The hunt for Nigeria’s magical fuel subsidies!

President Buhari recently made this statement: “I have received a lot of literature on the need to remove subsidies… But much of it has no depth.” So, here we are searching for this elusive depth. I believe that President Buhari was correct, given many articles presently making the rounds, most of them asking for an […]

President Buhari recently made this statement: “I have received a lot of literature on the need to remove subsidies… But much of it has no depth.” So, here we are searching for this elusive depth. I believe that President Buhari was correct, given many articles presently making the rounds, most of them asking for an immediately abolition of fuel subsidies, but proceeding usually from rather superficial premises, and ignoring the many contradictions in that industry. These calls come usually from the same people who see themselves as ‘sophisticated’ and are also calling for a unilateral devaluation of the Naira.
The question Buhari seem to be asking is: ‘Is there subsidy at all?” Given the labyrinth of information and contradictions, provided by NNPC, PPPRA and Ministry of Finance, it is hard to tell.
People have been quoting figures from PPPRA (Petroleum Products Pricing and Regulatory Authority) and NNPC (Nigerian National Petroleum Corporation), two agencies with apparent integrity issues, to say the least.  Mark Twain it was who said; “There are three types of lies… Lies, damn lies, and statistics”.  We are told Nigerians consume 30, 35, or 40million barrels of petrol a day.  That is 0.2 – 0.25 litres of petrol by every Nigerian, including newborn babies, the aged and infirm, people in hospitals, sanatoriums or deep in the village, asides from diesel and kerosene.  We need to interrogate this, given that every statistic in Nigeria (including population figures), are ‘sexed up’ for political, and pecuniary reasons.
Further, the same PPPRA states that the landing cost of PMS (Premium Motor Spirit) is N116.7 per litre as at 22 July 2015. And that open market price is N132.2 after distribution costs have been added. N45.2 subsidy was therefore declared on each litre of PMS.
Let us interrogate these claims based on what they had put out in the public domain earlier.
Luckily, our government agencies do not update their websites very often, so I am still able to obtain verbatim, some of the claims made by the Okonjo-Iweala-led Ministry of Finance (MOF) as at 2011, when it tried to justify removal of subsidies. See <http://www.fmf.gov.ng/the-ministry/management-team/permanent-secretary/63-faqfuelsubsidy.html>. On this page, the MOF stated;
“… For instance, the price of petrol is currently pegged at N65 per litre but the actual cost of supply is about N138 per litre at crude oil price of $110 per barrel. Therefore, the subsidy element is about N73 per litre. This means that for every litre of petrol purchased at the official price of N65, the government contributes N73. It should be noted that only petrol and kerosene currently enjoy government subsidy, and that imported and locally produced petroleum products enjoy these subsidies.” – MINISTRY OF FINANCE 2011 (Emphases mine)
“Locally produced” products are said to ‘enjoy’ subsidies because crude oil is charged out to local refineries at INTERNATIONAL PRICES, and not at cost of production plus a reasonable margin. Is that not ‘robbing Peter to pay Paul’?  What kind of logic will make government charge WE THE PEOPLE, international prices, only to turn around and claim it is subsidizing us. This is bad accounting. What they gave with one hand, they collect in multiple folds with the other.  So is there subsidy at all on locally produced PMS, now that we hear that two major refineries (Port Harcourt and Warri) are working to some considerable degree?
But anyway, the price in the international market has depressed by almost 60% (from $110 to $48) between the time this information above was put out, and today as I type.   Let us do some rough arithmetic here. If the cost of supply when Crude Oil was selling at $110 per barrel was N138 (as at 2011), when crude oil prices fell to around $55 as at July 22, 2015, how come the same PPPRA claimed that the same cost of supply is N132.2 despite the same entity – alongside Ministry of Finance claiming that 80% of the cost of supply of PMS is made up by international crude oil prices as at 2011?  Hear them:
“…Furthermore, crude oil accounts for about 80% of the final cost of fuel. Other costs include depot charges, transportation costs, chemicals, spare parts, raw materials etc. used in turning the crude into PMS or fuel. Therefore, at the current crude oil price of $110 per barrel, the finished domestic refined fuel sold to Nigerians cannot be priced lower than the cost of the crude, plus the other associated costs enumerated above which are used to refine it.” – MINISTRY OF FINANCE 2011 (emphases mine)
An argument that is often put forward by these agencies, has to do with Naira devaluation. They claim to now need more Naira to buy each dollar for their importations. But we can always discount the official odd 20% devaluation in the value of the Naira and there is no way the price of global crude will fall by 60% and we will not have a shift whatsoever in the landing cost of PMS. PPPRA, please pity Nigerians! The above quote was silent on other component costs of PMS, viz Finance (every importer claims they had to borrow money), Demurrage and Lightering (because of the low draught at Apapa, no large ship can sail into Nigeria directly so they have to wait on the high seas, wasting time, incurring demurrage while being helped by smaller vessels to discharge their cargo). These are inefficiencies passed on to hapless Nigerians.
It is important to note that Mrs Okonjo-Iweala finally admitted to paying N2.3trillion in 2011 as subsidies, before her tenured ended. Hear this:
“You see that the amount we have been paying year by year diminished substantially to about N971 billion a year, down from the N 2.3 trillion of 2011. We brought it from N 2.3 trillion to about N 971 billion that has been in the budget each year. So, we made very substantial restructuring and changes to the whole process that brought the amount down for the nation…”. See http://thenationonlineng.net/fed-govt-oil-marketers-clash-over-n200b-subsidy-claims/
Nigerians protested in January 2012 not because we did not want the removal of subsidies but because they wanted to hoodwink us by saying ‘Let us forget the past. Let us end the subsidies and live happily ever after’. We later got to know there was a N2.3Trillion heist!  In the same vein, like the House of Reps did in 2011, when they employed the services of the Lloyds Register to determine which ship sailed here and which ones didn’t, Nigerians may need to draw on sundry independent sources to determine the truth in these matters, rather than ‘incriminate’ themselves that they are paying some phantom subsidy.
However, it is not enough for the Presidency to dismiss all the literature it has received as lacking in depth, but it has to act firmly in the direction that benefits the people. It has more resources to do the required research, than any other entity in the land.  But we hear instead that the government is about to double VAT (Value Added Tax), which will be a deadly combination if it also agrees to remove ‘subsidies’ at the same time. Maybe that is why Baba is cautious.