STAR ESSAY: 𝐓𝐡𝐞 𝐏𝐞𝐭𝐫𝐨𝐥 𝐒𝐮𝐛𝐬𝐢𝐝𝐲 𝐐𝐮𝐚𝐧𝐝𝐫𝐲: 𝐭𝐡𝐞 𝐃𝐞𝐯𝐢𝐥 𝐨𝐫 𝐭𝐡𝐞 𝐃𝐞𝐞𝐩 𝐁𝐥𝐮𝐞 𝐒𝐞𝐚?

[Mobolaji Aluko]

STAR ESSAY: 𝐓𝐡𝐞 𝐏𝐞𝐭𝐫𝐨𝐥 𝐒𝐮𝐛𝐬𝐢𝐝𝐲 𝐐𝐮𝐚𝐧𝐝𝐫𝐲: 𝐭𝐡𝐞 𝐃𝐞𝐯𝐢𝐥 𝐨𝐫 𝐭𝐡𝐞 𝐃𝐞𝐞𝐩 𝐁𝐥𝐮𝐞 𝐒𝐞𝐚?

𝕭𝖞 𝕯𝖗 𝖀𝖌𝖔𝖏𝖎 𝕰𝖌𝖇𝖚𝖏𝖔

The country is in a bind. It must borrow three trillion if it chooses not to discontinue subsidising petrol. That’s what the government has said. But, on the other hand, if it removes the subsidy on petrol, it could set itself aflame. Against the backdrop of a huge budget deficit and weak income streams, borrowing to consume is insane profligacy. But after Endsars, any provocation of the teetering masses could spell Armageddon. Are we then doomed?

We enacted the PIA to deregulate the petroleum sector and enhance private participation. Now, we must suspend the portion of that law that would have extinguished petrol subsidy by June 2022. We are scared. But if we keep the subsidy, the states will have nothing to collect monthly from Abuja. The CBN might organise a quiet printing of more money to give them some watery soup.

In the end, the naira will be beaten to stupor and might lie south of one thousand to a dollar. We must be careful. Head or tail, we might be in boiling soup.Last year, we borrowed about 1.4 trillion to service our sense of entitlement to cheap fuel. This year that figure might double.

 

The reason is simple: crude oil prices have risen. Our neighbours are importing at market rate and selling petrol above N400 per litre. If we insist on selling at 160 per litre, we would inevitably be inviting them to feed on our subsidy. So we would end up providing cheap fuel for the entire region.

Where we have borders, they are porous. Smugglers’ boats leave for the Benin Republic every night, their bellies filled with our subsidised fuel. Trucks cross through thousands of desert roads in the north to service our brothers in Niger, Mali, Burkina Faso etc. So we have no borders. And if we create proper borders, where will we find real Customs officers?

 

The House of Reps wants to investigate our petrol consumption rate. The House might as well plan to investigate the petrol consumption of West Africa. That is what it is. We have chosen to be the Santa Claus of the region. But the problem with subsidy won’t even end with our stepping aside from our Santa duties by stopping petrol smuggling.

There is the other problem of crooks and fat cats exploiting the subsidy window to fatten themselves and impoverish the country. With the retention of the programme in a time of high crude prices, two things might happen.

 

The NNPC remains the dominant importer by its access to foreign exchange. Now with a privatised Molue with gas-guzzling, oil-spitting engines, the NNPC can’t slough off inefficiencies overnight.

They once used to let cargo-laden vessels loiter, pay billions in demurrages, and put the cost on the country. With the NNPC, the love for inflated figures and their role as a cash cow for politicians, a big subsidy window will ruin the country.

 

On the other hand, if other players enter the game, there could be the other old trouble. In 2011, it was discovered that subsidy payments were claimed and collected for ghost cargoes carried by vessels that had been scrapped and buried before Shehu Shagari came to power. Some other folks simply forged papers, greased the palms of DPR and PPPRA officials with one million dollars per claim, and walked away with billions in awoof subsidy money.

Billions in subsidy payments for cargoes that were never imported. Deregulation is non-negotiable.But in a country where over a hundred million live below abject poverty, even the slightest tightening could be a back-breaker. The EndSars riots’ scars are still fresh. Nobody in the government wants to risk a tsunami. But there is something else besides an Arab spring-type volcanic eruption.

The states have little or nothing to share even as crude prices soar. Petrol subsidy wipes out everything. If some states become insolvent, more people would be thrown into poverty and crime. Insurgencies and banditry have become our Achilles heel. Lucrative and therefore intractable; almost self-perpetuating.

Insurgences and banditry grow fat on ransoms. Fattened, they expand and trouble farmers. Farming becomes perilous, and hands become idle. Idle hands join those they can’t beat, and the crime industry is diversified. With armed gangs everywhere, the military sucks up the already anaemic national budget. 

We are somewhere between many devils and the deep blue ocean. Our parlous state is complicated by our leaky purse and lousy revenue gathering. In 2021, we lost about 3 billion dollars to crude oil thieves.

That is 1.4 trillion naira. This year that figure, on the back of rising crude prices, could be 6 billion dollars i.e. about 3 trillion naira. In other words, the very humongous sum we must borrow to keep the frayed tempers of the poor from flaming is the money we will inevitably lose to crude oil thieves in our midst. Inevitable, because that criminality has almost been normalised. Between 2009 and 2019, NEITTI reported that we lost 41.9 billion dollars to crude oil thieves.

If we had been sufficiently alarmed, we would have laid down our lives to stop the theft. But the thieves don’t feel guilty. The reason crude oil theft has become a fixed feature of our national economy is that millions in the Niger delta do not subscribe to the idea that the oil wells belong to Nigeria rather than the locality. Illegal crude oil bunkering is so rampant one is tempted to believe that it is condoned by governments at different levels. Perhaps a way of getting some and letting trouble makers have some. Some sharing of national sovereignty.

That isn’t to say that the Navy and other security agencies don’t go after oil thieves. But this organised crime happens in the open. And the sheer size of stolen crude is so earth-shuddering that it shouldn’t happen every year if we feel truly perturbed.

However, the crude oil theft problem is not helped by stories from Zamfara and other places, where folks, in league with scavenging foreign businessmen, mine diamonds and gold and keep the proceeds.

Forty-two billion dollars in ten years would have built all the rail tracks we are now proposing while kneeling plate-in-hand before the Chinese. Dangote’s new 600,000 BPD refinery cost about 19 billion dollars. In 2009, it would have cost much less.

With 42 billion dollars, we could have built three of such refineries, and we would have been exporting only refined products and no crude oil. The NLC wants the government to resuscitate its moribund refineries before removing the petrol subsidy. The same refineries that have become the emblems of government inefficiency in business. The NLC must do what the NLC must do.

Yet while at it, it must know when to step away from idealism and vacuous sloganeering and offer feasible solutions.But leaving nail-bitting aside, a country in financial difficulty must shed flabbiness. If the ordinary people must take a hit, they would want to see government officials living lean lives.

Holes must be plugged. Belts must be tightened. Politicians can’t go on collecting ungodly wages and allowances while the poor are forced to bleat to death in the name of patriotism. So the recourse isn’t to China and loans.

We must do away with the subsidy program; it’s totally fraud-prone. Dubious invoices and petrol smuggling. But the removal of the subsidy won’t make sense if crude oil theft is still allowed.

The sacrifice from the poor won’t make sense if the politicians are still engaged in exhibitionistic sybaritism. Nothing would make sense if the governments are run with a carnival mentality.

We are in a quandary. But it could be an opportunity for sober reflection and hard life-changing decisions.

Vanguard News Nigeria

------------------------

*ALUKO COMMENTARY*

Damned if you do, damned if you don't, but the oil subsidy regime must go, and the sooner, the better.

While it is true that all countries choose goods and services to subsidize for its citizens,  it must be done with wisdom:

1.  We cannot continue to subsidize both producer and user of the subsidized good:  that leads to inefficiency of the former and wastage and outright fraud by the latter, like lighting a candle at both ends.  You subsidize either the producer (so that he can sell at a lower price) or the buyer (so that he buys at a lower price) but not both, otherwise trying to contain it becomes a whack-a-mole enterprise.

2.  We cannot subsidize  those who can pay the unsubsidized price, ie there must be a Means Test.  The money such people pay is invariably used for conspicuous consumption, and it amounts to a transfer of funds from the poor to the rich.  The rich must be made to assist Government to truly subsidize the poor.

3.  Most crucial:  for budgeting purpose and for fiscal discipline, there must be a cap to the total amount of subsidy, above which the subsidizer won't pay, and the subsidized will have to pay the unsubsidized price. Otherwise, subsidy will invariably lead to runaway expenditure as we currently have with petroleum products.  This is particularly necessary when the price of the  subsidized good suffers international vagaries that the subsidizer has no control over.

When will the subsidy regime   - and I daresay the accompanying  appetite for debt - stop in Nigeria?  When the marginal social cost of not stopping it exceeds the cost of stopping it.  When that day is, I do not know, but we will as a country continue to stumble, wobble and weave along this rickety bridge to that fateful future day.

There you have it.

Bolaji Aluko

February 1, 2022

----------------------

[Toyin Falola]

Alagba Bolaji:

Both pieces are terrific. I have three questions that bother me:

1. As an urgent step, can we calculate the corruption elements in the petrol subsidy?
2. Is the percentage of the “rich” consumers so high? By the “rich”, I am assuming you are referring to members of the “middle class”?
3. Do we, because of criminal elements in petrol subsidy and diesel market, punish millions of our poor people?

TF

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[Salimonu Kadiri]

​Discussing about whether petrol subsidy in Nigeria should be removed or not is just like putting the cart before the horse. It does not make sense. Nigeria is the only crude oil exporting country in the world that imports petrol. Yet, 445,000 barrels of crude oil is allocated daily to the four oil refineries in Nigeria to cater for domestic consumption. Nigerians have never been told why the nation's oil refineries have not been producing according to their designed capacities and what has been happening to the 445,000 b/day allocated to the refineries. The daily consumption of fuel in Nigeria is estimated at 408,000 b/day and if the refineries are producing at designated capacities, the pump price of petrol will be under N40/litre. The right solution to make Nigeria's crude oil refineries work 100% is total ban of importation of petrol (fuel) into the country. It is senseless to subsidise saboteurs of Nigeria's crude oil refineries to import petrol.

S. Kadiri

---

From: usaafric...@googlegroups.com <usaafric...@googlegroups.com> on behalf of Toyin Falola <toyin.f...@gmail.com>
Sent: 01 February 2022 11:44
To: usaafric...@googlegroups.com <usaafric...@googlegroups.com>
Subject: Re: USA Africa Dialogue Series - STAR ESSAY: 𝐓𝐡𝐞 𝐏𝐞𝐭𝐫𝐨𝐥 𝐒𝐮𝐛𝐬𝐢𝐝𝐲 𝐐𝐮𝐚𝐧𝐝𝐫𝐲: 𝐭𝐡𝐞 𝐃𝐞𝐯𝐢𝐥 𝐨𝐫 𝐭𝐡𝐞 𝐃𝐞𝐞𝐩 𝐁𝐥𝐮𝐞 𝐒𝐞𝐚?

 

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[Harrow, Kenneth]

salimonu, where does mexico fit into your description? i know it exports crude to the u.s.; i imagine it imports the refined gas, but don't really know.

ken

kenneth harrow

professor emeritus

dept of english

michigan state university

517 803-8839

har...@msu.edu

---

From: usaafric...@googlegroups.com <usaafric...@googlegroups.com> on behalf of Salimonu Kadiri <ogunl...@hotmail.com>
Sent: Tuesday, February 1, 2022 2:41 PM

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[Klalli]

The question really is whether anybody believe any of the numbers being bandied about by the author of the essay (Dr. Egbujo). We should alll recall that our President and Minister of Petroleum (General Buhari) for the last 6 years did say that there was no subsidy (see the following link:  https://nairametrics.com/2015/05/27/flash-back-what-buhari-said-about-fuel-subsidy-in-2012/). Many people in this current government did tell us back then that there was no subsidy. Yet in 6 years, the cost of the subsidy has risen astronomically and local refining is nonexistent despite all the money spent.

Kasim Alli.

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[Folami Kolade]

When I see individuals using "we" and "our", i know it is from the delusion that there was a consensus of the citizens in the creation of policies in Nigeria when in reality, all we have is exclusion by the ruling gang in charge and  nothing more! There is no "we"! There is "our"! It is "they" and "them"!

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[Folami Kolade]

When I see individuals using "we" and "our", i know it is from the delusion that there was a consensus of the citizens in the creation of policies in Nigeria when in reality, all we have is exclusion by the ruling gang in charge and  nothing more! There is no "we"! There is no "our"! It is "they" and "them"!

On Tue, Feb 1, 2022 at 11:46 AM Salimonu Kadiri <ogunl...@hotmail.com> wrote:

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[Cornelius Hamelberg]

Even Mexico as the exception should not be made the rule? Or the rule of thumb.

What about Venezuela?

The Nigerian fuel subsidy problem is almost ten years old now and the experts have still not solved it.  Of cpurse, Baba kadiri is going to answer your question...

I found myself quoting Bob Dylan in a short discussion on this matter with Baba Kadiri this evening. Dylan: “I've made shoes for everyone, even you, while I still go barefoot “(I and I)

A good definition of crazy: We were comparing Nigeria’s importation of refined petroleum to Nigeria importing oxygen so that our big noses will have to pay dearly in order to be able to breathe some fresh air, freely...

Wasn’t petrol/ gasoline almost free when it came to domestic consumption in Gaddafi’s Libya?

Back in 2017, here was Emmanuel Ibe Kachikwu Nigerian Minister for Petroleum Resources echoing Baba Kadiri in this three mintute clip.

The full transcript of Emmanuel Ibe Kachikwu – Nigerian Minister for Petroleum Resources on BBC Hardtalk (Mon 22 May 2017)

April 2019 - Global Financial Digest

Back in the good old days of Goodluck Jonathan here was Rotimi Amaechi on BBC Hardtalk telling the world that oil thieves stole more than $ 1 billion worth of oil every month.

$ 1 billion per month,

a very lucrative business….

[Mobolaji Aluko]

TF:

You wrote:

---

Alagba Bolaji:

Both pieces are terrific. I have three questions that bother me:

1. As an urgent step, can we calculate the corruption elements in the petrol subsidy?
2. Is the percentage of the “rich” consumers so high? By the “rich”, I am assuming you are referring to members of the “middle class”?
3. Do we, because of criminal elements in petrol subsidy and diesel market, punish millions of our poor people?

TF

 Unquote

Thanks for your questions, and let me attempt to answer them briefly to the best of my ability. 

I will take the Total Subsidy Paid as TSB

To Question 2:  it is not the number of the Rich/Poor  NOR/NOP here that matters, but the size of the Average Benefits ABR/ABP

TSB = NOR x ABR + NOP x ABP

 So while NOP is much .GT. NOR,  ABR much more than compensates such that the first product on the right is much .GT. the second product.

To Question 3:  ignorance is more costly than education.  What the poor get punished for as a result of this subsidy is loss of education, Health, security, infrastructure, life itself.

To Question 1:   The corruption amount  CA must be calculated as

CA = TSB - (Total Amount of Subsized Fuel Used in Liters x Cost per Liter of Subsidized Fuel)

CA = TSB - (TASF x CSF)

Where corruption enters as Ghost fuel GF used as well as padded cost PC

TASF = AASF + GF

CSF = ACSF + PC

Determing the accurate and corrupt elements of TASF and CSF is the challenge which many people including myself have taken up in earlier contributions stretching back decades.

Finally, we have argued and re-argued this Subsidy issue before - and yet its amount keeps escalating - from N245 billion in OBJ's time to N3 trillion in the current PMB time.  This is not sustainable.   Madness is what we are now experiencing.

 Please see the thread:

 https://groups.google.com/g/usaafricadialogue/c/nVU7wtbwcKE/m/xQPI8mOABwAJ

From the Archives:  On the Matter of FG finally scrapping fuel subsidy and reducing (?) petrol price to N85/litre from Jan 1, 2016

December 26, 2015

(By Mobolaji Aluko, followed by comments by  several members of the Nigerian and African cyberspace Commentatiat)

Quote

On the Matter of FG finally scrapping fuel subsidy and reducing (?) petrol price to N85/litre from Jan 1, 2016

19 views

Bolaji Aluko

12/26/15

to africanw...@googlegroups.com, Nebuka...@aol.com, naijaintellects, NigerianWorldForum, NaijaPolitics e-Group, Ra'ayi, AfricanW...@yahoogroups.com, niger...@yahoogroups.com, OmoOdua, USAAfrica Dialogue, ekiti ekitigroups, Yan Arewa

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......

Unquote

One gets almost tired arguing the same thing over and over again.

Best wishes.

Bolaji Aluko

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[Salimonu Kadiri]

​Kenneth, you cannot compare Nigeria to Mexico. The latter as you know is the backyard of the U.S. Mexico has six crude oil refineries operated by the State-owned company named Petróleos Mexicanos (PEMEX). However, productions from the six oil refineries are not enough to meet the daily consumption of Mexicans. Until the oil refineries are upgraded, which the U.S. has power to prevent or obstruct, Mexico is forced to import refined crude oil from the U.S. who in turn is a big importer of crude oil from Mexico. Unlike Nigeria, the Mexican government is the fuel importer and there are no mushrooms of private fuel importers claiming fuel subsidies from the government.

In the case of Nigeria, a total of 408,000 barrels per/day is estimated consumption of Nigeria as of date, but 445,000 b/d have been allocated to the four oil refineries in Nigeria since 1998. Yet, refineries have never produced fuel. Since 1998, billions of dollars have been expended on what was termed Turn Around Maintenance (TMA) which humorous Nigerians renamed, Take Away Money because TAM had never resulted in effective refinement of crude oil for Nigerians to consume. So, while Mexico's crude oil refineries are producing at their designated capacities but do not cover the nation's need, Nigeria's crude oil refineries are incapacitated despite receiving 445,000-barrel crude oil for refinement per day.

S. Kadiri

---

From: usaafric...@googlegroups.com <usaafric...@googlegroups.com> on behalf of Harrow, Kenneth <har...@msu.edu>
Sent: 01 February 2022 21:15

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[Mr. E. B. Jaiyeoba]

Dear All,

I just have four questions. 

Who consumes the product of the illegal refineries being destroyed intermittently in the Niger Delta area of Nigeria? 

Second, why have we not adopted micro refineries for local consumption in Nigeria? 

The third, is the product of illegal refineries comparable to that of the micro refineries from elsewhere, say China? 

The last is an essay question; what is the relationship between the devaluation of the Nigerian currency and the petroleum products subsidy sum?

Thank you.

Babatunde JAIYEOBA

Prof. E. Babatunde JAIYEOBA PhD

Head, Department of Architecture

Faculty of Environmental Design and Management

Obafemi Awolowo University, Ile-Ife, Nigeria

ebj...@oauife.edu.ng; tundej...@yahoo.co.uk; +234 8037880023

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[Oluwatoyin Adepoju]

Thanks for the questions on microrefineries.

Are they the same as the illegal refineries in the Niger Delta?

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[Mobolaji Aluko]

Mr. E,B. Jaiyeoba:

Four good questions from you,  and an attempt here to respond to them seriatim:

Q1: "Who consumes the product of the illegal refineries being destroyed intermittently in the Niger Delta area of Nigeria? "

The products - PMS (petrol), AGO (diesel) and DPK (kerosene), mainly the latter two - are consumed largely by Nigeria's maybe within hundred miles of the illegal refineries.  However, the three greatest dangers of these illegal refineries are:

A/ the criminality associated with the theft of crude oil from traditional companies pipelines not only to feed these illegal refineries but to sell abroad - an illegal trade known as "bunkering" - for refining abroad.  So the cost of paying for the crude oil is transferred to the clandestine purchase of gadgets to tap into crude oil pipelines, to pay for armed gangs to protect both the crude oil thieves and the illegal refiners, and to buy barges for transfer of crude oil into larger ocean faring tankers,etc.

B/  The environmental pollution associated not only with crude oil spills during theft, but with the illegal refining itself, invariably done in open pits and crudely designed drums and ovens that leave waste black liquids all over the place and inevitable fire-haardous gas as by-products.

C/   the extra-curricular activities of some of the armed protectors of bunkering and illegal refinery as kidnappers and highway robbers, etc.

See:

https://www.vanguardngr.com/2021/09/military-deactivates-33-illegal-refineries/amp/

https://www.vanguardngr.com/2021/06/why-illegal-refineries-persist-in-niger-delta-region-sylva/amp/

https://www.google.com/amp/s/www.bbc.com/news/world-africa-18973637.amp

Q2: "Second, why have we not adopted micro refineries for local consumption in Nigeria? "

100 bbls per day, 500, 1000, even up to 6000-12,000 bbls per day crude oil refining etc are considered small scale or micro- to mini-refineries.  The economics for profit has to be right when you consider the purchase (not theft) of crude, the stringency of production standards on equipment, environmental and workplace health and safety, and the pay of qualified personnel.

However, in 2021, there was talk of mainstreaming these illegal refineries.

See

https://www.vanguardngr.com/2021/03/pib-fg-holds-summit-on-artisanal-modular-refineries-operations/amp/

https://www.vanguardngr.com/2021/03/why-we-are-promoting-modular-refineries-new-vision-for-niger-delta-osinbajo/amp/

https://www.vanguardngr.com/2021/03/fg-promoting-modular-refineries-new-vision-for-niger-delta-osinbajo/amp/

"We have also invited the Federal University of Petroleum Resources, they are developing modular refinery which is producing petrol, diesel, kerosene and all others with the Ahmadu Bello University, they will also be here to show us the process of refining which will increase our capacity”, he added.

He maintained that with these available potentials in Nigeria put together, the purpose of regenerating the local refining capacity in Nigeria will be achieved"

Q3: "The third, is the product of illegal refineries comparable to that of the micro refineries from elsewhere, say China?"

Apparently it is, otherwise they wont be in the business for this long.

See:

https://www.google.com/amp/s/www.africanews.com/amp/2020/07/09/nigeria-fuel-from-illegal-refineries/

"A new laboratory findings has revealed that samples from illegal refineries in Nigeria’s Niger Delta is of a higher quality compared to imported petrol."

Q4: "The last is an essay question; what is the relationship between the devaluation of the Nigerian currency and the petroleum products subsidy sum (PPSS)?"

Very simple.  The PPSS is one of Nigerian governments many Naira obligations, including capital, personnel and other overhead costs.  But sale of crude oil remains our overwhelming revenue earner.  Despite decades of attempting to diversify our revenue base, our budget revenue is still largely based on the simple arihmetic:

National Revenue in Naira= annual Amount of crude oil produced in bbls x Cost  per barrel of ol in Dollars x exchange rate dollars to Naira

NRN =;AACO × CPBO x ERDN

We have limited control on AACO and CPBO because of crude oil theft, oil lock-ins due to community restiveness, reduced international demand for fossil fuel, and actual a more Democratic access to oil (ue many more counties have discovered cude oil on and off their shores).  So to maintain or even increase NRN due to domestic demands, ERDN must increase,, both by CBN and on the Black Market I.e. there must be devaluation.  So increased subsidy and our oil monoculture lead straight to devaluation of our currency.

See

https://abiodunborisade.com/ekiti-state-governor-dr-john-kayode-fayemi-at-the-nirec-consultative-forum-with-plateau-state-stakeholders-at-jos/

On the Matter of CBN, Exchange Rates and Subsidies (Prof. Bolaji Aluko, September 21, 2021)

And there you have it.

Bolaji Aluko

February 3, 2022

On Wed, Feb 2, 2022, 17:27 'Mr. E. B. Jaiyeoba' via USA Africa Dialogue Series <usaafric...@googlegroups.com> wrote:

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