In January 2012, President Goodluck Ebele Jonathan removed the subsidy on Petrol, what this translated to was an increase in the retail price of petrol at the pumps.
Is there a subsidy? Yes there is, Nigerian refineries cannot refine enough petrol for local use so we import. Why we import is above my pay grade, but we do.
As at 19th November 2015 imported petrol lands in Nigeria at N71.63, the final cost of taking petrol across Nigeria to supposedly sell at a uniform price takes the cost to N97..88, but the official price of petrol is N87. So the total subsidy to take petrol from the ports to a station in Borno is N26.25.
What makes up this N26.25, let me list the main “culprits”
1. Lightering Expenses, is the cost incurred on trans-shipment of imported petrol from the large ships to the smaller ships for delivery to the jetty. This fee also includes vessel charter, from onshore Lagos to onshore Lagos. This charge is N4.09 per liter…As I understand it, we transship because we have inadequate berthing facilities.
2. Storage Charges, this is the cost of storing imported petrol in those tank farms. Clearly the NNPC does not have enough storage, so it has to hire tank farm. Cost is N3.00 per liter
3. Distribution Margins N15.49, these are the margins to retailers, bridging fund to ensure petrol is sold at N87 across Nigeria. To break it down, Retailers get N4.60, transporters get N2.99 Bridging gets N5.88. QUESTION? Why must petrol in Katsina be the same price with petrol in Lagos? Does a cow in Lagos and Katsina cost the same?
2. Storage Charges, this is the cost of storing imported petrol in those tank farms. Clearly the NNPC does not have enough storage, so it has to hire tank farm. Cost is N3.00 per liter
3. Distribution Margins N15.49, these are the margins to retailers, bridging fund to ensure petrol is sold at N87 across Nigeria. To break it down, Retailers get N4.60, transporters get N2.99 Bridging gets N5.88. QUESTION? Why must petrol in Katsina be the same price with petrol in Lagos? Does a cow in Lagos and Katsina cost the same?
So to reduce the price of petrol, is still possible without removal of subsidy, how?
A. If we build a pipeline from the Nigerian shore miles into the ocean to connect with the mother ships we save N4.00
B. NNPC invests in tank farms, we save N3.00
C. However the biggest question is why do we “bridge” petrol? Bridging is paying to ensure the price of petrol in Lagos and Borno are the same? Why are we paying private transporters N2.99 to lift petrol? Why can’t they go and get the products at their own cost and sell? Why is the Federal Government of Nigeria subsidizing an expense that is just 4.43% of expenditures? Does a cow in Borno cost the same as a cow in Lagos? What about tomato? Why are we not bridging cost of cow?…bridging is simply a waste of money…scrap it we save N5.85
B. NNPC invests in tank farms, we save N3.00
C. However the biggest question is why do we “bridge” petrol? Bridging is paying to ensure the price of petrol in Lagos and Borno are the same? Why are we paying private transporters N2.99 to lift petrol? Why can’t they go and get the products at their own cost and sell? Why is the Federal Government of Nigeria subsidizing an expense that is just 4.43% of expenditures? Does a cow in Borno cost the same as a cow in Lagos? What about tomato? Why are we not bridging cost of cow?…bridging is simply a waste of money…scrap it we save N5.85
From my layman calculation, we have saved N12.85. (I expect a technical guy to respond), but the point is simple, we are subsidizing waste and inefficiency not just petrol. So back to our subsidy discussion, Note that Subsidy is deducted BEFORE cash is transferred to FAAC, also note subsidy is charged at the ports, not the pump….this is very important, remember this…
So how is this petrol subsidy charged, simple
1. Nigeria sells crude oil and gas
2. We debit the sales of oil and gas with subsidy
3. The balance is transferred to FAAC…
2. We debit the sales of oil and gas with subsidy
3. The balance is transferred to FAAC…
Subsidy removal simply stops item (2) “debit on FAAC”, and increases item (3) “balance to FAAC”, in short, remove subsidy, states in Nigeria get more cash via FAAC.
Let dig deeper, Subsidy is paid by ALL states in the Federation, irrespective of consumption of petrol, i.e. states statutory allocation is debited on a formula that does not include consumption of petrol. So let understand this, both Lagos and Borno are paying for consumption of petrol, for subsidy charged at the port. However, there are more cars in Lagos than Borno.
Let look at the numbers, the National Bureau of Statistics has a report called Consumption Pattern in Nigeria 2009/10…in that report, Nigeria as a whole spends just 4.43% on fuel &light, the bulk of our spending goes on food 64.88% and rent 12%.
To be specific, Borno residents in the North East spends 2.03% on fuel and light, while Lagos in the South West spends 5.90 on fuel.
To be specific, Borno residents in the North East spends 2.03% on fuel and light, while Lagos in the South West spends 5.90 on fuel.
What it implies is that Borno is subsidizing the consumption of petrol by cars in Lagos because both Borno and Lagos are charged for subsidy payments not according to consumption of petrol. In September 2015, Lagos got N2.7b as Statutory allocation net of fuel Subsidy, Borno got N2.5b also net of subsidy…not a lot of difference, but Borno uses less petrol than Lagos….so why is Borno not shouting to remove subsidy? (By Borno I mean all States that have small expenditure on petrol eg Enugu at just 2.55% spent on fuel). Would it not benefit “Borno” to ask for the removal of subsidy on petrol, so it gets more cash from FAAC? Borno can argue that the subsidy be charged at the pumps in Borno, not the port in Lagos.
In effect, when we say we are subsidizing petrol, it’s a limited narrative, we are subsidizing inefficiency and the states with no cars are subsidizing states with cars…
Just so I am clear, the FGN should not spend tax payers cash to build tank farms…NO. Simply pass the PIB, deregulate the downstream sector, let private investors build the pipeline and import their own petrol and store and sell, competition will drive down the prices.
In closing, why cant the NNPC simply issues an “open contract”? Ask that they will buy petrol at N60 in their deports nationwide, they will pay cash as you supply. Why can’t this be done? Why all these licenses? If that is done, it eliminated the need to pay bridging, storage port charges etc
It’s our problem, we can fix it…
(PhotoCredit: The Economist)
