Tinubonomic And 8000 Litres Of Poverty

 By Gbenro Olajuyigbe

In intervention during emergencies, there is what is called Appropriate Response. Impact of inappropriate response is worse than no response. Responding to the ‘needs’ of 12 million households’ out of 43 million households in a severely polarized country is bad enough. 

*Bola Tinubu 

Aside from the existing inequality between the poor and the rich, it further bifurcates the tribe of the poor, potentially with implications for uneven patriotism and implosive crisis.  Giving the selected beneficiary (270 Naira/ 35 Cents per day) in situation where those who earn 1.9 dollar per day are regarded as living in extreme poverty amounts to glorification of poverty. 5000 Naira per poor household under Buhari, which had more intrinsic value than the touted Tinubu’s 8000 Naira, threw 133 million people into nadir of poverty.

Nigeria: How Subsidy Removal May Collapse The Economy

 By Luke Onyekakeyah

Ordinarily, the removal of subsidy on energy sources – petrol, kerosene, diesel and electricity would free up billions of naira for government to plow into other social and economic needs such as infrastructural development, give incentive for domestic refineries to produce more petroleum products, reduce the country’s over dependence on imported fuel, boost the economy and create jobs. Some of these are very contentious in the Nigerian context.

This line of thinking may be possible for stable economies and not one that is deep in crisis like Nigeria. Truth is that the removal of subsidy is an ill wind that could collapse the beleaguered and fragile economy of Nigeria.

Living In Post-Subsidy Nigeria

 By Adekunle Adekoya

We were warned that petrol subsidy would not last forever and would have to go someday. It has now gone. President Bola Tinubu chose to extinguish subsidy in his inaugural address on May 29. As we all came to see, the president had barely left the Eagle Square venue of his inauguration when the petrol market responded. That May 29 afternoon, most petrol stations had shut their gates to motorists. Those that did not shut their gates had queues several hundred metres long, and dispensed from only one pump. That development generated instant chaos at the stations. But that was just the beginning.

By the following day, a pricing template indicating how much a litre of petrol could be sold for in each state of the federation emerged in the social media. It turned out to be real as the oil sector regulators confirmed its reality. It became clear the one litre of petrol sold for N488 in Lagos, which was the lowest price nationwide, while the price of N537 was indicated for Borno and Yobe states.

Fuel Subsidy – Who Is Subsidizing Who?

By Izielen Agbon

“Who is subsidizing who? The Nigerian oil industry was developed with Nigerian capital. Most of the experts are Nigerians, if you go to the fields. It is Nigerian capital; it is Nigerian oil. What I understand that Nigeria should charge Nigerians is the cost of 1 barrel at the wellhead and then the cost of transportation to the refinery, the cost of refining it and its cost at the pump. If anybody says he is subsidizing anything, he is a fraud. So all these people talking about subsidy, who is subsidizing who?”

*Buhari 

A first year student of refinery economics knows that the “crack spread” is a simple way to determine the profitability of a refinery at the margin. The crack spread is the difference between the sales prices of the refined products (PMS, AGO, HHK) and the price of crude oil. A 3:2:1 crack spread means that at the margin, 3 barrels (bbls) of crude oil will produce 2 bbls of Premium Motor Spirit (PMS) and 1 bbl of Automotive Gas Oil (AGO) or Household Kerosine (HHK). A barrel of Nigerian oil now cost about $40. One bbl of PMS at N87/litre cost N14159 or $71.87 at a CBN exchange rate of N197/$1. The PPPRA product pricing template of December 3, 2015 put the cost of AGO at N96.91/litre or N15772 ($80.06) per bbl. 

Thus, the gross cracking margin for an average refinery in Nigeria is [(2*71.87) + 80.06 – (3*40)] or $103.8 per bbl. The 3:2:1 crack spread is $103.8/3 or $34.6 per bbl. We can substitute HHK for AGO. At N50/litre, one bbl of HHK cost N8137.5 or $41.31. Therefore, the gross cracking margin using PMS and HHK is [(2*71.87) + 41.31– (3*40)] or $65.05 per bbl. The 3:2:1 crack spread is $65.05/3 or $21.68 per bbl. It is empirically impossible to convince anyone that Nigerian refineries cannot operate profitably under an incorruptible efficient management or that a fuel subsidy exists. What exist is the looting of public resources by a cabal aided by a corrupt bureaucracy and gross mismanagement.

Today, you can buy a gallon of PMS from a Valero gas station in Houston, Texas for as low as $1.55 or N78.8 /litre. Prices range from $1.55 to $1.99 per gallon throughout the state. The $1.55/gallon price consists of USA Federal/State taxes (19%), Distribution and Marketing (11%), Refining Cost/Profits (13%) and Crude oil cost/profit (56%). Therefore, without any taxes, the PMS in Houston would cost 19% less or N63.83/litre. Unconvectional (shale) oil production has replaced all oil imports in Texas. They produce all their oil like Nigeria. 

Remove Subsidies And Redirect Cash Into Needful Investments

"It Makes More Sense To Remove Subsidies And Redirect Cash Into Investments That Go Directly To Those Who Need It Most"

By Ngozi Okonjo-Iweala

Globally, government support for fossil-fuel subsidies will amount to almost $650bn this year. The cost of these subsidies far outweighs the benefits and burdens the middle classes. Reforming the system can make energy infrastructure more efficient, shore up public finances and allow more targeted spending on public services.

The idea is not a new one. In 2009, the G20 countries and the Asia-Pacific Economic Cooperation forum committed themselves to cutting inefficient subsidies but progress has been limited. But in the context of the decline in oil prices, which benefits consumers, we have a golden opportunity to deliver reform.

About 30 countries, including my own, Nigeria, have already made efforts to phase out fossil-fuel subsidies. In spite of the difficulties, it is well worth the effort.

In 2012 in Nigeria we reformed petrol subsidies. Conscious that the public might be concerned, we ran an information campaign to explain how the savings would be used to help everyone. Political pressure, however, led to the policy being introduced earlier than planned and, as a result, the changes came as a shock to many. This led to protests and the reform had to be partially rolled back.

Despite this, we were right to act. Even phasing out half of the subsidies was a substantial achievement. Some $13bn worth of petrol subsidies, including many fraudulent claims, had burdened the national budget, and we were able to redirect some of those funds. Within a year, our programme to reinvest the savings meant we could finish the renovation of a north-south national railway, as well as introduce improved maternal and childcare services in 500 primary healthcare centres.

Using lessons learnt from Nigeria and other countries we can put together a set of best practices to follow. These include co-coordinated communication, implementation and redistribution efforts. Reform should also create a broad sense of political ownership, especially in fiscally decentralised countries.

One of the most common concerns about removing subsidies is that it will hurt the poor. But in reality the subsidies benefit high-income populations and industry much more than low-income households.

The International Monetary Fund has estimated that more than 40 per cent of fuel price subsidies in developing countries accrue to the richest 20 per cent of households, while 7 per cent of the benefits go to the poorest 20 per cent.

It makes more sense to remove subsidies and redirect cash into investments that go directly to those who need it most. That was the aim of Nigeria’s programme and it is being tried elsewhere. In Germany and Poland, for example, coal subsidy reforms were supported by cash assistance for workers affected by mine closures.

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