Malam SLS, Thanks for taking out time to share your thoughts on fuel subsidy removal policy of the FG.
I have some inputs to make and questions to ask on 1, 2, 4 & 6 of your bullet points. Please find my comments beneath yours.
1. “I am a strong advocate for subsidies if they are for production and not consumption, and if they benefit the poor and not middle men and rent seekers.. We use our forex to import petroleum products and keep refineries and jobs open in Europe. Meanwhile precisely because of market distortions there can be no private sector investment in refineries since no one can make profit selling at the regulated price unless we are going to provide private refineries with crude for next to nothing. Certainly no one can purchase crude at market price, refine it and sell at N65 without huge losses so this explains why there are no private refineries.” Mal SLS
Well, I beg to differ here.
Perhaps you have the figures on how the 30+ million liters of PMS said to be consumed daily in Nigeria is analysed according to each category of users and how petrol ‘consumers’ are stratified into ‘flashy cars consumers’ on one hand; and on another hand list of productive consumers like small businesses/service providers who uses petrol to power their generating sets, commercial transporters who provide intra and inter city services (conveying goods and services that promote commerce), and those businesses that uses petrol-powered light vehicles for transport.
If you can share these statistics with us, that will help your assumption that what government subsidized is mainly the cost “fuel used by the middle class and car owners to drive around town and from city to city not to employ workers and produce goods and services”.
And if your claim is true that you support subsidies “if they benefit the poor and not middle men and rent seekers”, don’t you think that the low income earners are those most hit by the sky-high prices that resulted from PPPRA’s ‘new year gift’? The cost of transport has doubled. Ditto costs of groceries, services like document processing, barbing of hair etc. And soon school fees, rent etc will follow suit. How then do you think these 80pct Nigerians who live below US$2/day (N320) and US$60/month (N9,600) prior to fuel subsidy removal could survive government removal of subsidy?
I don’t know if you would have Nigerians go for ‘palliatives’ like armed robbery, burglary, drugs and Boko Haram before government’s economic miracle manifest?
Now on fuel imports from Europe, I think you should help us with figures here to back your claim that “we use our Forex to import petroleum products and keep refineries and jobs open in Europe”. What volume of PMS do we import from Europe? What volumes come from offshore refining of Nigeria’s crude in Ivory Cost and Rotterdam? And what volume comes from ‘crude swap’ with Trifigura’?
Also, your statement that “no private sector investment in refineries since no one can make profit selling at the regulated price unless we are going to provide private refineries with crude for next to nothing” get K-leg.
Did Nigeria sell PMS at regulated price? What happened to N1.2 trillion subsidy said to be paid to jerk up the pump price to arrive at the ‘landing cost’? Isn’t the landing cost supposed to be ‘market’ price of the product? Why can’t the subsidy model for imported PMS be adapted to suit the ‘locally refined’ petrol?
The same argument is valid where you held “certainly no one can purchase crude at market price, refine it and sell at N65 without huge losses so this explains why there are no private refineries.”
To begin with, there is no economic justification for the cost of crude meant for local refining to be sold at Brent prices. Two, a barrel of crude is processed to make gallons of PMS, AGO, DPK and other derivatives like LPFO, lubes, petrochemicals etc; and not only petro as your point suggests. Three, the economic price of petrol is not N65. It is N65+subsidies paid by the government.
2 ..We produce crude oil but import petroleum products (today the UKs highest exports to Nigeria are petroleum products). Really? But which of the petroleum product constituted the chunk of these import? Is it PMS (petrol), AGO (diesel), HHK (household kerosene) or aviation fuel?” Mal SLS
With measures put in place to reduce imports like offshore refining/processing of Nigeria’s crude, crude swaps; I am of the opinion that fuel importation had been reduced substantially.
“4. For the above reasons I am a strong proponent of structural reform and this begins from the fiscal framework. The limited resources of government should be allocated to supporting production-especially if we are running a budget deficit. We cannot keep borrowing to support conspicuous consumption. To support a job creating economy we need to fund power, transportation infrastructure, market infrastructure and access, technical and vocational education etc. We need to build rice processing plants, produce starch and cassava flour and ethanol, process our tomato and milk locally, regenerate our textiles firms (which used to employ 600,000 workers but now employ 30,000!), refine our own crude etc. We cannot even begin to do this if 30pct of govt expenditure is on fuel subsidy, if out of the balance 70pct is recurrent spending, 10pct is debt service, 10pct goes to the Niger Delta and only 10pct is capital expenditure. So it is about a choice-what do we spend money on and how do we allocate resources?” Mal SLS
But, how are we sure if the ‘actual subsidies’ on petrol is up to 30pct of government expenditure? What kind of rational explanation could hold for runaway hike in the figure of subsidy from N561 billion in 2010 to N1.3 trillion before the end of 2011? An increase of 132pct!
Many Nigerians believe that this subsidy is fraud. And the government knows the syndicate behind this fraud. They involve those marketers who trans-ship imported products to other West African countries and connive with officials in DPR, PPPRA, NCS, other government security agencies, PPMC and Nigerian banks to falsify documents and later claim subsidy.
Others are the marketers that load products from Lagos, sell it there in Lagos, and later use the ‘waybills’ of products ‘loaded not delivered’ to connive with officials of DPR, PEF, PPMC and Nigerian banks to get ‘equalization claims’ for doing nothing.
The government instead of looking into the fraud in subsidy administration; decides to overlook the serious crimes of these ‘economic saboteurs’ and ‘transfer’ these frauds onto hapless Nigerians. What stop the government from carrying out comprehensive investigation that would unravel the ‘cabals’ that benefitted from subsidy administration?
Why don’t the government look at cost of inefficiencies which are integral part of the landing cost? Why not eliminate these costs of inefficiencies and fraud to arrive at the actual landing cost of a litre of petrol before embarking on deregulation?
We are not against subsidy removal. But we prefer to know the actual landing cost/litre of PMS and opt to support gradual and transparent phase-out of subsidy.
Wait a minute! What is happening to funds tied up in ECA (now SWF)? Why can’t the government source part of the subsidy money from it?
6. “Finally: removing subsidy is not a silver bullet that solves our economic problems. And there is a huge trust deficit that government has to address. Government needs to investigate subsidy payments and punish any v
iolations of extant guidelines. It needs to cut on unnecessary and wasteful expenditure. It needs to fight corruption and show seriousness in that. It needs to deliver on capital projects, power and infrastructure including irrigation, farm-level storage and agri-processing. These are all valid issues that are to be taken IN ADDITION to and not in place of subsidy removal.” Mal SLS
You said the obvious where you acceded to the fact subsidy removal can’t solve our problem altogether.
We need to fight corruption that is endemic in our public and private lives. The monumental corruption and fraud in the subsidy administration seems to be preferred by Nigerians as it guaranteed them petrol at N65/litre over a period of one year.
They don’t seem to pay attention to the corruption and fraud in the reminder of 70pct government expenditure. And the reason why nobody seem to be fighting the scourge.
You see, the government should have “investigate subsidy payments and punish any violations of extant guidelines” right before removal of subsidy. This would have helped it garner a bit of trust from the ‘disillusioned and hopeless’ Nigerians.
But, it chose to put the chart before horse, thereby outraging Nigerians who no longer trust it.
With subsidy removal, the battle line has been drawn and trenches dug. It is now a matter of life and death on both sides.
Any loser in this game will be devastated and life for him will not be same again.
Ibrahim Sanyi-Sanyi
Online Blogger
Sanusi Lamido Sanusi’s response to the above:
Noted. I really wish I had time but I don’t have much to add. How many Nigerians own cars as a percentage of population? What is the capacity of this refinery in Cote d’Ivoire? Where do the likes of Trafigura and Vittol export from? And by the way the last time I checked Rotterdam was in Europe…..
Ibrahim Sanyi-Sanyi’s response to Sanusi’s above:
Mal SLS,
How I wish you have time to ‘convert’ some of us into the ‘order of no-subsidy on petrol consumption in Nigeria’, by taking time respond to all the issues I raised and give answers to those questions with facts and figures. I can wait for days, 2 or 3.
While I wait, let me respond to the points you raised below.
Firstly, I suppose your question “How many Nigerians own cars as a percentage of population?” should be modified to read ‘How many Nigerians USE cars (or rather light vehicles that uses petrol) as percentage of population?
Find their ratio, and you will be surprised at those already affected by subsidy removal on PMS.
Secondly, to answer your question “What is the capacity of this refinery in Cote d’Ivoire?”, SIR refinery in Cote d’Ivoire have 80,000 bpd (barrels per day) installed capacity.
Thirdly, you asked “Where do the likes of Trafigura and Vittol export from?”.
If you read my point on Trifigura again, you will find that it has nothing to do with import of fuel to Nigeria from Europe. Rather, it is about ‘crude swap’ which is some sort of trade by barter (Trifigura lift Nigeria’s crude oil in exchange of petroleum products of equivalent value in US$) where ‘forex’ are not involved as is the case with conventional products import.
And finally, you spotted on when you said “And by the way the last time I checked Rotterdam was in Europe…..”
However, if you gloss over my points again, you will find that my argument is not premised on whether or not Rotterdam is in Europe. Rather, I brought up the name of the city to indicate an offshore location where Nigeria’s crude oil is taken, refined into petroleum products and thereafter taken back to Nigeria in an arrangement called ‘offshore processing’. Under this arrangement, the title to both the crude oil and refined products belong to Nigeria, while the refinery in Rotterdam is paid ‘processing fee’.
Also, additional cost is incurred on transporting both the crude and refined products as well as insurance.
The point here is: both crude swaps and offshore processing cannot be treated as conventional imports from Europe as you submitted here “we use our Forex to import petroleum products and keep refineries and jobs open in Europe”. While crude swap doesn’t involve Forex, offshore processing involves settlement of processing fees, transport and insurance. The cost of crude oil is not paid in Forex as no sales contract is involved. ‘Tuwo na mai na’ kawai.
I hereby reproduce my points on this issue: “Now on fuel imports from Europe, I think you should help us with figures here to back your claim that “we use our Forex to import petroleum products and keep refineries and jobs open in Europe”. What volume of PMS do we import from Europe? What volumes come from offshore refining of Nigeria’s crude in Ivory Cost and Rotterdam? And what volume comes from ‘crude swap’ with Trifigura’?”
Waiting for your response on those points I raised in my initial mail.
Thanking for your time and understanding.
Many thanks,
Ibrahim Sanyi-Sanyi, an Online Blogger
Please check the Features Column of Economic Confidential for hot debates and other topics on the Removal of Fuel Subsidy
