What Nigerians Should Know About Fuel Subsidy Removal



The issue of fuel subsidy reared its head into Nigeria’s polity as a canker-worm poised to destabilize the entire country if not handled with absolute care, utmost patriotism and genuine application of wisdom. Nigeria may have been loosely constituted in origin and content but we owe it a duty to ourselves, probity and future generations to bury our imaginary differences and enhance and harness our collective strength to forge a greater nation like others 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 rooted at heart. This builds mutual trust. That mutual trust as a veritable catalyst endears the public to government policies and makes them acceptable to the people. I must say without equivocation that the crust of fuel subsidy debacle is Mistrust of government by the people. Majority of the people feel the government is not being Sincere in most cases and in many fronts, which to me, is usually a wrong perception. Truth they say heals all wounds. If our leaders can change their styles of leadership and be truthful in policy implementation, the country perhaps could have been a better place.

For instance, Governor Isa Yuguda of Bauchi state, as an individual who spent the greater part of his life in the banking industry and read economics for a first university degree, as part of his civic responsibility and morality compelled him to shade more light on the issue of fuel subsidy with a view to having a better understanding of the policy, know the benefits to be enjoyed that may provide a better understanding to the Nigerian people for posterity rather than castigations, insults and unnecessary strike actions that add more salt to injury as in most cases, the economy is grounded.

The fuel subsidy according to Yuguda, since petroleum and its products are international, his analysis would be carried out on the following conversions so that other scholars can verify now or in the future. 1 barrel of Liquid Petroleum and its products = 168 litres conversion rate of Naira to the dollar = N160/$ Government sources put cost of imported PMS to the country as follows; Landing Cost of PMS = N138/litre = $0.863/litre =$3.45/gal Sales Price = N65/litre with a subsidy of N73/litre.

Yuguda said a case study of PMS prices in the globe as at today reveals the present cost of PMS 1. Uruguay = $5.75 = N230/litre – 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/litre without subsidies.

3.  Liberia = $4.05 = N162/litre without subsidies. 4. Sierra Leone = $3.56 = N142.4/litre without subsidies 5. In Saudi Arabia = $0.38 = N15.2 with heavy subsidies 6. Venezuela is $0.12 = N4.8 with heavy subsidies. Other countries of the world fall within this range.

Governor Yuguda added that what is then the cost of production of a litre 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 litres. PMS = 19.5 gallons = 78 litres. Diesel = 10 gallons = 40 litres. Jet fuel/Kerosene = 4 gallons = 16 litres. Fuel oil = 2.5 gallons = 10 litres. Bottoms = 5 gallons = 20 litres. Total = 45 gallons = 180 litres.

According to him, the increase in volume from 42 – 45 gallons is due to the expansion of the thick crude to lighter components.

2.2. He opined that variables cost involved in refining petrol in the USA in the absence of that of the NNPC will be wise in this article to use the USA refining cost of the Nigeria Qua Iboe crude as basis in the first instance. Crude oil 60 – 70% – 1 barrel = $107 = N17, 120/168 = N101.9/litre refining cost and profit = 6-10% = $10.7

=N10.19/litre. Total refining cost is therefore N111.19/litre.

The range on the percentages, are as a result of changes in compositions of different crude. However for this analysis, Yuguda chose 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/litre to the respective petrol stations by Nigeria regulation.

2.4. Marketing Costs = N5.87 margin allowed for oil marketing fuel retail stations by Nigeria regulation.

2.5. Total cost of producing a litre of petrol (2.1+2.2+2.3) = N119.48

Yuguda said the transportation cost per litre of refined products from USA is not incorporated as it is quite minimal and I guess this and other incidentals are what government considered to have fixed its N138/litre that was forced down to N97/litre. Having enumerated all these, what should then be the actual production cost of petrol in Nigeria?

3. The actual cost of production in Nigeria from records made available if the same production process enumerated are to be made 100% Nigerian, revealed that the following 3.1 Crude Oil Production cost and Exploration Cost $0.025, bbl=N0.026. Development Cost $5.0/bbl= N4.76 = N3.43. Operations Cost (OPEX) $3.0/bb=N3.15. Total cost of producing oil $8.025/bbl=N7.64/litre.

According to Yuguda, this is the cost of a barrel of Qua Iboe crude to get to the refinery gate in Port Harcourt. It is mind bugling when one compares this to N101.9/litre in getting to USA that we used in our analysis.

3.2. Production of PMS litre in Nigeria with the refineries using our produced crude oil analysis is as follows:

Crude = N7.64 refining + profit = N10.19. Distribution = N2.43. Marketing = N5.87 with a sub total of N26.13 tax (estimated at 20%) = N5.226 and total is N31.356/litre.

It should be noted that the refining + profit cost is higher than the crude cost which is understandable considering the fact that crude oil production cost is about the cheapest  in the world in Nigeria. Having made some analysis in his capacity as a banker with an idea of the oil industry, Yuguda opined that because of selfish interest and un- patriotic nature of some people, trusted government agents bastardized the process of subsidy to their selfish gains over the years and subjected the majority to discomfort.

“I must contend that under such circumstances no government worth its salt can fold its arms to watch subsidy regime put in place for the benefit of the citizens being thwarted by some cabal at their dare expense.  I totally agree with President Goodluck Jonathan that fuel subsidy should be removed so that sanity is brought to bear in our nation’s economic policy. Government should make the people to be more responsible and productive for the overall development of the country. The deregulation of the petroleum industry both upstream and downstream is an all purpose elixir”, he said

He further added that, “What we should do is to put our refineries into full scale production as fuel subsidy absorbs about N1.4trillion or US$8billion of government’s budget. I totally agree with the policy that such a whooping sum of money can easily be channeled towards education, health care, employment, agriculture, industries, infrastructural development etc

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

The installed refining capacity of our refineries stand at 445,000 barrels per day (bpd), operating at 91.5%. This is made up of: Old Port Harcourt refinery- 60,000 bpd, new Port Harcourt refinery- 150,000bpd, Warri refinery-125,000bpd and Kaduna refinery-110,000bpd. Unfortunately, these refineries have been operating at 38.2% capacity which translates to about 170,000 barrels per day which will give 13,259,220 litres of petrol per day, 6,800,000 litres of diesel and 2,720,000 litres of kerosene/jet fuel.

Removal of subsidy as proposed by President Goodluck would afford government the opportunity to provide the basic requirements needed in a progressing nation such as ours. On the other side, the people whose commonwealth is held in trust should not only remain committed to the success of the government in providing their requirements but should focus more attention to guiding the government and chipping in progressive ideas for subsequent implementation for the betterment of all. It is therefore, a matter of understanding the rationale behind the removal and the sacrifice desired for a better Nigeria.

Muhammad was the editor of a Bauchi based weekly newspaper, The Trumpeter/Kakaki

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