8.4 C
New York
Friday, March 29, 2024

Fuel Subsidy; Facts and Figures, and the Way out of the Debacle

Published:

LATEST NEWS

- Advertisement -

1. Fuel Subsidy The Fuel Subsidy issue rears its head into our polity as a canker-worm poised to destabilize the country if not handled with care, utmost patriotism and wisdom.

Nigeria may have been loosely constituted in origin and content but we owe it as duty to ourselves, probity and future generation to diminish our differences and enhance and harness our collective strength to forge a greater nation like the America have done. To achieve this unity of purpose, mutual trust for one another individually, ethnically and between government and the governed is a sine qua non. To do this we need a government that listens to the yearnings of the people and have the aspiration of the people at heart. This builds mutual trust. This mutual trust is a veritable catalyst that endears the public to government policies and make them acceptable to the people. I must say without equivocation that the crust of this Fuel Subsidy debacle is Mistrust of government by the people. People feel government is not being Truthful to them in many fronts. Truth they say heals all wounds.

As an individual who has spent most of his life actively in the oil industry as a worker both internationally and nationally, and now as a consultant, my civic responsibility and morality compelled me to enlighten the Nigerian public on this issue with a view to having a better understanding of the topic, know the benefits and may to provide a better understanding for government position.

The Fuel Subsidy Since petroleum and its products are international the analysis will be carried out on the following conversions so that other scholars can verify. 1 barrel of Liquid petroleum and its products  =  168 liters Conversion rate of Naira to the dollar   =  N160/$ Government Sources put cost of imported PMS to this country as follows; Landing Cost of PMS  = N138/liter  =  $0.863/liter = $3.45/gal Sales Price  = N65/liter Subsidy = N73/liter

An investigation of PMS prices on the globe as at today reveals these present cost of PMS 1. Uruguay = $5.75  = N230/liter  – without subsidies

2. USA that uses the same crude oil from Qua Iboe Crude Terminal in Nigeria in New York, USA, =$3.52/gallon = N140.8/liter – without subsidies 3. Liberia =$4.05 =N162/liter  – without subsidies 4. Sierra Leone =$3.56 =N142.4/liter without subsidies 5. In Saudi Arabia =$0.38       = N15.2 with heavy subsidies 6. Venezuela it =$0.12  = N4.8 with heavy subsidies Other countries of the world fall within this range.

Now what is the cost of production of a liter of petrol 2. Products from Refining 1 barrel of Oil

2.1 First of all refined products from a Nigerian barrel of crude oil include the following LPG =  4 gallons =16 liters PMS =  19.5 gallons = 78 liters Diesel =  10 gallons =40 liters Jet fuel/Kerosene =  4 gallons =16liters Fuel Oil =  2.5 gallons =10 liters Bottoms =  5 gallons = 20 liter Total = 45 gallons =180 liters Note that the Increase in volume from 42 to45 gallons is due the expansion of the thick crude to lighter components.

2.2 Variables Cost involved in Refining this Petrol in USA Since the NNPC is yet to give us the production cost, we will use the USA refining cost of the Nigerian  Qua Iboe Crude as basis in the first instance. Crude Oil 60 – 70% – 1 barrel = $107 =  N17,120/168  = N101.9/liter Refining Cost and Profit  =  6 – 10%  = $10.7  =         = N10.19/liter Refining Cost Total         = N111.19/liter

The range on the percentages above are as a result changes in compositions of different crude. However for this analysis I have chosen to take the upper limit. In addition, the refining process in the USA uses the same Fluid Catalytic Cracking(FCC) process as we have here in our refineries.

2.3 DISTRIBUTION COSTS = N2.42/liter Getting it to Petrol Station by Nigeria Regulation

2.3 MARKETING COSTS = N5.87 Margin allowed for Oil marketing Fuel Retail Stations by Nigeria regulation. 2.4 Total Cost of Producing liter of Petrol(2.1+2.2+2.3) = N119.48

Note that the transportation cost per liter from USA is not incorporated as it is quite minimal. But I guess this and other incidentals are what government built into it to have its N138/liter

Now what should be the true production cost of petrol in Nigeria?

3. True Cost of Production in Nigeria However if this same production process were to be made 100% Nigerian the analysis reveals the following 3.1 Crude Oil Production cost Exploration Cost $0.025,bbl =  N0.026 Development Cost $5.0/bbl =  N4.76 = N3.43 Operations Cost (OPEX) $3.0/bbl =  N3.15 Total of Producing oil $8.025/bbl =  N7.64/liter

READ ALSO  Meet Young Graduate and Mathematician Who Hawks Palm Oil As Means of Livelihood in Anambra

This is the cost a barrel of Qua Iboe crude will take to gets to the refinery gate in Port Harcourt. It is mind bugling when one compares this to N101.9/liter   in getting to USA that we used in our analysis in 2 above

3.2 Production of PMS Liter in Nigeria With our refineries using our produced crude oil analysis goes as follows: Crude  = N7.64 Refining + Profit = N10.19* Distribution = N2.43 Marketing = N5.87 Sub Total = N26.13 Tax(estimated at 20%) = N5.226 Total = N31.356/liter *Please note that the Refining + Profit cost is higher than the crude cost which is unusual but this is understandable when we consider the fact that crude oil production cost is about the cheapest in the world in Nigeria. Furthermore, this cost has been imported here from the USA since we cannot get it from NNPC. This cost actually is bound to be high considering labour cost in USA that is more or less three(3) times that of Nigeria.

By my honest judgment this is what makes economic sense. It is trite and an insult to our collective technical intelligence to continue compelling Nigerians to cost production of a liter of petrol starting with its imported land price from Europe as a bench mark.

Consequent upon the foregoing, PMS in Nigeria at N65 liter has a net profit of 107.297% or N33.644. Therefore it is only a misconstrued or misdirected economic principle that can give validity to any subsidy in the present price of PMS at N65 in Nigeria.

Secondly, the installed refining capacity of our refineries in Nigeria stands at 445,000 Barrels per day (BPD) operating at 91.5%. This is made up of: 1. Old Port Harcourt Refinery – 60,000 BPD 2. New Port Harcourt Refinery – 150,000 BPD 3. Warri Refinery – 125,000 BPD (Upgraded from 100) 4. Kaduna Refinery – 110,000 BPD (Two trains, 60+50)

Unfortunately these refineries have been operating at 38.2% capacity which translates to about 170,000 barrels per day which will give us 13,259,220 liters of petrol per day, 6,800,000 liters of diesel and 2,720,000 liters of kerosene/jet fuel. However, the Minister of Petroleum Resources has just given an upward figure of 60%. Even at that, this cannot meet our internal national demand. So, the government sends the remaining of our non-export crude oil volume of 275000 barrels per day to be refined abroad and import the petroleum products back into the country.

This involves payment for shipping and refining cost. The Nigerian government exchanges the 275000 barrels per day with commodity traders (90000 barrels per day to Duke Oil, 60000 barrels per day to Trafigura (Puma Energy), 60000 barrels per day to Societe Ivoirienne de Raffinage (SIR) in Abidjan, Ivory Coast and 65000 barrels per day to unknown sources) in a swap deal.

Lastly we must remind ourselves that this 275,000 barrels is the people’s, the Niger Delta’s people divine and naturally given resource which by some reverse of fortune has been taken by government in the name of national interest. It is NOT government property per se. That is another kettle of tea BUT what is wrong in using it to alleviate the suffering of the people and improving their livelihood? In other nations of the world where ownership of this resource is entrusted with government such as Venezuela and Saudi Arabia, the result is reflected on their PMS pump price as indicated above.

Nevertheless because of our selfish, corrupt and non patriotic peculiar nature as a people government agents bastardize the process of subsidy to their selfish gains. I must contend that under such circumstances no government worth its salt can fold its arms backwards and watch subsidy regime put in place for the benefits of the citizens being thwarted by some cabal at their dare expense. I agree in total with Mr. President that the subsidy should be removed so that sanity is brought to bear in our economic policy. The situation where the livelihood of some people in this country involves moving from one permanent secretary or minister to the other to collect a piece of paper and sold to make millions of dollars cannot be allowed. Government must make the people to be responsible and productive for the development of this country. The deregulation of the petroleum industry both upstream and downstream is an all purpose elixir.

What we Must Do now 1. Let our Refineries Work because. 2. Fuel Subsidy today absorbs about N1.4 trillion or US$8  billion of the government budget. I agree with government that this money can easily channeled towards education, maternity health care, employment and agriculture, etc.

READ ALSO  Meet Young Graduate and Mathematician Who Hawks Palm Oil As Means of Livelihood in Anambra

3. Crude commodity exchange with other countries must stop. It puts money in the hands of foreigners. Ply this back into making our refineries work. The name of Ivory Coast on this list painfully reminds us the extent to which government all these years have employed oil resource in destroying our human development initiatives. It hurts and this must be reversed.

4. We recognize that Nigeria does not have the production capacity such as Saudi Arabia to sustain subsidies because of our lower per capita oil revenue, hence the subsidy regime is necessary.

5. Companies are reluctant to produce any goods sold at below local or global market prices as they will lose money. Removal will encourage investment.

6. Lower prices  encourage greater demand as the price signals fail to influence demand.

7. Sharp smuggling practices are inherently encouraged especially to neighboring countries in view of our porous bothers. It is government responsibility to protect our bothers. It cannot pass this buck.

8. Road must be fixed and transportation system such as rail way, commuter buses be provided so that In return, transportation costs will come down to a level that could be absorbed by the ordinary Nigerian, especially in a society where 90% of the people rely on mass transit to conduct their daily business.

9. Crude Oil cannot be sold to Nigerian Refineries at $107 or international market price. It makes no economic sense and a verifiable and appropriate domestic price must be given to this. It is economic voodoo that says Toyota be sold in Nigeria the same price as in Japan or benz in Germany. Crude oil cannot be sold at the international stock price in Nigeria. Never! 10 . We are agree the Effects of Subsidy Removal will result in Higher cost energy – petrol, Higher cost of Transportation, Higher Inflation, Higher political pressure, strike and other crisis storm(even  Iran is still battling with their problem). BUT it will also usher in Realistic Economic Trading of Fuel and spending to more sustainable path. Furthermore, Private petrol Production will be encouraged . As the world moves away from resources waste to a more realistic approach to harnessing their resources for development, regimes of subsidy are crumbling. Even Ghana unwound some of its subsidies in recently.

In conclusion, this bold step by President Jonathan must be applauded BUT he must do all to convince the people of his good intensions. He can do this by starting to inject new management into the NNPC.  It pains one that the

1. NNPC does not even have the data of crude oil production in a centralised manner as it is stored in the computer of staff

2. No centralized location for storing electronic copies of historical production and allocation data. These information are stored on personnel (individual) workstations. To get information on Nigeria oil and gas industry, Nigerian scholars have to depend on Europe and USA. This is absurd. The DPR must wake up to its established responsibilities.

3. Even NNPC’s subsidy claims and PPPRA’s verification are based on volume of petroleum products available for sale NOT Products that get to the Filing Stations. So we do not know what actually crosses our borders in smuggling but we continue to pay for reported proposed arrival quantity.

4. NNPC is invoiced in US$ for domestic crude allocations but pays back in Naira value to the Federation Account even NOT at CBN Market Rates.

The corruption and fraud actually starts in the NNPC and it is time President Jonathan injected new life in form of tested oil and gas industry experts of international and national experience into the leadership instead of recycling the NNPC staff who have brought us to this debacle in the first place.

This requires courage, a sine qua non attribute of a good leader.

I am convinced that the Lawan Farauk House of Representative committee on the subsidy issues will be able to verify all the assertions that I have made here to help it come up with long lasting solutions for our oil and gas industry.

By Chief(Engr.) Ogbarode N. Ogbon Oil and Gas

Managing Consultant Pidev Nigeria Limited Warri

Phone: 05052000239

Email;  ogbanap@yahoo.com

Hey there! Exciting news - we've deactivated our website's comment provider to focus on more interactive channels! Join the conversation on our stories through Facebook, Twitter, and other social media pages, and let's chat, share, and connect in the best way possible!

Join our social media

For even more exclusive content!

spot_imgspot_imgspot_img

Of The Week
CARTOON

TOP STORIES

- Advertisement -

Of The Week
CARTOON

247Ureports Protects its' news articles from plagiarism as an important part of maintaining the integrity of our website.