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Fuel price will be 120 Naira per litre in 2012 – Minister of Finance, Okonjo-Iweala

Minister of Finance, Dr. Ngozi Okonjo-Iweala, said the removal of fuel subsidy will be enforced in 2012 in order to maintain the Nigerian economy and rebuild infrastructure.
President Goodluck Jonathan met with select leaders of four Political parties at the Presidential Villa, Abuja for a briefing on the effect of the removal of fuel subsidy on the price of petrol in Nigeria.
The briefing was read from a document titled “Subsidy must go, in the interest of the nation’s future and the masses.”
Dr. Okonjo-Iweala stated, “”Between 2006 and 2011, the nation spent 3,655.17 trillion Naira to subsidize fuel. The cash is 30 percent of the total expenditure, 118% of the capital expenditure and 4.18% of the GDP. Subsidy does not get to the poor; the middle and upper classes are the real beneficiaries, it is clearly unsustainable. Subsidy in 2011 alone so far is over 1.3trillion Naira, which is higher than our capital budget. Evidence shows that the price of fuel in Nigeria is below both the African and international average. Nigeria, with its large population and small oil base, is comparatively poor, compared to other oil producers. Compared to other oil producing countries, Nigeria has a significantly lower GDP per capita; substantially less oil revenue per capita. With total crude oil production of approximately 2.5 million barrels per day, Nigeria has a significantly lower GDP per capita. Nigeria’s GDP per capita is around $1200 per year, with over 167 million in population. Therefore, we must rethink our approach to managing our scarce resources to provide services to Nigerians. We will be better off using the amount spent on subsidy to target poorer groups and big infrastructure projects.”
“Under the current downstream sector structure, prices are not determined by demand and supply. Pump price of PMS is fixed at 65 Naira per litre by the government. The landing cost of a litre of PMS is about 123 Naira per litre, based on an average crude oil price of US$113.98pb. To this, add the cost of distributing, bridging and profit margins of 15.72 Naira per litre. This results in effective cost of 139 Naira/litre. In 2012, the landing cost of a litre of PMS is estimated at 104 Naira/litre, based on a crude oil price of US$90pb. To this add the cost of distributing, bridging and profit margins of 15.72 Naira/litre. This results in effective cost of 120 Naira per litre. Fuel subsidy is what is paid by government to keep prices below free market. The subsidy causes distortions that result in huge economic costs such as rent-seeking behaviour and smuggling. The amount of subsidy equals to the difference between the consumer pump price of fuel versus the total cost of producing or importing. The price of petrol is 65 Naira per litre, but actual cost of supply is 139 Naira per litre. And projected at 120 Naira per litre in 2012. This means that currently for every one litre of petrol purchased at the official price of 65 Naira, government contributes 73 Naira. Presently, only petrol and kerosene enjoy government subsidy. Diesel has already successfully been deregulated.”
“Subsidy is a major fiscal and financial burden on the nation. From 2006 -2011, about 3.7trillion Naira was spent on subsidy. In 2011, 1.348trillion Naira was spent between January and October and it is expected to reach 1.436trillion Naira by the end of the year. This represents 30 per cent of total Federal Government Expenditure; 118% of the capital budget; and 4.18% of GDP.
The breakdown of fuel subsidy in the past five years is as follows:
The large increase observed in 2011 is as a result of (i) increased crude oil price from US $81.25 per barrel(pb) to $US 113.98pb; (b) exchange rate movements; (c) larger volumes consume(about 35m litres per day); and (iv) 150billion Naira of kerosene carried over from 2009 and 2010.”
“Deregulation implies limited intervention by government; it allows for better regulation and transparency; allows for free operation activities in the sector; attracts new investors into the market and it increases competition and promotes overall higher productivity; reduces scarcity by ensuring adequate supply of petroleum products; and similar success story to the telecommunication sector.”
“The following is a list of social safety nets in the pipeline for Nigerians, if the subsidy is removed.
•Launching of Subsidy Reinvestment and Empowerment Programme (SURE);
•Maternal and child health services;
•Public works/youth employment programme;
•Urban mass transit scheme
•Vocational training schemes; and
•High-profile infrastructure projects: Roads and rail; water resources, power; refineries (with private sector).
Structures have been developed to guarantee adequate oversight, accountability and implementation of the various projects. To ensure effectiveness, efficiency and delivery, high powered committee of eminent Nigerians to monitor revenue proceeds and proper implementation and use of the amount saved. Members with proven integrity will be drawn from the Nigerian youth, women groups and civil society organisations.”” What are you thinking?

3 Responses to “Fuel price will be 120 Naira per litre in 2012 – Minister of Finance, Okonjo-Iweala”

  1. REALITY OF NIGERIA’S OIL SUBSIDY CLAIM
    ENERGY WATCH
    FINANCE AND INVESTMENT WATCH DEC 5 -11 PG 12 (VOL NO 11)
    Background
    T
    he price of petroleum products in Nigeria has been a source of contention and controversy. If our refineries were to be producing at 100 per cent capacity, the prices of their products would not have been an issue at all. Current emphasis should be on how to turnaround the refineries for optimum production. To ascertain the total cost of producing petroleum products locally, we need to add the total costs of all components involved in the supply of premium motor spirit (PMS) which is the most widely demanded and utilized petroleum product. The cost component involved are cost of exploration, developing, producing, refining, distributing and marketing. The amount of subsidy on the retail price is then determined by the difference between the actual cost and the retail price.

    The Petrol Process To purchase petrol in Nigeria, all one needs do is to drive to a fuel station. Fuel attendant pumps the requested quantity and payment is made in cash, electronically (through value card or top card).
    Fuel stations typically receive their supply from fuel tankers which have been loaded at a Nigerian National Petroleum Corporation (NNPC) or other fuel depots. The depots acquisition costs vary based on contractor, coverage, terrain, time, season, water depth, methods, commercial terms and special considerations. Typical costs range from 20 – 70,000 USD/KM2. Interpretation costs range typically from 2-8,000 USD/KM2. We will use 50,000 USD/KM2 as estimated cost of 3D seismic acquisition and interpretation. For a 10 KM2 field with 20 million barrels recovery; exploration costs can be estimated to be about: 0.025 USD/Bbl. This is equals to 0.02 N/litre.

    Development Costs
    Opportunity development costs depend on field location, size, development philosophy and concept. Development cost includes the capital costs of field facilities design, procurement, transportation, installation and commissioning. Cost of wells and pipelines to existing terminals are also included. It will typically vary from 2-5 USD/Bbl. The historical data for completed projects offshore are closer to 3 USD/Bbl. Onshore development costs are also significantly lower than offshore costs. This is equivalent to, 3.27 N/litre.

    Operation Costs (Opex)
    Therefore, actual crude oil production cost to the Nigerian JV can then be estimated as:
    (0.025 + 4.0 + 3.0) USD/Bbl = 7.025 USD/Bbl. (0.02 + 3.27 + 2.45) N/litre = 5.74 N/litre.
    Previous government (NNPQ estimates (1994 – ’98} yielded 5 USD/Bbl. The difference in theseestimates can be attributed to rising oil industry service costs due to international market dynamics, inflation and/or to estimate of basic differences.
    For typical refinery yield of 95 percent 5.74 N/litres translate to- 6.04 N/litre. This compensates for volume losses inherent in the crude oil refining process.
    Refining Costs
    Installed refining capacity in Nigeria stands at 445,000 barrels perday(BPD).
    This is made up of:
    1. Old Port Harcourt Refinery
    - 60,000 BPD
    2. New Port Harcourt
    Refinery-150,000 BPD
    3. Warri Refinery – 125,000
    BPD (upgraded from 100)
    4. Kaduna Refinery -110,000
    BPD (two trains, 60+50)
    Refining cost data from these refineries could not be obtained during the survey. Even when such data is available, they are very unreliable. Former President of Nigeria, Chief Olusegun Obasanjo, one said: “We have never got correct statistics from the NNPC. They will never be able to tell you the correct thing. We have that problem with the NNPC.”

    To estimate refining costs, we can rely on international industry data from similar refineries. Contemporary refining technology is of the Fluid Catalytic Cracking (FCC) process like most Nigerian refineries. This process requires fluidizing the solid catalyst and re-circulating it continuously from the reaction section of the cracker to the catalyst regeneration section and back to the reaction section.

    Actual refining costs may be lower in Nigeria since labour costs are significantly lower in Nigeria. $0.50 per gallon translates to $21/Bbl. We will capture refining costs as $21/Bbl. Thisisl7.17N/Iitre.

    Distribution Costs
    This is the cost margin allowed for road tankers that transport petrol from the depots to the fuel stations. It was put at 2.42 N/litre.

    Marketing Costs
    This is the cost margin allowed for oil marketing companies that operate retail fuel stations. It was 5.87 N/litre.

    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 = (6.04 + 17.17 + 2.42 + 5.87} N/litre.
    = 31.50 N/litre
    Therefore, we can conclude that the average cost of the petrol dispensed at retail fuel stations in Nigeria is, 31.50 N/litre.

    Current Retail Price
    The current retail price as established by regulation has been N65/liter since 2005. This regulated price is split to cost components in fine with benchmarks such as depot price, transportation margin, dealer’s margin and marketing company’s margin.
    Subsidy can be determined as Actual Cost – Sale Price. Consequently, subsidy = (31.50 – 65) N/litre. =-33.50N/litre.

    Conclusion
    We can confidently conclude that government makes a profit of 33.50 N/litre on petrol at the current price of N65.00/litre. This translates to a very high 106 per cent profit per litre.
    In addition, government benefits from royalties, taxes and fees which were not factored in this simplified analysis. When factored in, the actual cost of crude per barrel to government is significantly less and its profit correspondingly higher. The claim of subsidies on petroleum product is clearly incorrect if we can turn around our refineries for optimum production.

  2. Askia Sam says:

    she is am idiot and she never know what she is putting herself to, cause i see that next year will be the end of the name Nigeria cause we the Niger Delta and upset with jonathan goodluck but i call him jonathan badluck and ma going to call on the OPEC that Jonathan is looking for a way to end this country cause they alwaays increase fuel but they don`t build industries and no job for the people here, I see that jonathan Badluck is a big failure and you have to know that thos that is increasing this price will never one day buy is they are just there after the fuel price, when we all know that Nigeria make 42 billion naira daily in oil and what are the money going to and what are they using the money to do that 42 billion naira that oil is giving to us

  3. Nigeria is simply a failed state. Why must we the citizens of this nation buy a litre of petrol for 120 naira. How much does a litre cost in other oil producing states? Even Libya where its former leader was ousted for being autocratic never sold any of the nation’s petrolume products for more than 30 U.S cents. Already the citizens are poor, with such an action next year what will be our fate? Definitly its going to worsen and aggravate the standard of living of the masses. I wish to state here that such a policy will be resisted by a call for mob action. There are essential areas the federal government of Nigeria can improve the standard of living of its populace. Agriculture is just one area that can bring a turn around in the economy not by hoodwinking and clarmouring the removal of oil subsidy.

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