Fuel subsidy : Who is subsidising who? (2)

PROTECTING these pipelines is a security issue. Nevertheless, the NNPC chose marine route alternatives to pipeline transportation at a cost of $5.37/bbl. NNPC hired PPP Fluid Mechanics and Ocean Marine Securities to provide the marine services. These two companies supplied 11.6% of the total requirements of the Port Harcourt/Warri refineries from 2010 to 2015.

Refinery capacity utilisation/efficiency was less than 10%. NNPC imported petroleum products rather than solve the pipeline security problems. In 2014, the Executive Secretary of the PPPRA stated; “For example, Port Harcourt refinery has a short distance of Bonny and Port Harcourt. We lose about 30 to 40% of crude that is transported through the pipeline. When the costs of the losses are calculated, it is even better for Nigeria to import than refine locally.” He said nothing about corruption and national losses from the importation of petroleum products.

Pipe protection is a security issue. We can solve it with an added pipeline transportation cost of $2.5/bbl. We get two men to protect one mile of pipeline for eight hours. We will need six men/mile/day. There are 875 miles of petroleum product pipelines and about 1,325 miles of crude oil pipeline in Nigeria. So, we need about 13,200 men for a 24-hr daily protection. We add 20% for support/auxiliary services, 10% for management/supervision and the rest for backup. Thus, 20,000 men made up of 6,000 soldiers from the Armed Forces and 14,000 citizens from communities along the pipeline routes can protect our pipelines.

At a monthly salary of N100,000/month, we will spend N24 billion a year. An additional 50% will cover equipment, offices, overhead, etc. thereby raising annual cost to N36 billion. An added pipeline transportation cost of $2.5/bbl yields $0.614 million/day or N44.18 billion/year. Pipeline transportation cost will increase from $1.5/bbl to $4/bbl. The cost of PMS in Nigeria will therefore be ($3.5+$4.0+$13.8+$4.0+$12.8) or $38.1 per barrel. This is N46.1/litre. There will still be no subsidy.

We need to stop the corruption and looting of public funds in the downstream sector. In 2012, N996.8 billion was paid as subsidy to NNPC and 49 marketers for importing 17,451.45 million litres or 47.68 million litres of PMS per day. But, daily national PMS consumption was 38.4 million litres. The remaining 9.28 million/day litres of PMS was never delivered. We need better meter measurement/monitoring.

More Coriolis meters can be installed on the inlet/outlet of every nodal point (process control, storage, truck loading, transfer to tanks, jetty, depots etc) in the downstream system. These meters will provide direct accurate real time measurement of petroleum products flows. They can detect pipe blockage and leaks as well as send data wirelessly to a centralized control station using SCADA (supervisory control and data acquisition system). We will then know how much petroleum products we produce, import and consume per day in Nigeria.

In 2014, N1.69 trillion was spent as subsidy at 47.67 million litres/day. The FGN paid N500 billion as subsidy from January to May 2015. The marketers demanded N200 billion more and went on a PMS hoarding strike. In November 2015, the FGN approved N413 billion as subsidy for June-September. The marketers went on a PMS hoarding strike to support their demand for N470 billion. The FGN is asking for an additional N108 billion for the 4th quarter of 2015. Even with low prices and a PPPRA N10/litre corruption subsidy, we will spend N1.021 trillion on ‘fuel subsidy’ in 2015. The impact of this corruption subsidy is destroying the Nigerian economy and imposing unbearable burdens on the Nigerian masses. We can now answer President Buhari’s question. The FGN is subsidizing a corrupt fuel cabal with public funds.

The proponent of fuel price increase or ‘fuel subsidy’ removal want to transfer the cost of this corruption subsidy from the FGN to the Nigerian masses. They have not published the findings of any rigorous study of the impact of fuel price increase on the Nigerian masses and the economy. There are few multi-sectorial general equilibrium models of the Nigerian economy with dynamic input-output framework. We have a weak database.

We have poor multi-sectorial disaggregation of the petroleum sector, the agricultural sector and the informal unwaged sector where the majority of Nigerians carry out their daily activities. Our input-output tables and social account matrices are outdated. The impact of fuel price change on other sectors is mere academic/policy guesswork. Nevertheless, we can use our common sense to predict the likely impact of an increase in fuel prices.

President Buhari explained. “When people ask you to remove subsidy ask them to define it. Who is subsidizing who? Let me make it clear. These people are gleefully saying ‘remove subsidy’…They want petrol to cost N500 per litre. If you are working and subsidy is removed, you can’t control transport, you can’t control market women, the cost of food, the cost of transport. …If you are earning N20,000 per day and you are living in Lagos or Ibadan, the cost of transport to work and back, the cost of food.

You cannot control the market women they have to pay what transporters charge them. But I’m thinking more than half the population of Nigeria virtually cannot afford to live…Where will they get the money to go work? How can they feed their families? How can they pay rent.” The consequences of such policy decision are the differences between life and death.

I was in Nigeria in August 2015. The poor masses on the street corners were angry and tense. The general opinion was that if the fuel cabal forces President Buhari to capitulate and raise fuel prices, then the resistance will be fierce and protracted. The 2012 subsidy struggles will be a child’s play. If corruption pushes the Nigerian masses to the wall, the Nigerian masses will push back. The message from the streets is very clear. A wise man does not start a Savannah fire without knowing which way the wind is blowing. The FEC should listen.
• Concluded
• Dr. Izielen is an oil expert based in Texas, USA.