explained earlier could bring the PMS or petrol production for the same amount of crude oil to 17.9 million liters daily! As has been made evident, 280,000Bpd will simply not be enough to satisfy Nigeria’s domestic demand for PMS (petrol) if the previous data of a daily consumption of 32 million liters per day is to be believed! It is also important to note that neither the demand for diesel nor kerosene (dual purpose and aviation) would be met! At this stage, it is necessary to reiterate the domestic demand information shared in the first part of this article so as to prevent unnecessary shuttling between documents or pages. In Part 1, it was stated that according to information derived from Transparency for Nigeria, Nigeria’s daily domestic demand is as follows: PMS: Premium Motor Spirit ( Petrol) – 30 to 34 million liters per day (Avg: 32 million) AGO: Automotive Gas Oil (popularly known as Diesel) – 12 million liters per day DPK: Dual Purpose Kerosene (popularly known as kerosene) – 8 million liters per day ATK: Aviation Turbine Kerosene (Known as Aviation fuel) – 2 million liters per day LPG: Liquefied Petroleum Gas (known as cooking gas or propane) – 192,000kg per day (15,360 cylinders of 12.5kg each) Based on this data, it is hence necessary to find out just how much crude oil would be adequate for domestic petroleum product demand. An improved and optimized refining process for the initial national capacity of 385,000Bpd would yield 24.5 million liters of petrol (at 40% yield), 13.5 million liters of diesel and 8 million liters of Kerosene (ATK and DPK). These new numbers still account for a shortfall in supply to the domestic market with regards to both petrol and the Kerosene consumption! Diesel demand would however be satisfied and exceeded at this stage. The current estimate stated above for domestic consumption of fuel products suggests that Nigeria will require a whopping 500,000Bpd of crude oil processed at ‘optimized’ refineries to deliver a daily yield of 32 million liters of petrol, 17.6 million liters of diesel and 10.4 million liters of kerosene (ATK and DPK). At 500,000 barrels per day, Nigeria’s estimated daily crude oil consumption would require a more careful assessment! This figure represents up to 35% of the crude oil currently accruable to the FGN through its Joint Venture Agreements! We will have to assess and determine how much of the estimated daily consumption is due to real demand, how much of it is due to graft and corrupt inflation and how much of it is due to other factors! Three factors come to mind immediately and they might be responsible for a sizable chunk of the perceived domestic demand. These three factors include the ever present issue of graft and corruption, Power deficit effect and finally, smuggling activities to neighboring nations! Together, these three factors alone may account for up to 40% of the estimated demand! It has already been assessed earlier that the prevalent use of back-up generators as a primary source of power, as is currently done in Nigeria, may account for up to 20% of petroleum product demand – particularly diesel and petrol! Other estimates affirm that as much as 10% of Nigeria’s domestic demand for petroleum products is attributable to consistent losses and leakages through the porous borders as fuel products are smuggled out into neighboring countries where prices are much higher! Finally, stories and allegations abound in the nation’s newspapers and in independent editorials, of how the mighty and infamous ‘cabal’ members consistently defraud the federal government by ‘cooking’ up the product delivery account. For instance, a shipment of petroleum product could be delivered to the nation’s port, then taken back out and then re-delivered again as a separate shipment!! This fraudulent practice makes it possible to receive double payments for a single shipment! If these allegations are true, then it is most unfortunate, pathetic and telling of a government that has proven to be as corrupt as it is inept! Beyond that, such actions could also adversely impact the estimate for daily national consumption of petroleum products. The impact of graft and corrupt practices may be as high as 5% of total delivered products! If my estimation and assessment holds true, a focused and efficient elimination of all the undesirable factors and activities earlier mentioned will reduce Nigeria’s daily consumption of petroleum product by 35% from a high of 500,000Bpd to a more palatable 325,000Bpd! However, the government cannot rest on its oars! Early consideration must also be given to annual demand growth and how it would be contained and accounted for. In many nations, economic and population growth ultimately leads to a point in the nation’s development where domestic oil consumption could outstrip oil production! This has been the case with countries like the Mexico, Egypt and Indonesia. Other nations have found ingenious ways of maintaining a balance as is the case with Brazil. This scenario is however most unlikely in oil rich countries like Venezuela, Saudi Arabia and to a lesser degree Nigeria! A realistic projection of Nigeria’s annual fuel demand growth could be derived from a formula based on the GDP growth rate, the population growth rate and the vehicular per capita data! Tentatively, an educated guess will put such growth (in real growth terms) at the 7% to 8% bracket. This means that in other for the federal government to sustain and contain domestic crude oil demand while still maintaining its vital stream of revenue from the export of crude oil, there must be an aggressive and active program to grow Nigeria’s oil production capacity and also to develop indigenous oil exploration and production capacity! This mandate could be pursued and achieved through the earlier proposed company – PECON! The final part of the strategy to contain annual domestic growth is to enhance and expand the LPG and LNG program that is been specified earlier in the Energy policy (point1) – this should be an integral centerpiece of the Gas Master plan! The bulk of the growth in the domestic market will primarily come from increased demand for cooking fuel, as huge swaths of the growing population migrates to more modern and efficient methods of cooking. A second source of growth in demand for petroleum products will come from an increasingly mobile population - as per capita vehicle ownership increases, so will fuel demand! A third and final reason for growth will be due to an increase in demand for electricity. However, this should ideally impact only Gas and Coal consumption! Migrating and shifting a high percentage of the burden of a growing domestic demand unto abundant and under-utilized Gas resources through incentives and policies, would represent one of the smartest and most effective strategies by government. What does it cost to produce and refine crude oil?: To answer this question, we must go through a process. Now that we have resolved the issue of refineries, we can move to the second phase of our problem solving quest! Remember that the FGN has had over 20 years to deal with this issue? An insightful and astute consideration should cause us to ask first of all - what is the actual cost of refining a liter of gasoline if refined locally? What is the actual cost of producing a barrel of oil and how will it impact the cost at the pump for consumers?? According to a US government documents (EIA), a breakdown of the constitution of the actual cost of fuel at the pump is shown below: - 74% - Cost of crude oil - 11% - Federal and State Taxes - 10% - Cost of refining crude oil - 5-6% - Distribution and Marketing cost Looking at the statistics given above, it is immediately clear that the reality for the Nigerian scenario would be completely different! In Nigeria, there are no existing taxes on petroleum products, much rather what we have is a clumsy and expensive ‘subsidy’ regime – thus that factor can be removed and eliminated! Secondly, in the Nigerian scenario, the nation is the source of the raw material (crude oil)! If we persist and carry out a little more inquisition and research and we will need to find out the following; what is the actual production cost of barrel of crude oil to the federal government? The actual cost of producing crude oil in Nigeria, as in any other country, can be broken up into two components. There is the capital expenditure component and there is an operating cost component. It should be emphasized that at the onset of every oil exploration and development project, there is always a huge capital outlay which is facilitated by both parties in a joint venture (JV) agreement – this essentially is the capital cost component. For the FGN, the operational cost component represents costs and overheads that are implicitly embedded in the oil exploration agreement (JV). In other words, the operational cost to the FGN is embedded in the 40% total oil volume that has been forgone to the oil companies! Remember that by law and by agreement, the federal government extracts, collects and accrues a rent that is equivalent to 60% of all oil exploration projects! When expressed in crude oil volumes, this amount to an average of about 1.5 million barrels per day or two thirty eight million, five hundred thousand liters (238,500,000L) of crude oil per day going to the FGN! Information researched and derived from Reuters factbox established that the average cost of producing crude oil in the Arab Middle-east ranges between US$6 and US$11 per barrel. In Nigeria however, the cost of producing crude oil from onshore fields and shallow water fields is estimated to be about US$15 per barrel. Having established the invalidity of the tax factor and crude oil production cost, we are only left with the last two factors – The oil refining cost and the distribution & marketing cost. In the American scenario listed above, 10% of the pump price is said to be the cost of refining. At current gasoline pump prices that will make it somewhere between US$0.32c and US$0.39c per gallon! We must however remember that the price of gasoline is a totally volatile and variable value hence the need for more reliable information! Further research and deep inquisitions divulges the critical and sought out data. California Energy Commission documents reveal that the median cost of refining a gallon of gasoline (petrol) in California is around US$0.38c to US$0.40c! This means that a liter of petrol will cost approximately US$0.10c to refine! (3.89L equals one US gallon). We should also note that California has one of the most stringent environmental pollution standards in N. America, plus a considerably higher cost of labor which has not been considered in this assessment. The final part of the pricing jigsaw is the cost of marketing and distribution. From the information derived from PPPRA’s website in the pricing template section, Transporter’s margin is accorded N2.75 per liter; ‘Bridging fund’ which includes marine transportation is accorded N3.95 per liter; Retail dealers are allowed N4.60 per liter profit margin and Wholesale dealers are allowed a N1.75 per liter profit margin! These account for all of the associated costs of getting fuel to the pump for consumption! How cheap could cheap fuel be?: This question is of course variable and anecdotal in nature. In the preceding sections, I have listed and spelled out the necessary actions and commitments that the FGN will have to make in other to achieve a feasible and viable Energy policy. However, what still remains to be seen is how all these actions, investments, policies and commitments will translate into an efficient, stable, sustainable and mutually beneficial arrangement for all stakeholders! The big question therefore is this: how will all these activities enable the common man to buy fuel at a reduced cost? Petroleum product pricing in Nigeria should be set and fixed with a good measure of sensitivity and strategic economic considerations. In the Nigerian scenario, unlike in many countries, it makes a lot of sense to price diesel higher than petrol. It also makes a lot of sense to position Aviation kerosene on par with diesel fuel price. In line with the Energy policy laid out earlier in this article, it most certainly makes sense that natural gas and cooking gas should be the cheapest fuel of all, in equivalent energy value. Kerosene (DPK) which is often labeled the poor people’s fuel could be priced similar to petrol so as to prevent criminal exploitation and abuse. In making use of all the collated data in the preceding sections, I will go ahead to calculate and propose a pricing template for the fixing of petroleum product prices. The template is as follows: Crude oil cost: N25.00 per liter ( DSO value - N4000 p/barrel; crude oil cost - $15 p/barrel) Cost of Refining crude: N15.00 per liter (Derived value slightly less than US$0.10c per liter) Refinery Profit Margin: N5.00 per liter (Based on (RCA) guarantee and agreement) Distribution Cost: N8.00 per liter (Improvement on PPPRA’s pricing template information) Retailer’s Profit Margin: N5.00 per liter (Similar to PPPRA’s pricing template) Wholesaler’s Profit Margin: N2.00 per liter (Wholesalers include PPMC and IOMCs) Federal Government Tax: N5.00 per liter (variable FGN tax can be manipulated to achieve objectives) TOTAL PRICE OF PETROL: N65.00 per liter?? Like the petrol pricing done above, Diesel fuel price, Aviation fuel price and Kerosene price could all be fixed and set using the preceding template. Based on the FGN’s agenda and policy, the only variable and notable difference would be the federal government tax! Arguably, it makes economic sense to have a higher federal tax on diesel and aviation fuel because of the commercial nature of their use. Although I hate to admit it, some of the arguments of pro-deregulation advocates also make sound economic sense. For instance, a Federal ‘Energy’ tax and a ‘Highway’ tax could be imposed on all petroleum products with the exception of gas. Hence under this scenario, using the template above, we should have the following domestic prices: PMS or Petrol: N75.00 per liter (With N10.00 in Federal Energy tax and N5.00 in Highway tax) AGO or Diesel: N105.00 per liter (With N20.00 in Federal Energy tax and N20.00 in Highway tax) ATK or Aviation fuel: N105.00 per liter (With N20.00 in Federal Energy tax and N20.00 in Highway tax) DPK or Kerosene: N75.00 per liter (With N10.00 in Federal Energy tax and N5.00 in Highway tax) LPG (Auto-gas): N45.00 per liter (Pegged to 60% value of equivalent petrol as per Energy policy) Conclusion and verdict: As has been mention earlier, the federal government has had over 20 years to think about, confront and resolve this problem – this is the essence of government! Unfortunately, rather than having a leadership that is genuinely concerned and interested in resolving latent and potential problems, what Nigeria has been saddled with is putrid, corrupt and decadent leadership, year after year, which has led to the debacle and failure we now witness! The nation has now come to the cross road, any decision reached in resolving this issue now will either break or make Nigeria! The proposal laid out in this article will take time to complete but it can start having massive impact within 18 months of commencement! It will require seriousness and commitment on the part of the government. It will demand focus and hard work – something to which many public officers are adverse! A successful implementation of all the critical steps laid out in this proposal will accrue huge benefits for all stakeholders – the federal government will benefit from eliminating the current subsidy regime! Nigerian citizens will continue to enjoy the privilege and benefit of cheap fuel into the foreseeable future! The private sector and investors will be provided abundant opportunities for active participation and investment opportunities! It is also important to emphasize the fact that, in implementing the final price structure which was suggested above, the federal government would get an opportunity to accomplish its second objective – which is to raise capital for further development of infrastructure in the nation. A simple assessment of the suggested pricing structure above, using current domestic demand rates, reveals that the FGN could accrue a revenue stream of N680,000,000 per day (Six hundred and eighty million daily!) on ‘Energy tax’ alone! If this is accumulated in a special Energy Trust Fund, it will amount to N248,200,000,000 per annum! (Two hundred and forty eight billion, two hundred million Naira annually) This fund could be used to finance the investment required for increasing electricity demand (power plants) and other upstream infrastructures! Likewise, the suggested pricing structure will generate another N480,000,000 per day (Four hundred and eighty million daily!) on the ‘Highway tax’ component alone! The annual value of this embedded tax will total to N175,200,000,000 per annum! (One hundred and seventy five billion, two hundred million per annum). Such a fund, if applied diligently on an annual basis to the improvement and construction of new federal highways, would move the nation very far in her quest for infrastructural development and economic growth! A final embedded benefit of this proposal is the implicit gain of self-reliance! If the negotiated and fixed price of DSO is N4000 as has been suggested, then what happens thereafter is that an implementation of the proposal will bring about all round economic growth, which will in turn improve the value of the Naira. Ultimately, a higher value for Naira would implicitly increase the actual value being received for DSO crude without changing the pump price of petroleum products! For instance, N4000 is equivalent to $25 (at the current exchange rate) however, if the value of naira were to increase, then N4000 may be equal to say ….$33.33 (at exchange rate of N120 to the dollar)! It would be fair to say that I have expended considerable energy and time in coming up with this proposal however, it would also be fair to say that there are possibly several other solutions and ways of resolving this problem. I am well aware of the fact that this proposal, like any other proposal, can be improved upon by knowledgeable groups, think-tanks and committed professionals. After all, it is said that in the school of thoughts, there are no graduates! However, what this article and proposal represents are facts and a truth that is devoid of emotions! A glimpse at what is possible in the absence of absolute corruption. A glimpse at what could be accomplished by intelligent, selfless, committed and prudent leadership! These, essentially, is what is most lacking in the nation’s polity and politics – a paucity of vision and leadership that ultimately hampers the people’s aspiration for a promising and brighter future. 1 Like |
Re: PART 2: NIGERIAN OIL INDUSTRY AND FUEL SUBSIDY: FACTS, MYTHS & HIDDEN TRUTH by Midas02(m): 7:56pm On Dec 13, 2011 |
This is a continuation and a final conclusion of an article that was written a few week ago. The first part of this article can be read here on Nairaland! Please use the link below to access the first part: https://www.nairaland.com/nigeria/topic-806581.0.html |
Re: PART 2: NIGERIAN OIL INDUSTRY AND FUEL SUBSIDY: FACTS, MYTHS & HIDDEN TRUTH by Midas02(m): 6:37pm On Dec 16, 2011 |
A glimpse at what is possible in a 'normal', decently run nation! I did a little research and realized that the N175 billion accrued for 'highway tax' is the equivalent of $1.1billion annually! , Imagine!! To give perspective to this amount, let us do a little costing: - A full reconstruction and renovation of the Sagamu to Benin expressway (HWY A-121), if handled by a serious and competent contractor, using Full Depth Reclaimation (FDR) methods and 'Double Otta Seal' bituminous surface plus a 'Cape Seal' finish will cost between $68.0 million - $72.0 million! The entire road is 282km only! - To renovate, rebuild and dualize the Benin-Auchi-Lokoja-Abuja road (HWY A-2) which is 460km using the same standards and grades specified for the Sagamu-Benin highway will cost between $161 million and $175 million only! - An alternative, straight forward, ultra-modern bridge across the River Niger with 'concrete piles' and 'steel spans' which will be capable of handling 4 lanes of traffic (2 each way) plus a two track railway line that is 3000 ft long, would only set the government back between $154 million and $196 million. This is something that will have a life expectancy of 60 years without any major work! - A systematic maintenance and upgrade program of all federal inter-state highways could be adopted! Such a program if actively pursued could entail the renovation and rebuild of Inter-state highways using 'FDR' and 'Double Otter Seal' Bituminous resurface with upgraded standards such as the mandatory and standardized inclusion of (4) four feet wide 'Hard Road Shoulder' on each lane side, making for safe and durable road build standards! If the FGN were to diligently apply this renovation and upgrade program to 8,000km (Yes! , 8000km) of 2 lane federal highway, it would only cost something in the neighbourhood of $820 million - $960 million over the space of say, 5 or 6 years! (Notice that the 'funds' provide $1.1 billion annually!) Of course, all these sensible achievements and costs can only be achieved in a 'normal' society NOT one riveted with thieves and bandits who call themselves 'leaders'! In essence, with a revenue of about $1 billion being spent on roads annually - Nigerian roads will be the absolute best in the African continent and beyond! It is a great shame we have never had a government that is truly dedicated to building up the nation! 1 Like |
Re: PART 2: NIGERIAN OIL INDUSTRY AND FUEL SUBSIDY: FACTS, MYTHS & HIDDEN TRUTH by Midas02(m): 6:57pm On Dec 16, 2011 |
Here are examples of 'Otta Seal' roads or highways in Botswana. Botswana has paved over 3000km of its roads with 'Otta Seal' construction methods over the last decade!
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Re: PART 2: NIGERIAN OIL INDUSTRY AND FUEL SUBSIDY: FACTS, MYTHS & HIDDEN TRUTH by Midas02(m): 8:46pm On Dec 19, 2011 |
If you want to know what petrol will cost after the subsidy has been removed, then take a look at the cost of diesel fuel now! if you want to understand how much instability and fluctuation the market will experience after fuel price deregulation, once again, take a close look at the diesel fuel market! Most Nigerians are not even aware of the fact that the FGN had already experimented the removal of fuel subsidy by surreptitiously removing the subsidy and regulation on diesel fuel! The domino effect of the escalation of diesel fuel price is what finally destroyed the productivity of small scale industries and businesses which had hitherto been relying on diesel for electricity production. Thereafter cascading into acute capital flight, increasingly desperate unemployment situation and a more deplorable trade balance deficit! It is no wonder Nigeria imports dustbins, toilet paper and even soap!! Ultimately, the Naira currency gets weakened and devalued further - as it is 'Naira' is already $1 to N160! In 2008, 'Naira' was exchanged for $1 to N118!! We are masters of economic principles that make no sense! |
Re: PART 2: NIGERIAN OIL INDUSTRY AND FUEL SUBSIDY: FACTS, MYTHS & HIDDEN TRUTH by jpphilips(m): 3:23pm On Dec 21, 2011 |
@ Midas please read this to trim the rough edges of your enlightenment I will like to commend GEJ for backing down on the subsidy removal on the other hand i hope the consultation does not include bribing or cajoling the NLC and civil society groups to accept that demonic policy. I think i understand Al harem and jason's confusion your confusion was orchestrated by Ruben Abiati and GEJ by proxy. How many of you have researched on this subsidy issue before taking a stand? There are more misnomers than facts surrounding this subsidy bruohaha. First, the Govt said the economy will collapse, ridiculous indeed Secondly, the Govt said oil importers are a 'cabal', nearly fell off my seat. Fellow Nigerians, there are no cabals, in 2009 the scarcity of petroleum products became intense and the Govt admitted that Nnpc through its subsidiary PPMC has failed Nigerians by their inability to meet up with the supply of pet. Products and that phenomenum gave rise to licensing of some people to 'assist' the Nnpc in doing their job for which they are paid for. Please don't forget that hitherto, Nnpc has been doing the importation and refining themselves before corruption eroded their common sense. These importers went abroad and came back with a price Nnpc is already aware of comprising of logistics,storage and administrative costs, these were quantified before they arrived at a price. The FG now fixed a price tag of 65naira on Pms and agreed to be reimbursing the importers the balance knowing fully well that the landing cost is higher than the stipulated price To my greatest chagrin, the odechukwu administration woke up and termed them 'cabals' who are fleecing the nation. Assuming Ruben Abiati goes abroad to buy a TM underwear for 1k and decides to sell it 1.5k adding purchase price plus logistics plus profit and the Govt tells him to sell at 900 naira, wont he ask for the 600naira balance? when the incompetent NNPC agrees to reimburse him, then he has become a cabal stealing from the GOvt? Are we this docile? If Nnpc lived upto their responsibility, we wont have need for the importers in the first place. There is no doubt that the subsidy regime is met with corrupt practices, is it not the responsibility of the govt to clamp down on those malfeaseance? The only solution that came to the minds of this disgruntled PDP administration is to remove subsidy into-to not minding its inflationary consequences. This is the most silly approach any human being with brain if they have one can summon. Thirdly, Odechukwu insulted the intelligence of Nigerians telling us that we don't benefit from this subsidy except for the importers and he had the unbridled temerity to be advertising it on NTA saying the rich are getting richer. This people are demons. When Ruben abiati's mother goes to the market to buy vegetable at a price, does he not know that the seller included cost of transportation to that price? So when the transporter buys PMS @ 65naira and fixes his price based on that, he says his mother did not benefit from the subsidy that guaranteed the price in the first place? It is either Ruben Abiati and his employers are drunks or they think that Nigerians are m0rons. I feel sorry for people that think that competition will crash the deregulated price erroneously juxtaposing it with GSM. Do you know that the price of crude being the raw material for refined pet. Products is sold at the same price in the whole world? If you agree to this, then, even if you deregulate and license 5million importers the product will still be expensive because crude itself is expensive. You will still need to subsidize it to 65naira. Exactly why deregulation of diesel in part did not work. The only reason you have not bought diesel @ 200naira is because there are so many illegal refineries who bunker crude, settle JTF and refine diesel at a lower price. This people still pose a great threat to the importers who buy at a higher price that is why you get diesel @ 140naira elsewhere but in the delta i buy as low as 70naira. At this verge you will not over rule the fact that these unscrupulous elements contribute to the availability of diesel, if you are in doubt, anywhere you see cheap diesel, ask the dealer the source of his consignment If he is honest he will tell you the truth, when i was told, i took an hr 20mins boat ride to a remote village in the delta between Belema and Kola communities and i saw the local refinery myself. I will post the pictures later. Conduct a chemical test on those cheap diesel if you are not convinced and you will realize a lot of additives are missing. Sounds incredible but that is the reality on ground. You now know why many importers in the delta hardly have diesel. I still feel sorry for those who think the Govt should build more refineries, that will not solve the problem because there is no cheap crude to supply these refineries. The oil production of Nigeria stands at 2.37 million barrels of crude daily. nigeria get this crude in a JV (joint venture) with IOC's (international oil companies) and the Nigeria's cut stand btw 55% to 60% of the lot, if we go by 60% then That gives a total of 1.4m barells daily. If we average the crude price from 2009 till date, the price falls close to 100usd/bbl. In that case, Nigeria makes 140,000,000usd daily from this JV. Nigeria has a policy called DSO (domestic supply obligation) which mandates 250,000bbl/d of this crude to be refined and consumed locally, In monetary terms, the Nigerian govt is giving us 25,000,000usd worth of crude to refine. Our three refineries at optimum capacity utilizes 450,000bbl/d which gives 45,000,000usd in monetary terms in other words, the price of raw material in this case, crude, accrued to our refineries comes at 45m usd per day, if you add refining cost and profit of 6usd per bbl, The total cost becomes 270,000,000usd per day. There is no way you can refine that crude at that price and sell it 65naira/l and make profit. Meanwhile, once we mark out that 45m usd worth of crude for our refineries (assuming they are working at optimum capacity), the govt has already lost 45m usd from their 140m usd daily earnings (which will affect budget implementation) and after refining will still spend more money to subsidize it to 65naira/l With this analogy, you will agree with me that if all our refineries are working optimally, the govt will spend 3times our present day subsidy to bring the pump price down to 65naira/l. So, for those of you clamoring for refineries should be careful what you wish for because there is no cheap crude for you to refine. I have argued abinitio that the sales of other derivatives of crude will bring down the cost of most sort PMS,DPK etc but after doing some feasibility studies, i realized i was dead wrong. I further argued that to make cheaper crude available for our refineries, the Govt should reduce the price at which it is supplied unfortunately, the senate mandated the then GMD of Nnpc that the DSO must be sold at international crude price. This i believe was proposed for the following reasons: 1 the refineries are working below capacity so what the heck does Nnpc use the crude for? 2, there is a benchmark on crude price for budget implementation. With this reasons, any existing or yet to exist refinery in Nigeria will get crude at a high price and must need subsidy to sell at 65naira/l, at this cross road, the then GMD of Nnpc decided that all crude should be exported and subsidy be paid on imported products. Guess he was left with no choice. At this verge, i must reiterate here that competition amongst importers will only crash the profit margin but not cost price. Even if every Nigerian becomes an importer of pet. Prods, we can never change the fact that crude in the int l market is already expensive before thinking of refined prod. So we must need subsidy to make profit. Before this issue of subsidizing petroleum products can be addressed, You must have the following at the back of your minds: 1, Nigeria pegs a benchmark on crude prices to enable it implement budget. This stands at 75usd/bbl. And this crude is sort from the JV. 2, if crude price exceed the benchmark above, Nigeria makes excess crude revenue (ECR) 3, if we make excess crude revenue, then the price of subsidy on refined products shoot up. With the above analogy, One can argue that the ECR be used to subsidize imported petroleum products since both are a function of each other unfortunately in Nigeria, it comes with its own challenges. By law, the constitution clearly states that all revenue accrued to the FG be shared amongst the three tiers of Govt. This alone makes it illegal for the FG to keep the ECR to itself for whatever reason. This is where the wahala started, during GEJ's campaign, he astronomically increased workers salary without consulting the state Governors, most Governors have refused to pay on the grounds that they cannot afford it. On that grounds Taraba,jigawa and some other states have a genuine case. With the above development, the states started scrambling for funds and remembered the ECR and insisted it must be shared to enable them pay the new wage and develop infrastructures. The FG had no choice but to capitulate With this development, the FG is left with little or no choice. The way forward: In the short run: While the FG is consulting, they must consider these options, 1, identify and tackle the corruption prevalent in the subsidy regime. That will push down the cost of the subsidy in the first place. Like i said in April,no matter how sincere GEJ think his administration is, he cannot make any reasonable progress in the face of corruption, 2, the power projects must come upstream before removing subsidy, this will reduce the demand on pet. Products to a very great extent. 3, Nigeria must accommodate Gas export, port duties and other forms of revenue in their budget implementation policies. 4, Govt must never invest an extra kobo in our moribund refineries, by doing otherwise, the cost price of the refineries will rise to an extent that it will no longer be attractive to investors or will prolong their repayment plan. Thereby making it very capital intensive. 5, Instead of deceiving Nigerians with their cabal bullshit and deluding them that they don't benefit from this subsidy, the FG should channel that propaganda with intense lobbying to the senate,NLC and civil society organizations to stop the state governors from demanding for the ECR, this can be achieved by the FG asking the state to pay whatever increment they can afford for the workers that way the ECR will be used for subsidizing pet. Products. In the long run: Nigeria must seek local production capacity. It is no longer news that Nnpc and its subsidiaries have failed woefully in meeting the needs of the Nigerian people. Nnpc through its subsidiary Npdc and Ngc are saddled with the responsibility of the above for oil and gas production respectively, but as i write, the current production of NPDC stands at a paltry 90,000bbl/day which is a huge failure for an agency set up 23yrs ago, The IOC's has made us believe that it will cost less than 12usd to extract 1bbl of our oil. The Management of NPDC must be reshuffled and if possible experts brought in on contract basis to improve NPDC's production These experts must be placed on targets appraised by milestones. in ogoni land for instance, Anglo dutch has a lot of abandoned production facilities and marginal wells and others scattered all over the country, these can be bought by NPDC with the money FG want to waste on refineries to improve production, If NPDC can extract oil at 12usd/bbl and make a little profit, with this cheap oil available, Nigeria will have no reason going to the JV. This cheap crude will attract investors to build refineries and create jobs, A 250,000bbl/d refinery will cost a little above 5b usd, dangote alone can afford two of those only if NPDC can guarantee cheap oil. This is why no investor is coming to build refineries. A crude price of 18usd/bbl from NPDC will guarantee pump price of less than 22naira per litre of pms from these refineries. With this plan,By the end of this Administration, NPDC will have robust production capacity and the refineries will guarantee steady refined products. These refineries shouldn't be operated by the Govt for any reason. The FG will generate revenue from both ends, export of crude and export refined products and the production of NPDC must be increasing periodically. Once the above takes effect, there wont be any need to be paying subsidy because pump price will be around 23naira/l and inflation will reduce by 40‰. Now how competent is Allison Madueke and iweala if they cant figure this out to think of removing subsidy at this stage where there is no electricity and high corruption rate will be tantamount to economic suicide. what iweala forgot is that in the face of inflation the cost of running Govt projects will be high, All Govt contractors will definitely come back for contract variations or Abandon those projects. As a sound economist, she should tell Nigerians the value of 1.3 trillion naira in the face of 60% inflation and how many projects Nigerians will benefit from the subsidy removal. If you remove subsidy and the money disappears, then it is a NO NO for Nigerians |
Re: PART 2: NIGERIAN OIL INDUSTRY AND FUEL SUBSIDY: FACTS, MYTHS & HIDDEN TRUTH by Midas02(m): 10:19pm On Jan 02, 2012 |
The trouble has started, yawah don gazz!! I warned enough , but my fellow countrymen were too busy jollofing! This is only the beginning, |
Re: PART 2: NIGERIAN OIL INDUSTRY AND FUEL SUBSIDY: FACTS, MYTHS & HIDDEN TRUTH by cbravo(m): 6:53am On May 04, 2017 |
AN APPRAISAL OF PRICING IN PETROLEUM INDUSTRY FOR DOWNSTREAM PRODUCTS IN NIGERIA http://www.bravoprojecthelp.com/marketing/an-appraisal-of-pricing-in-petroleum-industry-for-downstream-products-in-nigeria/ |
Re: PART 2: NIGERIAN OIL INDUSTRY AND FUEL SUBSIDY: FACTS, MYTHS & HIDDEN TRUTH by cbravo3: 6:56am On May 04, 2017 |
AN APPRAISAL OF PRICING IN PETROLEUM INDUSTRY FOR DOWNSTREAM PRODUCTS IN NIGERIA http://www.bravoprojecthelp.com/marketing/an-appraisal-of-pricing-in-petroleum-industry-for-downstream-products-in-nigeria/ |
Re: PART 2: NIGERIAN OIL INDUSTRY AND FUEL SUBSIDY: FACTS, MYTHS & HIDDEN TRUTH by ketkelvin(m): 12:51pm On May 06, 2017 |
BLCO, FLCO and LPFO we have allocation from NNPC, we want to transact with serious and genuine buyers pls. Phone: +234(0)9033826160 |
Re: PART 2: NIGERIAN OIL INDUSTRY AND FUEL SUBSIDY: FACTS, MYTHS & HIDDEN TRUTH by betaessays: 6:35am On Sep 12, 2017 |
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