In a Town Hall meeting
organized by the Newspaper Proprietors
Association of Nigeria (NPAN) in Lagos,
on 23/12/2011, the Nigerian Economic
Propagandists (including the Finance
Minister, the Minister of Petroleum
Resources and the CBN Governor) deployed
False and Figures to back their
case, insisting that the government is
exploring ways to close wastage in the
system.
It is revealed, in this
analysis, that petrol subsidy, is more
of an Economic Stabilizer than
Economic waste. Thus, if use wisely,
petrol subsidy can serve both as
Welfare Package during oil Boom and
a Rescue Package during oil Glut.
Let analyze the situation.
During the meeting, the
CBN Governor prophesies that if the oil
price crashes again by 30 percent, it
will be difficult for the government to
pay worker’s salaries and that is when
the country will experience hardship.
NO! This is quite misleading.
Given the fixed price of
=N=65 per liter of petrol, there is
positive/direct relationship between the
price of oil and the amount of subsidy
paid by the government. Thus the higher
the international price of oil the
higher the cost of petrol subsidy to the
government. The opposite is the case
when oil price falls.
Given the current oil
price of $110 per barrel, if the price
falls by 30 percent, 0.3 x $110 = $33,
the price will fall down to $110 - $33 =
$77 per barrel. Thus the price falls
down to $77 per barrel. Since the 2012
budget is based on benchmark oil price
of $70 per barrel, the country will be
saving $7 per barrel as excess should
the price of oil crashed by 30 per cent.
If we multiply $7 by the quantity of oil
barrels produced daily in Nigeria (2.48
million barrels), we have 2.48m x $7 =
$17.36 million.
Considering the claim
that about 50 per cent of the oil output
goes to the oil Companies, thus 2.48/2 =
1.24m barrel per day. Therefore, should
the oil price falls by 30 per cent,
Nigeria will be saving excess of 1.24m x
$7= $8.68 million daily in the Excess
Crude Account (ECA). How could the CBN
Governor said, it will be difficult for
the country to pay worker’s salaries or
experience hardship?
Now that the price of oil
per barrel is $110, the country is
saving an excess of $110 - $70 = $40 per
barrel per day. Thus saving 1.24m x $40
= $49.6 per day in the ECA. Further,
since oil production constitutes a joint
fixed supply of petro, distillate fuel
oil, kerosene-type jet fuel, residual
asphalt and road oil, petrochemical
feedstock, lubricants, kerosene and
others, and that petrol is the major
product, a fall in the price of oil is
said to have been caused by fall in the
demand for petrol.
Therefore, should the
price of oil falls by 30 per cent; we
may expect the price of petrol to fall,
even earlier, by same proportion. The
current price of petrol is $0.87 per
liter and 30/100 x 0.87 = $0.26. If the
price of petrol fall by 30 per cent,
then the price will be; $0.87 - $0.26 =
$0.61 (=N=97.6 per liter). Since the
price of petrol per liter is =N=65
before the removal of petrol subsidy,
the amount of subsidy to be paid by the
government will be 97.6 – 65 = =N=32.6
per liter instead of =N=75. Note: the
price of petrol rose from =N=65 per
liter to =N=140 per liter after the
removal of subsidy. By implication,
should the oil price falls by 30 per
cent, the cost of subsidy to the
government will fall by 56.5 per cent.
We better stop rigging figures!
Furthermore, should the
price of oil fall from $110 per barrel
to, say, $30 per barrel (an amount below
the budget benchmark oil price), that
is; by 72.7 per cent. The price of
petrol will follow, thus it will fall by
72.7 per cent, that is; 0.727 x 0.87 =
$0.61, then the price will fall to 0.87
– 0.61 = $0.24 per liter of petrol or
=N=38.4 per liter. Hence the issue of
subsidizing the price will not even
arise. The gap in income created by the
dramatic fall in price from $110 to $30
per barrel can be bridge with the saving
made to the ECA. Stop this economic
propaganda! Let face the reality.
In this regard, should
the price of oil crashes to $30 per
barrel and the price of petrol falls to
=N=38.4 per liter, the government can
strategically impose an indirect tax of
=N=26.6 per every liter of petrol
imported since the local price of petrol
is fixed at =N=65 per liter. Thus,
should 20 million liters of petrol be
imported daily, the economy will be
receiving =N=532,000,000 daily on petrol
import. What a rescue package! Can’t our
policy makers prophesy this fact?
Fuel Subsidy Removal:
“Unveiling the Propaganda at a Glance”
Sunusi Lamido:
The subsidy benefits the
rich not the poor.
Response:
Why did its removal affected the poor
the most? Never forget the fact that it
is the common people that use
motorcycles, cars and buses for
transportation. We don’t travel on air!
Sunusi Lamido:
Some oil marketers are smuggling the
subsidized fuel to neighboring countries
(like Niger and Cameroon), harming the
economy in the process.
Response:
Niger has a border with Libya as it has
with Nigeria and the price of fuel has
been much lower in Libya
($0.17/=N=27.2per liter) than in
Nigeria, why are there no such cases of
illegal fuel export? Please reinstate
subsidy, secure our borders and punish
the smugglers.
Sunusi Lamido:
With fuel importation and subsidy
government creates jobs for other
countries and improves their economies.
Response:
It is the importation not subsidy that
creates jobs abroad. Fix the existing
refineries and construct new ones
according to the economy’s requirement.
Sunusi Lamido:
Other governments subsidize from excess
not borrowing.
Response:
Nigeria’s current oil production is 2.48
million barrel per day. Considering the
claim that 50% of the output goes to oil
companies, the country is exporting 1.24
million barrel per day. Given the 2012
budget benchmark oil price of $70 per
barrel and the market oil price of $110
per barrel, the country is now saving
$40 x 1.24m = $49.6 million per day,
that is; =N=7.94 billion per day, in the
Excess Crude Account (ECA). If it is
true that 35million liters of fuel are
imported daily, the government will pay
subsidy of 75 x 35m = =N=2.63billion
daily. If deducted from ECA, the balance
will be =N=5.31billion per day. Is
Nigeria not subsidizing from excess? Why
must we borrow while the country is
still having $33 billion in foreign
reserve account talk less of internal
revenues from FIRS, Nigeria Custom
Service, and Port Authority to mention
but few?
Sunusi Lamido:
If oil price crashes by 30%, it will be
difficult for the government to pay
workers’ salaries talk less of subsidy.
Response:
If oil price falls by 30% ($77per
barrel), the government still saves $7 x
1.24m= $8.68 million per day
(=N=1.39billion per day). The price of
fuel will fall proportionately to =N=98
per liter, and the amount of subsidy to
be paid will decrease to =N=33per liter.
Thus 33 x 35m= =N=1.16 billion per day.
If deducted from the daily excess the
government saves 1.39b - 1.16b = =N=230
million per day in ECA. Sir, you are off
track! Please, reconsider.
Published
January 15th, 2012
