The GMD of NNPC was recently quoted to have said that when fuel subsidy is removed, PMS will sell at between N320 - N340. This government in 2016/2017 said they partially deregulated the sector when they increased the pump price of PMS to N165. The then Minister of State for Petroleum, Ibe Kachikwu, said the deregulation will force down the price of the product. At the time, I said it was a dubious move; a poorly orchestrated scam by this government! The reason is simple. A government cannot deregulate and yet still fix prices for the same product said to have been deregulated. A simple question will drive home the point. Has the government ever fixed the price of garri in Nigeria? Therein lies the deceit! My position has not changed. For the same reason, the decision of this government to remove subsidy is a scam! No reasonable and responsible government anywhere in the world will leave the price of energy in the hands of private businessmen who are driven primarily by profits seeing as energy is critical to national development and security.

Now, in order to mitigate the concomitant hardship that will result from the deceptive removal of fuel subsidy, the government says it will give N5,000 to the poorest households (about 40 million people) in the country as transport subsidy. This is a problematic proposition. How will the poorest households be determined? The money to be spent as transport subsidy (conservatively estimated at N200 billion a month) could be channeled towards building new refineries or fixing the existing ones. As a matter of fact, this is the elephant in the room which the government pretends not to see. We are talking about fuel subsidy removal in 2021/2022 because our refineries are not working! If the Dangote Group can construct the gigantic refinery that will come on stream in 2022; what excuse does this government have for our refineries not working in full capacity since it took over the reins of power in 2015?

But frankly, I don't understand what the government means when they talk about fuel "subsidy" in the Nigerian context. Fuel subsidy in Nigeria under the Buhari regime is an arrangement that should be viewed with great suspicion. We operate a system called "crude oil swap" - this is simply an arrangement where the NNPC takes crude oil from Nigeria for free to a foreign refinery, refines the crude oil and brings it back to the country for sale to dealers and citizens at international rate using a model with faulty parameters. This system was introduced to curtail the grand sleaze that characterized the subsidy scheme under the previous government where unscrupulous businessman were paid huge sums of money for just presenting worthless papers to the relevant govenment office. To that extent, the government of Nigeria is not really subsidizing the cost of PMS. When the government talks about "subsidy removal" it is only trying to pull the wool over our eyes and obfuscate the issues. In very straightforward terms, it is a ploy to fleece hapless and longsuffering Nigerians.

The govt is d definition of confused and foolish

But frankly, I don't understand what the government means when they talk about fuel "subsidy" in the Nigerian context. Fuel subsidy in Nigeria under the Buhari regime is an arrangement that should be viewed with great suspicion. We operate a system called "crude oil swap" - this is simply an arrangement where the NNPC takes crude oil from Nigeria for free(that is not true, otherwise most of the workers extracting the crude here in this country would not have been paid their salaries in years. It costs money to extract crude from our soil, you know! Also, a lot of the rich elite in this country that are responsible for the extraction of oil would be broke , and shut up shop due to no money being made...because they would be extracting crude for free if you were right..and that's not possible) to a foreign refinery, refines the crude oil and brings it back to the country for sale to dealers and citizens at international rate using a model with faulty parameters. This system was introduced (by the current government) to curtail the grand sleaze that characterized the subsidy scheme under the previous government where unscrupulous businessman were paid huge sums of money for just presenting worthless papers to the relevant govenment office. To that extent, the government of Nigeria is not really subsidizing the cost of PMS. When the government talks about "subsidy removal" it is only trying to pull the wool over our eyes and obfuscate the issues. In very straightforward terms, it is a ploy to fleece hapless and longsuffering Nigerians

1.Well the guy above is right, however there are some inaccuracies I would like to point out.

2.First, he assumes that the fact that we send our crude to be refined abroad for free (which is not true as I have pointed out...if it was true, our crude production capacity would have fallen centuries ago...plus the extractive arm of our petroleum industry would be running at a massive loss) means that fuel prices should be cheaper.

3.There are issues with that, and I would go into that

4.First, the crude oil sent to be refined abroad, HAS TO BE PAID FOR....and guess how it is being paid for? In international prices(That's the same problem GENCOS have with power...they have to pay gas companies in DOLLARS, not naira...and that even includes the Nigeria Gas company. A government owned entity)....If we wanted low petrol oil prices, we would , in essence, have to refine our crude for free..which is not how it works.

Add the fact that to get the crude out of the ground in Nigeria costs a lot of money...most of it is offshore, and onshore, there is the threat from crude oil thieves, etc, etc.

So, crude oil costs a lot to get out of the nigerian soil...cost one

5.Cost two...we have to trapsort the crude to Belgium and the Netherlands...where 80% of the crude is refined. That means...transport costs. Because the ships carrying our crude don't carry it for...free.

Transport cost to belgium and the Dutch....cost two.

6. Then it is refined into dirty fuel in those countries (very true)...which is happening because the government wants to keep costs of refining as low as possible. If it was refined to standard, by now fuel subsidy costs would have eaten all our budget basically. To keep fuel cheap, government skimps on standard refining of fuel...

Either way, it costs money...and workers must be paid...cost three.(refining and workers costs)

7.Then there is the fact that the thing , once refined, has to be sent back to Nigeria.....transport costs again...cost 4

8.Then it has to be transported from port to end user...cost 5.


So, the cost of your liter of fuel is based on

1. Cost of removing the crude from the ground....
2.Cost of transporting the crude to Belgium and Holland...
3.Cost of refining the crude in Belgium and holland...
4.Cost of sending the crude back to Nigeria....
5.Cost of transporting the crude from Nigeria port to end user.(a large part of the subsidy is paid here as equalization fund...which is why fuel in theory costs the same all over the country).

And all that comes up to N260 as at a few months ago...per liter of fuel.(Note that the above costs are paid in hard currency...from our revenue).

If we wanted to keep fuel cheap...we would in essence, have extract crude oil for free...(and leave many workers , mostly Nigerians, broke ).

But government forces NNPC to sell the same fuel at N162 per liter of fuel...meaning that the difference between N260 and N162...is paid as subsidy to prevent NNPC from breaking down under losses.

If subsidy goes, government would no longer need to pay N98 per liter of fuel sold...PLUS...NNPC can make actual profits every quarter, not once in 19 years....and government saves money too.

The plan, would be eventually to

1.Refine fuel at home

2.Allow refineries to run at a profit...which is how they would function well.

Dangote is going to end up selling fuel above N300 per liter...unless government gives him crude for free...which won't work.(and which is not going to happen. All government has promised him is that they would sell crude to him in Naira). Sane for the 4 refineries coming on stream, and the 20 waiting to come on stream (AND the two NNPC is fixing up)

backbencher:


1.Well the guy above is right, however there are some inaccuracies I would like to point out.

2.First, he assumes that the fact that we send our crude to be refined abroad for free (which is not true as I have pointed out...if it was true, our crude production capacity would have fallen centuries ago...plus the extractive arm of our petroleum industry would be running at a massive loss) means that fuel prices should be cheaper.

3.There are issues with that, and I would go into that

4.First, the crude oil sent to be refined abroad, HAS TO BE PAID FOR....and guess how it is being paid for? In international prices(That's the same problem GENCOS have with power...they have to pay gas companies in DOLLARS, not naira...and that even includes the Nigeria Gas company. A government owned entity)....If we wanted low petrol oil prices, we would , in essence, have to refine our crude for free..which is not how it works.

Add the fact that to get the crude out of the ground in Nigeria costs a lot of money...most of it is offshore, and onshore, there is the threat from crude oil thieves, etc, etc.

So, crude oil costs a lot to get out of the nigerian soil...cost one

5.Cost two...we have to trapsort the crude to Belgium and the Netherlands...where 80% of the crude is refined. That means...transport costs. Because the ships carrying our crude don't carry it for...free.

Transport cost to belgium and the Dutch....cost two.

6. Then it is refined into dirty fuel in those countries (very true)...which is happening because the government wants to keep costs of refining as low as possible. If it was refined to standard, by now fuel subsidy costs would have eaten all our budget basically. To keep fuel cheap, government skimps on standard refining of fuel...

Either way, it costs money...and workers must be paid...cost three.(refining and workers costs)

7.Then there is the fact that the thing , once refined, has to be sent back to Nigeria.....transport costs again...cost 4

8.Then it has to be transported from port to end user...cost 5.


So, the cost of your liter of fuel is based on

1. Cost of removing the crude from the ground....
2.Cost of transporting the crude to Belgium and Holland...
3.Cost of refining the crude in Belgium and holland...
4.Cost of sending the crude back to Nigeria....
5.Cost of transporting the crude from Nigeria port to end user.(a large part of the subsidy is paid here as equalization fund...which is why fuel in theory costs the same all over the country).

And all that comes up to N260 as at a few months ago...per liter of fuel.(Note that the above costs are paid in hard currency...from our revenue).

If we wanted to keep fuel cheap...we would in essence, have extract crude oil for free...(and leave many workers , mostly Nigerians, broke ).

But government forces NNPC to sell the same fuel at N162 per liter of fuel...meaning that the difference between N260 and N162...is paid as subsidy to prevent NNPC from breaking down under losses.

If subsidy goes, government would no longer need to pay N98 per liter of fuel sold...PLUS...NNPC can make actual profits every quarter, not once in 19 years....and government saves money too.

The plan, would be eventually to

1.Refine fuel at home

2.Allow refineries to run at a profit...which is how they would function well.

Dangote is going to end up selling fuel above N300 per liter...unless government gives him crude for free...which won't work.(and which is not going to happen. All government has promised him is that they would sell crude to him in Naira). Sane for the 4 refineries coming on stream, and the 20 waiting to come on stream (AND the two NNPC is fixing up)

Good analysis.

But the price of energy especially fuel should not be left for businessmen to determine, the government must get involved.

Another thing, why is the government not fixing the refineries, if fuel is refined locally, costs incurred will be minimal. What a responsible government should thinking of is how to make sure fuel is refined locally.

Ofunaofu:


Good analysis.

But the price of energy especially fuel should not be left for businessmen to determine, the government must get involved.

Another thing, why is the government not fixing the refineries, if fuel is refined locally, costs incurred will be minimal. What a responsible government should thinking of is how to make sure fuel is refined locally.

1. When goverment determines the price of fuel it would do so in a way that makes it difficult for businesses to make a profit.

Because goverment is made up of politicans who in order to score political points would force oil companies to sell fuel at a loss. And pay them a subsidy to cover for the losses which lead to to things like subsidy scams

2..As for refineries, refineries can only work when they are allowed to operate at a profit. Meaning they make enough cash for overheads, improvements, upgrades , expansions, and worker welfare and still have enough profits left over

Why our NNPc refineries ran down was because they were run at a loss. Sabotage and corruption finished the job

Whereas if tjey were run at a profit and workers salaries came from the profits made by the refineries not from the revenue from crude, they won't collapse.

3. Cost of making a liter of fuel rises and falls with the crude oil prices. That's why subsides cannot cover the losses sustained by selling fuel below the actual cost price

4..as an example, Dangote refinery has to run at a.profit so that he can pay for the planned expansion of his refinery, pay workers decent salaries, pay overheads, pay maintenance costs and pay back the loans he took for building the refinery. Then there is the taxman too. All that means that he won't be selling fuel below 200 naira, I reckon. The only potential cost cutters are the lower cost of living in Nigeria and the promise that he can pay for crude in naira

backbencher:


1. When goverment determines the price of fuel it would do so in a way that makes it difficult for businesses to make a profit.

Because goverment is made up of politicans who in order to score political points would force oil companies to sell fuel at a loss. And pay them a subsidy to cover for the losses which lead to to things like subsidy scams

2..As for refineries, refineries can only work when they are allowed to operate at a profit. Meaning they make enough cash for overheads, improvements, upgrades , expansions, and worker welfare and still have enough profits left over

Why our NNPc refineries ran down was because they were run at a loss. Sabotage and corruption finished the job

Whereas if tjey were run at a profit and workers salaries came from the profits made by the refineries not from the revenue from crude, they won't collapse.

3. Cost of making a liter of fuel rises and falls with the crude oil prices. That's why subsides cannot cover the losses sustained by selling fuel below the actual cost price

4..as an example, Dangote refinery has to run at a.profit so that he can pay for the planned expansion of his refinery, pay workers decent salaries, pay overheads, pay maintenance costs and pay back the loans he took for building the refinery. Then there is the taxman too. All that means that he won't be selling fuel below 200 naira, I reckon. The only potential cost cutters are the lower cost of living in Nigeria and the promise that he can pay for crude in naira

It's all a scam!
It's a like a herdsman raising his cows from birth till maturity and then sending them to a butchery in Europe so they can seperate the stripe, meat and bone, of course beef and all associated products would be expensive when it comes back to Nigeria,
Now the useless govt instead of building butcheries and creating jobs decides to dole out money to its cronies to cover up the effects of their foolishnesss, that's why you would NEVER know the hidden beneficiaries of the scam called subsidy!
The scam is so lucrative that even Niger Republic has keyed into the racket,
If you have ever lived abroad you would realise Nigerian fuel is one of the lightest, most flammable and dirtiest on the planet!

Subsidy is a scam but only people out of govt can call it out, once they enter the govt, they also benefit from the scam, case in point, Buhari

StaffofOrayan:



It's all a scam!
It's a like a herdsman raising his cows from birth till maturity and then sending them to a butchery in Europe so they can seperate the stripe, meat and bone, of course beef and all associated products would be expensive when it comes back to Nigeria,
Now the useless govt instead of building butcheries and creating jobs decides to dole out money to its cronies to cover up the effects of their foolishnesss, that's why you would NEVER know the hidden beneficiaries of the scam called subsidy!
The scam is so lucrative that even Niger Republic has keyed into the racket,
If you have ever lived abroad you would realise Nigerian fuel is one of the lightest, most flammable and dirtiest on the planet!

Subsidy is a scam but only people out of govt can call it out, once they enter the govt, they also benefit from the scam, case in point, Buhari

Well your analogy is correct but what happens is that you mised the reason why the meat is being processed at a foreign butchery

It is because the Nigerian butchery is being forced to process cow meat at a loss, or the Nigerian butchery is cutting maintenance costs to keep prices of meat low, or the herdsmen are selling meat at a loss so that meat can be sold cheaply and then government pays a subsidy that in principle covers the losses being made to keep meat cheap but in practice doesn't

(Let's say that it costs N1000 per klilo to process meat in a Nigeria butchery..enough to cover their overheads, maintenance, cleaning, worker welfare and salary, and herdsmen money...and then government comes in and reduces the processing cost to N100 per kilo and pays a subsidy of N300 per kilo processed. Meanwhile, the following year, costs of processing rise to N1200, but government is still keeping processing costs at the Nigerian butchery at N100, and paying subsides at N300..meaning that the butchery loses N800 , up from N600 per kilo processed).

So

1. You get periodic scarcity of beef since it is being sold at a loss and subsidies don't cover the loss

2. You get the Nigerian butchery closing due to losses because government has been forcing it to operate at a loss, meaning cow eventually is processed in foreign butcheries and brought back to Nigeria .

Where it is sold at a price below the cost of butchering it abroad and subsidy costs go up.(Eventually, government raises subsides to N700 per kilo, but now it is N1500 to process one kilo of meat. Do we raise the subsidy again?)

Or to summarize , the cost of production of meat from cow goes up and so does the subsidy on meat.

Problem with subsidy, it means price controls and it means that someone loses money. And scams result.

If herdsmen, butchery and company were all allowed to run at a profit, none of this would have happened. Profit can be reinvested in improving cow production and increasing the number of butcheries

Till the prices come down by market forces.

With zero need to pay a subsidy

There were.goverments which subsidized everything once upon a time .They were called the DDR, USSR and the DPRK. By the 1990s they had all failed economies



Good evening

P.S I am not defending Buhari, or APC. Buhari and APC, by keeping subsides have shown that they do not know economics at all. I was not GEJ's fan, but his subsidy removal in 2012 made total common sense, and we even had the cash then to pay for transfers to the poor...exceeding N10000 or more. But Nigerians said no, and Buhari took advantage of Nigerians anger to get into power. Now his eyes have been opened by force. Too bad it took 6-7 years....and a oil crash.

backbencher:


Well your analogy is correct but what happens is that you mised the reason why the meat is being processed at a foreign butchery

It is because the Nigerian butchery is being forced to process cow meat at a loss, or the Nigerian butchery is cutting maintenance costs to keep prices of meat low, or the herdsmen are selling meat at a loss so that meat can be sold cheaply and then government pays a subsidy that in principle covers the losses being made to keep meat cheap but in practice doesn't

(Let's say that it costs N1000 per klilo to process meat in a Nigeria butchery..enough to cover their overheads, maintenance, cleaning, worker welfare and salary, and herdsmen money...and then government comes in and reduces the processing cost to N100 per kilo and pays a subsidy of N300 per kilo processed. Meanwhile, the following year, costs of processing rise to N1200, but government is still keeping processing costs at the Nigerian butchery at N100, and paying subsides at N300..meaning that the butchery loses N800 , up from N600 per kilo processed).

So

1. You get periodic scarcity of beef since it is being sold at a loss and subsidies don't cover the loss

2. You get the Nigerian butchery closing due to losses because government has been forcing it to operate at a loss, meaning cow eventually is processed in foreign butcheries and brought back to Nigeria .

Where it is sold at a price below the cost of butchering it abroad and subsidy costs go up.(Eventually, government raises subsides to N700 per kilo, but now it is N1500 to process one kilo of meat. Do we raise the subsidy again?)

Or to summarize , the cost of production of meat from cow goes up and so does the subsidy on meat.

Problem with subsidy, it means price controls and it means that someone loses money. And scams result.

If herdsmen, butchery and company were all allowed to run at a profit, none of this would have happened. Profit can be reinvested in improving cow production and increasing the number of butcheries

Till the prices come down by market forces.

With zero need to pay a subsidy

There were.goverments which subsidized everything once upon a time .They were called the DDR, USSR and the DPRK. By the 1990s they had all failed economies



Good evening

P.S I am not defending Buhari, or APC. Buhari and APC, by keeping subsides have shown that they do not know economics at all. I was not GEJ's fan, but his subsidy removal in 2012 made total common sense, and we even had the cash then to pay for transfers to the poor...exceeding N10000 or more. But Nigerians said no, and Buhari took advantage of Nigerians anger to get into power. Now his eyes have been opened by force. Too bad it took 6-7 years....and a oil crash.

Subsidy is a scam that would never end!
It's called a perfect scam,
There are too many variables to ensure it remains forever, the plan of the useless govt is to sell fuel at the same price as countries that doesn't have crude oil naturally and even at that, there would still be 'subsidies' because there are too many unknowns, from the unpredictability of international freight to the volatility of foreign currencies to what the countries refining our crude oil decides to charge for the service,
Try and travel out of Nigeria and see how those countries that tell Nigeria to end subsidy subsidize it's citizen, infact those countries pay their unemployed population monthly allowances,
Personally, I think it has always been cheaper for the govt to import these substandard fuel than produce it locally, that way their 'subsidy' never ends!
Even Dangote wants licence to import fuel!!!
Open your head!

www.theguardian.com
Petrol sold to Nigeria from Europe 'dirtier' than black market 'bush' fuel
1 Jul 2020 — According to industry sources which track legal and illegal oil cargo movements – who asked to remain anonymous – around 80% of Nigeria's

StaffofOrayan:


Subsidy is a scam that would never end!
It's called a perfect scam,
There are too many variables to ensure it remains forever, the plan of the useless govt is to sell fuel at the same price as countries that doesn't have crude oil naturally and even at that, there would still be 'subsidies' because there are too many unknowns, from the unpredictability of international freight to the volatility of foreign currencies to what the countries refining our crude oil decides to charge for the service,
Try and travel out of Nigeria and see how those countries that tell Nigeria to end subsidy subsidize it's citizen, infact those countries pay their unemployed population monthly allowances,
Personally, I think it has always been cheaper for the govt to import these substandard fuel than produce it locally, that way their 'subsidy' never ends!
Even Dangote wants licence to import fuel!!!
Open your head!

www.theguardian.com
Petrol sold to Nigeria from Europe 'dirtier' than black market 'bush' fuel
1 Jul 2020 — According to industry sources which track legal and illegal oil cargo movements – who asked to remain anonymous – around 80% of Nigeria's

Other countries pay for subsides from taxes

Nigeria pays for subsides by paying from oil revenues that are never stable due to fluctuations in oil prices...meaning most of the time we have to take loans to keep heads above water.

At the end of the day, either we use taxes to pay for subsidy or we keep on relying on very unstable crude oil prices.

Dangote better not import fuel though, but that's irrelevant.

backbencher:


Other countries pay for subsides from taxes

Nigeria pays for subsides by paying from oil revenues that are never stable due to fluctuations in oil prices...meaning most of the time we have to take loans to keep heads above water.

At the end of the day, either we use taxes to pay for subsidy or we keep on relying on very unstable crude oil prices.

Dangote better not import fuel though, but that's irrelevant.

Of course he would, it makes economic sense for his company, why won't he take advantage of a never ending scam?
https://punchng.com › dangote-want...
ICYMI: Dangote wants only refinery licence holders to import fuel
28 Feb 2021 — Dangote Group has suggested for inclusion in the Petroleum Industry Bill a provision that the licence to import petroleum products should

StaffofOrayan:


Of course he would, it makes economic sense for his company, why won't he take advantage of a never ending scam?
https://punchng.com › dangote-want...
ICYMI: Dangote wants only refinery licence holders to import fuel
28 Feb 2021 — Dangote Group has suggested for inclusion in the Petroleum Industry Bill a provision that the licence to import petroleum products should

Well, dangote or no dangote, subsidy has to go.

Unless you have better ideas for funding it.

Good morning. Got to get to the work now

backbencher:


Well, dangote or no dangote, subsidy has to go.

Unless you have better ideas for funding it.

Good morning. Got to get to the work now

The only way to end 'subsidy' is to stop sabotaging the local refining capacity of the country!
And that would mean a massive war against the oil mafia which is filled with ex general so nobody is interested in doing that, after all it's easier to pass the cost on the dumbb masses than fix the root cause, infact find a way to convince them they are the ones benefiting from the scam called subsidy

StaffofOrayan:



The only way to end 'subsidy' is to stop sabotaging the local refining capacity of the country!
And that would mean a massive war against the oil mafia which is filled with ex general so nobody is interested in doing that, after all it's easier to pass the cost on the dumbb masses than fix the root cause, infact find a way to convince them they are the ones benefiting from the scam called subsidy

It also means allowing the refineries to sell fuel to the market atthe price they set.

Ditto marketers.

backbencher:


1.Well the guy above is right, however there are some inaccuracies I would like to point out.

2.First, he assumes that the fact that we send our crude to be refined abroad for free (which is not true as I have pointed out...if it was true, our crude production capacity would have fallen centuries ago...plus the extractive arm of our petroleum industry would be running at a massive loss) means that fuel prices should be cheaper.

3.There are issues with that, and I would go into that

4.First, the crude oil sent to be refined abroad, HAS TO BE PAID FOR....and guess how it is being paid for? In international prices(That's the same problem GENCOS have with power...they have to pay gas companies in DOLLARS, not naira...and that even includes the Nigeria Gas company. A government owned entity)....If we wanted low petrol oil prices, we would , in essence, have to refine our crude for free..which is not how it works.

Add the fact that to get the crude out of the ground in Nigeria costs a lot of money...most of it is offshore, and onshore, there is the threat from crude oil thieves, etc, etc.

So, crude oil costs a lot to get out of the nigerian soil...cost one

5.Cost two...we have to trapsort the crude to Belgium and the Netherlands...where 80% of the crude is refined. That means...transport costs. Because the ships carrying our crude don't carry it for...free.

Transport cost to belgium and the Dutch....cost two.

6. Then it is refined into dirty fuel in those countries (very true)...which is happening because the government wants to keep costs of refining as low as possible. If it was refined to standard, by now fuel subsidy costs would have eaten all our budget basically. To keep fuel cheap, government skimps on standard refining of fuel...

Either way, it costs money...and workers must be paid...cost three.(refining and workers costs)

7.Then there is the fact that the thing , once refined, has to be sent back to Nigeria.....transport costs again...cost 4

8.Then it has to be transported from port to end user...cost 5.


So, the cost of your liter of fuel is based on

1. Cost of removing the crude from the ground....
2.Cost of transporting the crude to Belgium and Holland...
3.Cost of refining the crude in Belgium and holland...
4.Cost of sending the crude back to Nigeria....
5.Cost of transporting the crude from Nigeria port to end user.(a large part of the subsidy is paid here as equalization fund...which is why fuel in theory costs the same all over the country).

And all that comes up to N260 as at a few months ago...per liter of fuel.(Note that the above costs are paid in hard currency...from our revenue).

If we wanted to keep fuel cheap...we would in essence, have extract crude oil for free...(and leave many workers , mostly Nigerians, broke ).

But government forces NNPC to sell the same fuel at N162 per liter of fuel...meaning that the difference between N260 and N162...is paid as subsidy to prevent NNPC from breaking down under losses.

If subsidy goes, government would no longer need to pay N98 per liter of fuel sold...PLUS...NNPC can make actual profits every quarter, not once in 19 years....and government saves money too.

The plan, would be eventually to

1.Refine fuel at home

2.Allow refineries to run at a profit...which is how they would function well.

Dangote is going to end up selling fuel above N300 per liter...unless government gives him crude for free...which won't work.(and which is not going to happen. All government has promised him is that they would sell crude to him in Naira). Sane for the 4 refineries coming on stream, and the 20 waiting to come on stream (AND the two NNPC is fixing up)

Insightful analysis.

Well, for space constraint reasons, I could not go into much details here. But more importantly, I wanted to drop it "as e dey hot". In response to the points raised in your post, I would like to state that there are no inaccuracies in the OP. However, for reasons already stated above, some unnecessary details were deliberately left out. Please, note that the FG does not pay for the crude oil or the other expenses you outlined in your post as there is a special arrangement between the NNPC and the refineries abroad. Those costs are only used to develop the pricing model - which final price is eventually paid for by the consumer. To drive home the point, I will ask just one question, who takes custody of the byproducts from the crude oil sent to be refined? Any how, great perspective from you.

backbencher:


1. When goverment determines the price of fuel it would do so in a way that makes it difficult for businesses to make a profit.

Because goverment is made up of politicans who in order to score political points would force oil companies to sell fuel at a loss. And pay them a subsidy to cover for the losses which lead to to things like subsidy scams

2..As for refineries, refineries can only work when they are allowed to operate at a profit. Meaning they make enough cash for overheads, improvements, upgrades , expansions, and worker welfare and still have enough profits left over

Why our NNPc refineries ran down was because they were run at a loss. Sabotage and corruption finished the job

Whereas if tjey were run at a profit and workers salaries came from the profits made by the refineries not from the revenue from crude, they won't collapse.

3. Cost of making a liter of fuel rises and falls with the crude oil prices. That's why subsides cannot cover the losses sustained by selling fuel below the actual cost price

4..as an example, Dangote refinery has to run at a.profit so that he can pay for the planned expansion of his refinery, pay workers decent salaries, pay overheads, pay maintenance costs and pay back the loans he took for building the refinery. Then there is the taxman too. All that means that he won't be selling fuel below 200 naira, I reckon. The only potential cost cutters are the lower cost of living in Nigeria and the promise that he can pay for crude in naira

Your no. 3 is where the problem lies. Why should we subject our economy and citizens to the harsh uncertainties and fluctuations of the global crude oil market when we are an oil producing country? Does this make any economic sense? Definitely no. But because the government wants to continue to make easy money it continues to allow that absurdity thrive. The same arrangement applies to the electricity industry where the government/NNPC/NGC sells gas to local Gencos at international market price when everyday we flare gas like mad in this country. Thereby exposing our citizens and environment to unnecessary and unconscionable danger and damage. Due to this funny arrangement, whenever there is a significant change in Dollar exchange rate we must then be forced to review prices and tariffs in Nigeria. How can we continue like this? But the government does not care because that way it makes more money as a result of exchange rate differentials even though the economy is exposed to (galloping) inflation.

backbencher:


Well your analogy is correct but what happens is that you mised the reason why the meat is being processed at a foreign butchery

It is because the Nigerian butchery is being forced to process cow meat at a loss, or the Nigerian butchery is cutting maintenance costs to keep prices of meat low, or the herdsmen are selling meat at a loss so that meat can be sold cheaply and then government pays a subsidy that in principle covers the losses being made to keep meat cheap but in practice doesn't

(Let's say that it costs N1000 per klilo to process meat in a Nigeria butchery..enough to cover their overheads, maintenance, cleaning, worker welfare and salary, and herdsmen money...and then government comes in and reduces the processing cost to N100 per kilo and pays a subsidy of N300 per kilo processed. Meanwhile, the following year, costs of processing rise to N1200, but government is still keeping processing costs at the Nigerian butchery at N100, and paying subsides at N300..meaning that the butchery loses N800 , up from N600 per kilo processed).

So

1. You get periodic scarcity of beef since it is being sold at a loss and subsidies don't cover the loss

2. You get the Nigerian butchery closing due to losses because government has been forcing it to operate at a loss, meaning cow eventually is processed in foreign butcheries and brought back to Nigeria .

Where it is sold at a price below the cost of butchering it abroad and subsidy costs go up.(Eventually, government raises subsides to N700 per kilo, but now it is N1500 to process one kilo of meat. Do we raise the subsidy again?)

Or to summarize , the cost of production of meat from cow goes up and so does the subsidy on meat.

Problem with subsidy, it means price controls and it means that someone loses money. And scams result.

If herdsmen, butchery and company were all allowed to run at a profit, none of this would have happened. Profit can be reinvested in improving cow production and increasing the number of butcheries

Till the prices come down by market forces.

With zero need to pay a subsidy

There were.goverments which subsidized everything once upon a time .They were called the DDR, USSR and the DPRK. By the 1990s they had all failed economies



Good evening

P.S I am not defending Buhari, or APC. Buhari and APC, by keeping subsides have shown that they do not know economics at all. I was not GEJ's fan, but his subsidy removal in 2012 made total common sense, and we even had the cash then to pay for transfers to the poor...exceeding N10000 or more. But Nigerians said no, and Buhari took advantage of Nigerians anger to get into power. Now his eyes have been opened by force. Too bad it took 6-7 years....and a oil crash.

Again, very brilliant submission. But this is too simplistic. By the way, energy is on a different level.

StaffofOrayan:


Subsidy is a scam that would never end!
It's called a perfect scam,
There are too many variables to ensure it remains forever, the plan of the useless govt is to sell fuel at the same price as countries that doesn't have crude oil naturally and even at that, there would still be 'subsidies' because there are too many unknowns, from the unpredictability of international freight to the volatility of foreign currencies to what the countries refining our crude oil decides to charge for the service,
Try and travel out of Nigeria and see how those countries that tell Nigeria to end subsidy subsidize it's citizen, infact those countries pay their unemployed population monthly allowances,
Personally, I think it has always been cheaper for the govt to import these substandard fuel than produce it locally, that way their 'subsidy' never ends!
Even Dangote wants licence to import fuel!!!
Open your head!

www.theguardian.com
Petrol sold to Nigeria from Europe 'dirtier' than black market 'bush' fuel
1 Jul 2020 — According to industry sources which track legal and illegal oil cargo movements – who asked to remain anonymous – around 80% of Nigeria's

I agree.

"Subsidy payments" may never end in Nigeria. This government has supposedly stopped "subsidy payments" at least once in 2016/17 when Ibe Kachikwu was Minister of State for Petroleum. He even said that PMS will be sold cheaper than the price it was pegged at then in the subsequent years. Contrary to his deceptive claims, the same government is still talking about fuel subsidy removal in 2021/22 which is actually a ruse. How can the government talk about fuel subsidy removal and the same government is still going to dictate the price for which the product will be sold. It means market forces are not going to determine the price of the product. How then can we be discussing deregulation of the sector? Therein lies the humongous SCAM which this government is about to perpetrate on hapless citizens!

989900:
If crude is refined locally, it should sell for less than ₦200 because, the Naira would appreciate considerably. These 2 are intertwined!

The number 1 reason why Buhari and his whole APC gang are a failure is the simple fact that they cannot provide locally refined fuel in 6 years!!!

Rather, they fuelled the same subsidy they campaigned against to crazy heights! By extension, subsidising roughly 300m people (Nigeria, Niger, Chad, Cameroon, Benin, etc )! No currency can survive such r@pe in an import dependent country with no tangible forex export revenue!

Until we can refine our local fuel demand locally, no prosperity!

Until then can the Naira appreciate . . . if the Naira appreciates as a result of no longer exporting our crude, jobs, etc overseas and we can build strategically on the gains economically, with a stronger Naira, you can even buy PMS for less than ₦100/litre in the future without subsidy -- it is all a function of your currency.

Frank talk.

backbencher:


Other countries pay for subsides from taxes

Nigeria pays for subsides by paying from oil revenues that are never stable due to fluctuations in oil prices...meaning most of the time we have to take loans to keep heads above water.

At the end of the day, either we use taxes to pay for subsidy or we keep on relying on very unstable crude oil prices.

Dangote better not import fuel though, but that's irrelevant.

Are you saying Nigerians are not paying tax or what?

Listic1:


I agree.

"Subsidy payments" may never end in Nigeria. This government has supposedly stopped "subsidy payments" at least once in 2016/17 when Ibe Kachikwu was Minister of State for Petroleum. He even said that PMS will be sold cheaper than the price it was pegged at then in the subsequent years. Contrary to his deceptive claims, the same government is still talking about fuel subsidy removal in 2021/22 which is actually a ruse. How can the government talk about fuel subsidy removal and the same government is still going to dictate the price for which the product will be sold. It means market forces are not going to determine the price of the product. How then can we be discussing deregulation of the sector? Therein lies the humongous SCAM which this government is about to perpetrate on hapless citizens!

You just capture my though with this submission. Anytime government talk about subsidy removal just know they meant price increase.

Whereas there are different between price increase, subsidy removal and deregulation.

You can't talk of subsidy removal when you still dictate the price.

What is deregulation all about when government is fixing price.

I think deregulation in Nigeria context mean restructuring. Deregulation means there would be a huge disparity in price of fuel in different parts of the country which the government is not ready do. It is generally believe that the north is poor and it's the responsibility of the government to protect such region in the interest of Nigeria. Deregulating oil sector would mean most northern region would have to buy fuel at higher price since most of the pipeline that transverse northern region that could ease and enhance cheap traport of fuel is susceptible to vandalisation. This is why every government would always play lip service deregulation but would always come up with subsidy removal when what they are doing is mere increasing the price of fuel

Ttalk:


Are you saying Nigerians are not paying tax or what?

We don't earn enough revenue from tax, especially since our tax to.gdp ratio is 6.1%

Most of our revenue for budget comes from oil dollars. Supplemented by loans. Taxes is a minority.

That's why we struggle to pay oil subsidies.