UNDERSTANDING THE THREE OPTIONS TO ENDING FUEL SCARCITY IN NIGERIA

UNDERSTANDING THE THREE OPTIONS TO ENDING FUEL SCARCITY IN NIGERIA

                       By:
Nurudeen Dauda
          January 7, 2018
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The Special Presidential Committee constituted by the federal government to look into the issue of  "Fuel scarcity" has come up with"three options"to ending the perennial crisis. The committee states that to maintain the existing official pump  price of N145 is to either: (1) Give Special Forex to oil marketers or (2) Give tax concessions to oil marketers and or (3) to deregute the downstream sector.

ON SPECIAL FOREX: 
Oil marketers stated that the only way to maintain the official pump price of N145 per litre is to get dollars at N240. Presently the official exchange rate is N305 to $1. More so,  in the parallel market or Bureau de Change the price  hovers between N360 to N362.About 40% of our forex is  currently being used for refined products importation.

In my observation, the problem with this option is that it might  encourage "round tripping" a situation whereby oil marketers knowing full well that dollars is being sold at above N360 at the parallel market rather than importing the fuel they might prefer selling it to the Bureau de Change deallers in order to make cool money with doing nothing. In addition, if the government accepts this option it means that a lot of revenue will be lost thereby reducing monthly allocations to federal, states and local governments. This will reduce their capacity in terms of meeting their monthly obligations of payment of salaries, pensions and capital projects.

ON TAX CONCESSION:
By tax concession it means that the government will reduce the amount of money being paid as tax by the  oil marketers in order to reduce their landing cost. This according to the marketers will enable them maintain the official pump price of N145. Taxes in the  Oil and Gas industry are usually being paid in dollars.

In my understanding, this is another "subsidy" in disguise. Subsidy is not necessary bad but, economically wise, it should be strictly for production not consumption. Moreover,  this option will also  affect monthly allocations to federal, states, and local governments thereby reducing the ability of states and local governments in meeting their obligations of payment of salaries, pensions and capital projects.

ON DEREGULATION:
By this it means the government will allow the oil marketers to import their fuel and sell it at a price determines by the market forces of demand and supply. Under this option the NNPC will also  import and sell at N145 in its mega stations.

The implication of this option is that the government does not have the capacity to supply to all fuel users through its mega stations which are very few in number. However, by allowing oil marketers to import and sell at the market price, the fuel pump price will go up but will certainly be available for all.

Before "subsidy" removal in 2016 the price of crude oil at the international market was around $30 a barrel.The landing cost of the products at that time was said to be below N130 a litre. The government put a price ceiling of N145 a litre. With the present price of crude oil at $68 a barrel in the international market, the marketers argue that the landing cost is about N171 per litre.

The moment the prices of crude increases at the international market it will definitely effect the cost of refined products being brought into our country. 

In my opinion, the country could have a permanent solution to fuel scarcity through local refineries. We need either private refineries or "concessioning"of government owned refineries . It is my personal belief that, even if we"resuscitate "the government owned refineries it will hardly be "sustainable"due to our self- centeredness as well as unpatriotic nature. However, we could only have the "proliferations"of private refineries if we have total deregulation of the downstream sector . No private refinery will accept fixed pump price.

May God bless Nigeria!

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