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.
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’).
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.
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.