UNDERSTANDING THE RETURN OF FUEL QUEUES

UNDERSTANDING THE RETURN OF FUEL QUEUES
                               By:
                  Nurudeen Dauda
                  April 21, 2019
nurudeendauda24@gmail.com
nurudeendauda24@yahoo.com
nurudeendauda.blogspot.com

To begin with, many Nigerians who thought subsidy was removed in 2016 were shocked to have heard that Mrs Christine Lagarde, the MD of International Monitory Fund, IMF, advised Nigeria to remove fuel subsidy. 

Contrary to the understanding of most Nigerians, what happened in 2016 was not fuel "subsidy" removal, but Pump price increament . The country still pays subsidy with a new name called Under-recovery. Subsidy or Under- recovery is the difference between the actual cost price of fuel and the government fixed price.

As at the time the price of fuel was increased the price of crude oil at the International market was about $30 a barrel. The landing cost of the products at that time was below N130 a litre. The government put a price ceiling of N145 a litre. Initially the government was not paying anything as subsidy because the landing cost was lower than the fixed price, the government was even making some savings. 

However, with the present price of crude oil at $68 a barrel in the International market the landing cost is said to be about N180 per litre.This means that the government is now paying about N35 per litre as subsidy or Under -recovery.

The issue of Subsidy arose from the failure of local refining. No doubt, there is decades of governmental failure in Nigeria.There was the allegation of decades of diversion of budgetary provisions for the Turn Around Maintenance,TAM, of our refineries which led to their collapsed . As far as I know, Nigeria is the only oil producing country that imports refined products.

The truth of the matter is that, subsidy is still being paid as Under recovery.The major difference between the subsidy payments of the previous administrations and the present government's method is that, subsidy claims are paid to license oil importers before . Under that arrangement, there were a lot of allegation of over "invoicing" or "paying" for what was not even imported at all. 

However, under the present system , the NNPC is the only importer who in return pays the difference between the fixed pump price and the landing cost. Although the government  has denied any plan to increase the pump price or remove subsidy, in my view , the government is still procrastinating on what to do on the issue.

The only permanent solution to fuel scarcity in Nigeria is local refining. Let's resuscitate our existing refineries and concession them. It is my personal belief that, even if we"resuscitate "the government own refineries and run it as a public corporation it will hardly be "sustainable"due to our self- centeredness as well as unpatriotic nature. So, the best alternative is to concession them after resuscitation. 

Furthermore, local refining through private refineries could also do the magic , but the major issue that limits the"emergence"of private refineries is price regulation. Total deregulation of the downstream sector, will lead to the emergence of many private refineries.In the short run there will be shocks on the poor masses, but in the long run it will stabilize.

May God bless Nigeria!

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