Tag Archives: nigerian oil subsidy removal

Occupy Nigeria 2 – A weak compromise?


The protests have all but stopped in Lagos. And reports of  protests dying down in the rest of the country have divided the public. Some are happy to return to normality, but many in the country are bitterly unhappy with the compromise the  labour unions have made with the government.

The removal of the oil subsidy, on January 1, made oil prices more than double at the petrol stations from 0.40$ to 0.90$ per litre. A side-effect of this was a hike in the cost of food and public transport.  On Monday, Jonathan partially reversed the removal, cutting the prices from 0.90$ to o.60$ per litre. And in return, the key labour unions  -the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) – called for an end to the strike.

Unfortunately, the inflated prices of food and transport have not fallen in line with the petrol concession. The consequence for most of the country, already living on the breadline, will be a deeper fall into poverty.

For many who sought a return to the original pre-2012 price of 0.40$ per litre, the cut is not deep enough. NLC President Abdulwahed Omar, and  TUC President Peter Esele, have been accused of receiving bribes from the government, although there has been no evidence to back up these claims.

Earlier in the week, reports from protesters seemed to paint a picture of a growing campaign – both in strength and numbers. Tosin Agbetusin, 33, an account manager, was protesting at one of the main sites in Lagos. Describing the turnout he said: “as the days went by, the numbers of protesters increased. By Friday we had thousands out on the streets. People from all walks of life were out here.”

The government is yet to provide clear, detailed and public plans for how they intend to use the saved subsidy revenue to improve desperately lacking infrastructure in the country. Tosin would rather  have the subsidy: “we don’t want any promises about what they will use the money for. Nobody believes it anyway. Just give us our subsidy back.”

The government has argued that some of Nigeria’s neighbours, like Cameroon, have previously benefited from the low-cost petrol by smuggling the oil across the borders and selling it on for profit. Debo Ogunwo, 28, a petroleum geophysicist, says that this is a security issue. “Why must the public suffer because of that? The government are failing to protect life and property, even across the border. Why can’t they make the borders more secure?”

As the country tries to get back on its feet after a week-long standstill, people are still asking questions like these. People are asking why the government spends so much on government officials’ salaries and expenses. Many are wondering why the refineries are not being brought up to standard;  and some would like to ask why the subsidy removal was not implemented gradually, over a defined period of time. Why the rush?

One thing’s for sure – the protest made some impact. It may have not been the victory that some were hoping for, but it did send a clear message to the rulers and the elite.  With the dubbed ‘year of the protester’ just behind us, a growing population savvy with social media, and possessing an increasing political consciousness, the message seems to be that there are certain lines not to be crossed.

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Nigerian Oil Subsidy Removal


The federal government has once again teamed up with an enemy of the Nigerian state – the IMF – by calling for one of the most controversial bills of the last decade.

Our bright sparks in office are planning to remove the oil subsidy that keeps the oil (that we produce) at a reasonable price when we buy it back – refined and ready for use. Why do we need to buy our own oil? Because we have 4 oil refineries that barely work, due to a lack of maintenance and sabotage by militant groups. These problems could have been overcome by an injection of revenue from the government. But buying back the oil from abroad has worked out in favour of profit-skimming officials.

Oil refinery in Port Harcourt - works at just 60% capacity

This policy change has upset a lot of people. For many it feels like another blow to the head in an unfair boxing match of The Elite v The proletariat (normal folk). But if this must go ahead then there could be some benefits to saving money from the subsidy.

How much money is to be saved? Approx 1.5 trillion naira per annum (9.4 billion dollars).

The money saved from the deregulation of oil could be used to implement and actually SEE-THROUGH effective structural programmes to help improve poverty across the country. This is fair, as the very poor can’t afford to enjoy the benefits of petrol, even at the subsidised prices. If the government have good intentions with this deregulation, it could change countless lives in a country where 60% live below the poverty line.

The extra money could also be used to build new, efficient, refineries which the country is seriously in need of. The four refineries that exist today are creaking along and working at less than full capacity. The money saved on the charges accrued from shipping the oil to foreign refineries, paying for the production and then buying back the refined oil from oil giants would save the economy a vast amount of money.

Development organisation, SUPA Nigeria, calculated the component costs involved in getting the crude oil into Nigerian petrol stations using NATIONAL refineries. These costs included exploration, development, operation,refining, distribution and marketing costs. See the full report here but I’ll simplify it for this blog. Let’s do some maths:

Here were the results (NB the exploration, development and operations costs have been combined in the first figure of ‘0.04’).

TOTAL COST

 The total cost can then be determined as the summation of all relevant cost components previously estimated viz., Exploration, Development, Production Operations, Refining, Distribution and Marketing.

Total Cost = (0.04 + 0.11 + 0.02 + 0.04) USD/Litre.

= 0.21USD/Litre

Therefore, we can conclude that the Average cost of the Petrol dispensed at retail Fuel Stations in Nigeria is, 0.21USD/Litre.

 Given that the cost of petrol at the station for Nigerians is 0.41USD/Litre, you can understand why some question the existence of an oil subsidy at all, but the government would argue that the extra cost comes from the exported oil rather the home-refined.

The point is that refining all of the oil within the country makes economic sense. This could spillover into social benefits too, like job creation. If money meant for projects like new refineries were being appropriately allocated, and if corruption wasn’t as rife, then this could all be done without removing the subsidy. But, if they must, then clear, transparent plans on using this extra money on long-term investments like refineries should be provided for the public.

What is most likely to happen though? Petrol prices rocket and no major changes are seen in terms of improved education, healthcare or infrastructure. People will find themselves with less money to spend on other necessities and as for the IMF – well they can sit easy knowing that some parts of the developing world are still well and truly under their thumb.

Also read:- Which came first – the corrupt citizen or the corrupt government?

WikiLeaks: Chinese oil companies not welcome in Nigeria

WikiLeaks: Nigerian Oil: Bribes and piracy part 1

WikiLeaks: Nigerian Oil: Bribes and piracy part 2

‘You will be fine as long as you have money in Nigeria!’