RE: USA Africa Dialogue Series - On the Matter of FG finally scrapping fuel subsidy and reducing (?) petrol price to N85/litre from Jan 1, 2016

There is obvious difference between the proposed removal of oil subsidy in 2016 and the removal of subsidy in 2012. In 2011 the appropriated fund for oil subsidy was N245 million but by the end of December 2011 the government had paid N2.6 trillion and there were still carried forward arrears from 2011 to be paid in 2012. At that stage, Jonathan's government decided to remove oil subsidy with implication that the pump prize of Premium Motor Spirit (PMS) known as petrol in Nigeria would have risen from N65 to N141. Based on Petroleum Products Price Regulating Authorities (PPRA) and Nigerian National Petroleum Corporation (NNPC) claims, the Federal Ministry of Finance pointed out on Tuesday, 29 May 2012, that N451 billion of the N888 billion budgeted for subsidy in 2012 had already been spent on arrears for 2011 even though the estimated arrears was N232billion. What Jonathan's government failed to tell Nigerians in 2012 was why the daily consumption of PMS jumped to 60 million litres in 2011 from 30million litres in 2010. Following the uproar against the price hike of petroleum products, the House of Representatives led by Farouk Lawan conducted investigation to the escalated fuel subsidy payments. Ngozi Iweala's Federal Ministry of Finance constituted a committee, led by the Group Managing Director, Access Bank Plc, Aigboje Imuokhuede, to look at the payment records to verify and ascertain subsidy arrears paid to oil marketers. President Jonathan reconstituted the committee to a 15-man headed by the same Mr. Imuokhuede and gave them one week to complete their assignment by Friday,13 July 2012. At the same time, President Jonathan appointed Nuhu Ribadu as the Chairman of the National Task Force on Petroleum Revenue.
 
Appearing at the House of Representatives investigating committee, the Petroleum Minister, Diezani Alinson-Madueke told the Committee that Nigerians consume 52 million litres of PMS daily;  The Group Managing Director of the NNPC, Austin Oniwon, put the daily consumption at 35 million litres; the Department of Petroleum Resources (DPR) put it at 43 million litres; the Executive Secretary of PPPRA claimed it was 24 million litres per day; while the Finance Minister and the Co-ordnating Minister of the Economy, Okonjo-Iweala said the daily consumption was 40 million litres. On the amount paid as subsidy to oil marketers by the end of 2011, Okonjo-Iweala told the House Committee that it was N 1.3 trillion; while Diezani said it was N 1.4 trillion and Sanusi the Governor of Central Bank of Nigeria said it was N 1.7 trillion. On the status of the subsidy accounts, Diezani told the House Committee that the account is a virtual one; NNPC said there is no account in existence as the layman will look at it; the PPPR claimed that the account is a technical one; the CBN says there is no account with us for subsidy; and while the Finance Minister posited that the account exists but not with a bank. The House of Reps Committee's investigation over the oil subsidy collapsed when the Chairman, Farouk Lawan, was caught in camera receiving bribe from one Otedola, an oil subsidy scammer.
 
Seventy-one companies were indicted by Presidential Committee on Verification and Reconciliation of Fuel Subsidy Payment, for collecting money for unsupplied petroleum products. Among the fraudsters were two Ministers in Jonathan's government. The then Minister of Aviation, Stella Adaeze Oduah, parallel with her ministerial appointment, owned 99% of a company called Sea Petroleum and Gas (SPG) of which she was a Director. The remaining 1% was shared by persons identified as Elisabeth Stewart, Josephine Oduah and Erotimi Buwa. It was discovered that the Aviation Minister's Company, SPG, collected the sum of one billion, nineteen million, five-hundred and seventy-one thousand six-hundred and nine naira without supplying any petroleum product. Similarly, Jonathan's Minister of Labour and Productivity, Chief Emeka Wogu, had a company called Pinnacle Contractors Ltd which he used in collecting N2.7 billion as fuel subsidies in 2011. Chief Emeka Wogu owned 75% of Pinnacle while Mrs. Oyebabefe Wogu owned 15% and the rest 10% was owned by Mr. Enyinnaya Wogu. Pinnacle Contractors was not even qualified to bid for fuel supply by the time Wogu collected subsidy money in 2011 as it was not registered with the Corporate Affairs Commission (CAC) until Friday, 30 November 2012. Worse still, the mother vessels which Pinnacle Contractors claimed to have transported fuel to Nigeria could not be located in any part of the world and not to talk of having anchored at any port in Nigeria. Another fuel subsidy fraudster was the former Military Head of State, General Abdulsalami Abubakar, who through his Company, Maizube Petroleum Limited (MPL), collected five billion, five-hundred and nine million, four-hundred and seven thousand, nine-hundred and three naira without supplying a drop of petroleum product. Jonathan and Okonjo-Iweala were fully aware that they were subsidizing fuel thieves before setting up the Presidential Committee on Verification and Reconciliation of Fuel Subsidy Payments and when the report was ready, they ignored it. Due to the uproar at the beginning of 2012, the official daily consumption of petrol in 2012 fell to 40 million litres from 60 million litres the previous year and was reduced to 38 million litres per day in 2013 and 2014.

 

Nigeria, Achebe once said, is not a country. He would have been telling the truth if he had said that Nigerians are not human beings because no other human beings would have remained quiet if one-hundredth of what happens in Nigeria were to befall them. Nigeria is the 12th largest crude oil producer in the world, contributing about three percent of the global crude production, which makes her the largest crude oil producer in Africa. She is also the 9th country in terms of reserves in the world, making her have the largest gas reserve in Africa and also contributing about eight percent of the global liquefied natural gas supply. Nigeria has four oil refineries located at Kaduna, Port Harcourt and Warri with installed capacity to refine 445,000 barrels of crude oil per day for domestic consumption. A barrel of crude oil is equal to 159 litres which means that 445,000 barrels would yield 70, 775, 000 litres of crude oil to be refined daily in Nigeria. Apart from diesel, bitumen, kerosene and other chemicals to be derived from the refinery of 70,775,000 litres of crude oil, not less than fifty million litres of PMS would also be produced. At that rate of production, which is even more than required daily consumption, the highest pump price of PMS in Nigeria would be  N30 /litre. While the Managers and Directors of Nigeria's oil refineries collect their monthly salaries and fringe benefits for producing nothing, they divert the crude oil meant for refinery in Nigeria to export. By keeping the refineries in comatose, they pave way for the so called oil marketers to import refined petroleum products. Thus, Nigeria is the only member of Organisation of Petroleum Exporting Countries (OPEC) that depends on imported refined petroleum products. The current Government has promised to see to it that the refineries would function to full capacity thereby rendering fuel importers needless and the need to subsidize their fuel imports would cease. Stopping fuel subsidy thieves now is not the same thing as withdrawing fuel subsidy and increasing pump price of petrol by over 120% in 2012. The analysis of Bolaji Aluko in 2012 is still valid now in 2015 as far as subsidizing thieves known as oil marketers are concerned.

S.Kadiri
 

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Subject: Re: USA Africa Dialogue Series - On the Matter of FG finally scrapping fuel subsidy and reducing (?) petrol price to N85/litre from Jan 1, 2016
From: usaafricadialogue@googlegroups.com
Date: Sat, 26 Dec 2015 12:51:43 -0500
CC: alukome@gmail.com
To: usaafricadialogue@googlegroups.com

"In finally removing subsidy, the move must be properly explained to The People.  The Wailing Wailers must NOT be allowed by subterfuge to turn The People against The Government under the political guise of protecting The People against Subsidy Removal - as we had in January 2012."

- Bolaji Aluko

Bolaji,

Many thanks for sharing yet another round of data that supports your new position that removal of subsidy is good for Nigerians. How does this now square with all your "analysis" in 2012 when you and Bola Tinubu were adamantly against subsidy removal? Your analysis at the time (see link below) was quite influential in forcing young men and women to hit the streets and apparently fight for what they did not understand:

http://www.gamji.com/aluko/aluko220.htm

Bolaji, please go to the archives on this forum and re-read your contributions. You have changed your tune, and it is your right. But then, you would think that those who have suddenly changed their minds because it is the expedient thing to do, would apologize to those they fooled, and explain rationally why they are now bleating a different tune.  There is virtue in changing one's mind. But those who purport to lead must be seen to be credible and trustworthy, must wield their influence responsibly because many people are listening. Indeed, it is the case that many young people died because they truly believed (what now turns out to be) the nonsense that the APC was bleating just to make Mr. Jonathan look bad. Today, those of us who refuse to drink the Koolaid du jour are bullied with reams of arrogance and condescension as if that will fix the situation that the APC created. Many of us are being called Wailing Wailers and GEJites. Interesting, because the archives will show that there is no one more vociferous in condemnation of GEJ on this forum than myself.   

I was also fooled by Tinubu et al. I admit it. I was used by the same characters who now want subsidy removed. I feel silly, like Boxer of Animal Farm. They convinced me to shed my dignity and dance and  sing in protest against subsidy removal and against Goodluck Jonathan before the World Bank in DC! It is these same folks that are trotting out new reasons why we should remove fuel subsidy, because Tinubu now says so. I live far away from the hell that youths go through in Nigeria. When they protest, I join them. Don't lie to me!

Integrity and credibility are essential tools in any fight. Our leaders have lost all those. I would never go to war with these folks again, they have lost credibility and integrity before me. Fool me once...

ps.

My analysis of your stand and those of many prominent APC intellectuals also applies to your baffling wink at the atrocious handling of the Kanu case by Aso Rock. You and Tinubu and the others would have had yourselves arrested on his account in those days... We all live to learn!

- Ikhide

On Dec 26, 2015, at 9:00 AM, Mobolaji Aluko <alukome@gmail.com> wrote:

My People:

If the report of the FG finally scrapping fuel subsidy and reducing (?)  petrol price to N85/litre from Jan 1, 2016 is correct, then Minister of State for Petroleum, Dr. Emmanuel Ibe Kachikwu is moving in the right direction here, as he inspects more closely some of the arbitrariness in the Pricing Template that is used to determine the so-called "Fuel Subsidy" that we have been allegedly paying......

May his tribe increase....

Please come with me....

In the PMS Pricing Template posted below by PPPRA for Christmas Day 2015,  the expected Expected Open Market Price (OMP)  for PMS  based on thirteen cost items is N93.45 per liter.  With the Retail Price fixed at N87 per liter, that requires a so-called subsidy of N6.45 nper liter.  Let us put that at N6.5 per liter.  To be more aggresive and fix the price at N85 means a subsidy removal of N8.5 per liter.

Let us stay with N6.5 per liter subsidy removal for now, meaning an OMP of N87 per liter.

That means that if on average EVERY cost element were reduced in price by N0.50 per liter, the OMP would come to N87 per liter.  More realistically, if we leave three of the cost elements (#5, 14 and 15)  in place, reduce two of them (#4, 6) by N0.25 per liter, two of them (#2, 12)  by N0.5 per liter, four of them (#3, 7, 10, 11) by N0.75 per liter, one of them (#13)  by N1.0, and one of them (#1) by N1.25 per liter and impose a Highway Maintenance Tax of N0.25 per liter (instead of building new toll gates, which require new capital costs without assurance of recovery), then we can still maintain the OPM at N87, and thereby completely eliminate so-called "subsidy". After all, some of those charges are somewhat arbitrary - some are even government-imposed (eg NPA cargo charges)  - and are subject to negotiations.

These are examples of the "price modulations" that Kachikwu must be talking about

In finally removing subsidy, the move must be properly explained to The People.  The Wailing Wailers must NOT be allowed by subterfuge to turn The People against The Government under the political guise of protecting The People against Subsidy Removal - as we had in January 2012.

And there you have it.

Bolajij Aluko

_______________________________________________________________

http://pppra.gov.ng/pricing-template-pms-2/

Pricing Template – PMS

Posted on December 25, 2015 by pppra in Pricing Templates // 0 Comments

PPPRA PRODUCT PRICING TEMPLATE -PMS
Based on Average Platts' Prices for 24th December, 2015
Average Exchange Rate of the NGN =N= to US$ for 24th December, 2015
					PMS
	Cost Elements:					$/MT	Naira/Litre
1	C + F					458.41	67.34
2	Trader's Margin					10.00	1.47
3	Lightering Expenses (SVH)					27.72	4.07
4	NPA					5.25	0.77
5	Financing (SVH)					3.44	0.51
6	Jetty Depot Thru' Put Charge					5.45	0.80
7	Storage Charge					20.42	3.00
8	Landing Cost					530.69	77.96
9	Distribution Margins:
10	Retailers					31.31	4.60
11	Transporters					20.35	2.99
12	Dealers					11.91	1.75
13	Bridging Fund					39.82	5.85
14	Marine Transport Average (MTA)					1.02	0.15
15	Admin Charge					1.02	0.15
16	Subtotal Margins					105.44	15.49
17	Highway Maintenance					0.00	0.00
18	Government Tax			–		0.00	0.00
19	Import Tax			–		0.00	0.00
20	Fuel Tax			–		0.00	0.00
21	Subtotal Taxes					0.00	0.00
22	Total Cost					636.13	93.45
23	**  Ex-Depot (for collection)					528.64	77.66
24	**  Under/Over Recovery					43.91	6.45
25	Retail Price					592.22	87.00
Expected Open Market Price (OMP) (Naira/litre) is Landing cost +Margins								93.45
* C+F price is Offshore Nigeria
Conversion Rate (MT to Litres):				1341
Exchange Rate (N to $):				197.00
*  Official Ex Depot is exclusive of Bridging Fund, Marine Transport Average (MTA) & Admin. Charge
* *Ex Depot includes Bridging Fund, Marine Transport Average (MTA) & Admin. Charge
Data is as at 24/12/15

            

______________________________________________________________

DESCRIPTION OF COMPONENTS ON THE PRICING TEMPLATE With Effect from February 2009

1. PRODUCT COST ($/MT)
This is the monthly moving average cost of products cost as quoted on Platts Oil gram. The reference spot market is North West Europe (NWE).

2. FREIGHT ($/MT)
This is the average clean tanker freight rate (World Scale (WS) 100) as quoted on Platts. It is the Cost of transporting 30, 000mt (30kt) of product from NWE to West Africa (WAF). Trader's margin of $10/MT is also factored into the Freight cost.

3. LIGHTERING EXPENSES ($/MT)
STS/Local Freight charge is the cost incurred on the transshipment of imported petroleum products from the mother vessel into daughter vessel to allow for the onward movement of the vessel into the Jetty. This charge includes receipt losses of 0.3% in the process of products movement from the high sea to the Jetty and then to the depot. The mother vessels expenses are based on the allowable 10 days demurrage exposure at the rate of $28,000 per day.

The Lightering Expenses also includes the Shuttle vessel's chartering rates from Offshore Lagos to Lagos and Port Harcourt which currently stands at N2.00 per litre and N2.50 per litre respectively. Transshipment (STS) process is as a result of peculiar draught situation and inadequate berthing facilities at the Ports.

4. NIGERIA PORT AUTHORITY (NPA) CHARGE ($/MT
It is the cargo dues (harbor handling charge) charged by the NPA for use of Port facilities. The charge includes VAT and Agency expenses.

Currently, NPA charge attracts $10.50/MT on the pricing template.

5. FINANCING
It refers to stock finance (cost of fund) for the imported product. It includes the cargo financing based on the International London Inter bank Offered Rates (LIBOR) rates+5% premium for 30 days (for Annual Libor rate of 2.07%, LIBOR cost would be 7.07%). Also included in the Finance cost is the inertest charge on the subsidy element being awaited for an allowable 60 days period at Nigerian Inter Bank Offered Rate (NIBOR) rate of 22%.

6. JETTY DEPOT THRU PUT
This is the tariff paid for use of facilities at the Jetty by the marketers to move products to the storage depots. The value is currently N0.80/litre.

7. STORAGE CHARGE
Storage Margin is for depot operations covering storage charges and other services rendered by the depot owners. The charge is currently N3.00/litre.

8. LANDING COST
It is the cost of imported products delivered into the Jetty depots. It is made up of components highlighted above (1, 2, 3, 4, 5, 6 and 7).

9. DISTRIBUTION MARGINS
These include Retailers (N4.60 per litre), Transporters margins (N2.99 per litre), Dealers margin (N1.75 per litre), Bridging Fund (plus Marine Transport Average) (N6.00 per litre) and Administrative charge (N0.15 per litre). This amounts to N15.49 per liter on the template. The overhead cost and other running costs have been considered in the determination of these margins.

10. TAXES
These include highway maintenance, government, import and fuel taxes. It has the overall objectives of revenue generation, social infrastructure investment and servicing and efficient fuel usage. Presently, all these attract zero taxes.

11. RETAIL PRICE
This is the expected pump price of petroleum product at retail outlet. It is made up of landing cost of imported product plus reasonable distribution margins.

_______________________________________________________________________

http://elombah.com/index.php/reports/3653-fg-to-scrap-fuel-subsidy-reduce-petrol-price-to-n85-litre-from-jan-1

FG to scrap fuel subsidy, reduce petrol price to N85/litre from Jan 1

The Federal Government would on January 1 next year reduce the pump price of the Premium Motor Spirit (PMS) to N85 per litre, reports PR Nigeria.

The Minister of State for Petroleum, Dr. Emmanuel Ibe Kachikwu [image above] broke the news to journalists in the Port Harcourt Refinery Company (PHRC), where he spent Christmas inspecting the plant.

Asked when the Federal Government would release the new price template of the Petroleum Product Pricing Regulation Agency (PPPRA), he said that he approved the new price for the agency on Thursday.

Pressed to reveal when the new price will become effective, Kachikwu, who is also the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) said "like I said, we have done a modulation calculation and it is showing us below N87. I imagine that if PPPRA publishes it today, it will become effective immediately. But the 1st of January that is when we are looking at."

According to him, the new price is below the current N87 per litre and it would now convince Nigerians that the pricing modulation that the Federal Government promised to embark on a few days ago was not a trick.

He noted that following government's analysis and research, it has been realized that the country can fluctuate the fuel market in accordance with the crude oil market fundamentals.

Justifying government's reasons for scrapping the Petroleum Support Fund otherwise known as oil subsidy, Kachikwu explained that government can no longer afford to subsidize the product following the fraud that has attended its operation.

He added that it has become clear that government earnings are dipping on daily basis.

His words: "It is out; I signed off on it yesterday (Thursday). I imagined that in the next couple of days the marketers would get advice on that. The nice thing about the PPPRA, where I signed up on it yesterday is that the price will be far below N87.

So for the first time people will understand that the pricing modulation I was talking about is not a gimmick. It is for real. We have gone to find out how we will be able fluctuate this market to reflect what the reality of crude market is. The objective is that one, we cannot afford to continue to subsidize.

We can't even understand where those subsidies were going to. There are a lot of fraud elements in it so we need to cut that of.

The second is the earning capacity of the Federal Government is deteriorating by the day with lower prices of crude and come out more."

He submitted that from the application market realities for the pricing modulation, government has discovered that petrol would sell for either N85 or N86 per litre.

The minister recalled that it was from this axiom that President Muhammadu Buhari announced that the price of petrol remains N87 at the moment.

Kachikwu said: "But in applying that where we landed when we did the analysis for the very first time was about N85 or N86 so it is below N87.

And maybe the first price that will come will reflect it. That was why Mr. President said that prices will be N87 for now. And that is what we have in mind."

On the security of the pipelines, he said that government had tried stopping the menace with military intervention to no avail before it engaged some private contractors who had worked with the majors for the crude pipeline management.

According to him, the private contractors have taken over Atlas Cove, Mosimi and they would be extending the surveillance to Ilorin between yesterday and today.

They will also look at the Port Harcourt and Aba axis, he stressed.

The minister said that government is now beginning to have a clue of how to tackle pipeline insecurity, adding that it is far more expensive to convey petroleum and products through pipelines than trucking them by road.

He said from the briefing he got from the inspection of the refineries, they are close to re-opening.

"In the next one week, we are ready to see products out of here", he disclosed.

Kachikwu said that a lot of the rehabilitation of the refinery was being done with intensive manual labour of the staff since paucity of fund affected the holistic change that is required in the factory.

He said that the refinery is now aging so one fault comes up after the other even after repair but that would stop when government repairs the plant holistically early next year.

According to him, about 5.5 million litres daily of PMS is expected from the refinery in the next few days. Other products to come from the plants, said Kachikwu "are AGO, Kero and others. Where we love to be is to have half of the consumption of this country at the refineries at the minimum, which is about 20million litres. But where we are with the sleepless night I have had in the last few weeks any molecule is significant.

Kaduna will still be doing 2.3million. Let's start from there. And that is doing 60 per cent performance. This is still an assumption. I will like to see them getting closer to 80 or 90. By the time they time they do that we will be getting 11 to 12million litres out of this place."

_______________________________________________________________________

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