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BUHARI'S REMEDY TO THE FUEL SUBSIDY QUAGMIRE

Source: thewillnigeria.com

By the time this piece is published, Nigeria should already be basking in the invigorating glow and promise of a new Administration under President Muhammadu Buhari. When coupled with the recent election of Nigeria's former Agriculture Minister, Dr. Adewunmi Adesina, as the President of the African Development Bank, one can only conclude that this potentially exceptional African nation is finally on its way to attaining its global leadership destiny.

However, before the global power status is achieved, the political will to implement several structural reforms needs to be swiftly marshalled and common sense action plans ought to be promptly executed to achieve the set objectives. The time for “long grammar” or “dogo turenchi” is far gone.

In my most recent article titled I DARE BUHARI TO KEEP HIS NAIRA/DOLLAR PARITY PROMISE, I highlighted how the redenomination of the Naira would not only enable the President keep his campaign promise but also be a key mechanism for reverting Nigeria's monetary policy stance and macroeconomy to some type of equilibrium.

Today, I shall focus on a series of pragmatic steps which should eliminate the 'fuel subsidy' racket dead in its tracks. Before I continue, let me declare that I consider myself a layman in petroleum matters and make my contributions based on a combination of common sense and native Nigerian intelligence.

Now, let us begin at the very beginning. The issue of so-called 'subsidy' arises because Nigeria (Africa's biggest, and the world's seventh largest, exporter of crude oil) has chosen to import refined petroleum products such as petrol, diesel, kerosene, etc, thereby exporting Nigerian jobs and revenues to foreign countries.

To deepen the puzzle, one of the numerous gifts that providence has endowed Nigeria with is the premium quality of our hydrocarbon, which is qualified as “light, sweet” crude, meaning it contains low sulphur content. In layman's language, that means each barrel of Nigerian crude oil produces a higher yield of refined petroleum products than alternative crude oil streams that originate from other countries. That means that Nigeria ought to not only be meeting its domestic consumption needs but also generating revenues from the export of value-added, refined products to other countries and end users.

The question is, why has a nation with a total domestic refining capacity of 445,000 barrels per day decided not to process its crude oil locally? The answer obviously lies in a complicated web of high intrigues and economic sabotage that is bleeding the national treasury of between an estimated =N= 1.5 trillion and =N= 2 trillion annually.

Depending on which source you quote [Federal Ministry of Petroleum, Federal Ministry of Finance, Petroleum Pricing Products Regulatory Agency (PPPRA), Nigeria National Petroleum Corporation (NNPC) or Central Bank of Nigeria (CBN)] the so-called “fuel subsidy” monster consumed anywhere between =N= 1.7 trillion and =N= 2.7 trillion in fiscal 2011 alone!!!

Nigeria is unable to process its petroleum products locally because a “cabal” seems to have ensured that all four domestic refineries are either permanently grounded or barely functional. The comatose state of  our refineries as well as the apparently inflated figure of daily consumption of 40 million litres of petrol, have been effectively used to create the rationale for the massive importation scam to continue.

WHO TRULY BELIEVES THAT NIGERIANS CONSUME 40 MILLION LITRES OF PETROL DAILY?

The issue of 'fuel subsidy', which is actually a metaphor for fraud, arises because petroleum products are being imported rather than refined in Nigeria.

It is the importation of petroleum products that has provided the pretext for oil marketers to claim the bogus, so-called “exchange rate” differentials, their most recent invoice amounting to =N= 200 billion.

It is petroleum products importation that has given the cabal an excuse to “round-trip” cargoes. This is the practice whereby the same shipment is used to claim multiple payments, obviously in collusion with corrupt insiders within the government.

It is petroleum products importation that has provided the criminal syndicate a basis to claim overstated demurrage. This is the method whereby excess freight charges are fraudulently paid based on the deliberate manipulation of terminal discharge documentation, that creates the erroneous impression of undue delay of particular vessels.

It is petroleum products importation that has enabled the crooked industry operators to engage in outright deception whereby entire sets of documents are forged to siphon payments for non-existent transactions.

If Nigeria's refineries were operating at either full or high capacity, they would not only likely meet the entire domestic demand for petrol, diesel, kerosene, etc but the products would also be available at relatively affordable prices.

For instance, credible petroleum economists have suggested that domestically refined petrol could be sold for not more than =N= 50 per litre, even using current cost parameters such as refining, labour, freight plus profit margin.

Even if the current domestic refining capacity is not adequate to meet the prevailing consumption of Nigerians, all that needs to be done is to negotiate a transparent, short-term crude oil-for-refined products swap with a refinery. For a consideration of a refining fee plus freight, Nigeria would be supplied the entire spectrum of refined petroleum products that ought to have been produced locally, just at a slightly higher price.

A medium-term option would be to buy a serviceable refinery in Europe. For instance, a few years ago, India's Essar Energy bought outright the 267,000-barrel per day capacity Stanlow refinery located in northwest England from Royal Dutch Shell for US$ 350  million. Since there are so many such offers in the market at reasonable prices, it would make more economic sense than the estimated US$ 800 million payment to the criminal oil marketers that Nigeria recently flushed down the drain.

Part of the cabal's justification for the dysfunctional state of Nigeria's refineries is that they are old and, therefore, susceptible to frequent malfunction. This sounds very strange considering that billions of dollars have been reportedly spent on the pretext of carrying out turn-around-maintenance on them.

Besides, what magic has kept the Bradford Refinery, established in Pennsylvania, United States of America in 1881, operating till today. Also, the Digboi Refinery, commissioned in Assam, India in 1901 is still functional. Meanwhile, all Nigeria's four refineries were commissioned between 1965 and 1983.  SO, WHAT IS THE EXCUSE FOR THIS KIND OF ECONOMIC SABOTAGE?

Probably the same reason why pipeline vandalisation is considered as normal and an estimated 400,000 of premium Nigerian crude oil is being stolen daily. Nigeria may belong to the dubious company of very few nations where crude oil theft occurs. However, Nigeria is most likely the only nation where criminality dictates the direction of state policy.

It was indeed the height of absurdity to hear the now disgraced and discredited former Finance Minister Dr. Ngozi Okonjo-Iweala recently rationalising federal budget estimates based on a provision the Federal Budget Office had made to accommodate the ongoing industrial-scale crude oil theft. Rather than hunt the armed robbers down and bring them to justice, the Goodluck Jonathan Administration unfortunately made a deliberate decision to accommodate them.

Furthermore, some so-called “experts” have argued that the government does not have any business running businesses, much less petroleum corporations. Therefore, they have advised that the Nigeria National Petroleum Corporation (NNPC) should either be disbanded or privatised.

These so-called pundits may be right only if they can explain to Nigerians which private investors own and manage the following very profitable petroleum companies, which are supposed to be NNPC's peers.

Saudi Aramco, the world's largest oil conglomerate, is 100 percent owned and managed by the Government of the Kingdom of Saudi Arabia. Saudi Aramco earned an estimated US$ 378 billion in revenue in the financial year 2014 while the nation, Saudi Arabia, has estimated foreign exchange reserves of over US$ 750 billion. Source: <www.Forbes.com> January 2015.

Statoil is 67 percent owned by the Government of Norway and managed by the Norweigian Ministry of Petroleum and Energy. Statoil's net operating income for the full year 2014 was US$ 14.56 billion. Source: <www.SubseaWorldNews.com>. Due to cumulative transfers from the profits generated by Statoil over the years, Norway has the distinction of having the world's richest Sovereign Wealth Fund with an estimated value of US$ 900 billion. This figure is almost double the size of the nation's Gross Domestic Product (GDP) of about US$ 512.6 billion. Source: The World Bank.

Petroliam Nasional Berhad (Petronas) is 100 percent owned  and managed by the Government of Malaysia. Incidentally, Nigeria's most renowned petroleum expert, Dr. Emmanuel Egbogah, as Technology Custodian and Technical Adviser to Petronas for several years, greatly contributed to the corporation's evolution into a world-class giant with total assets of US$ 161.47 billion (2014), revenue of US$ 100.74 billion (2014), total equity of US$ 89.29 billion (2012) and net income of US$ 21.91 billion (2012). Source: Petronas' Wikipedia profile.

If Saudi Aramco, Statoil and Petronas can succeed, NNPC can also excel provided it is restructured under the able hands of technocrats like Dr. Emmanuel Egbogah. Even if he does not appoint Dr. Egbogah as Petroleum Resources Minister, President Buhari should insist on being briefed by the eminent petroleum engineer before the Administration makes any declaration or policy statement on the much anticipated reforms in that most critical sector.

Dr. Egbogah, has reportedly advised many leading national oil companies and governments globally and recently served as Nigeria's Presidential Adviser on Petroleum Matters. In that capacity Dr. Egbogah is said to have virtually written (in collaboration with his good friend and fellow genius, the late Dr. Rilwanu Lukman) most sections of the Petroluem Industry Bill that is currently stalled in the National Assembly. Like many others, I have read Dr. Egbogah's very impressive curriculum vitae online at <www.dregbogah.com>.

Like millions of Nigerians, I pray God grants President Buhari His grace and wisdom to enable him steer this nation to global superpower status. He needs our prayers, patience and understanding.

Written by Dr. Kolawole Kayode
[email protected]


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