Jonathan’s government exposed: the real cost of fuel in Nigeria

President Goodluck Jonathan reading the budget

On December 10, 2011, if you stopped at the Mobil filling station on Old Aba Road in Port Harcourt , you would be able to buy a litre of petrol for 65 naira or $1.66 per gallon at an exchange rate of $1/N157 and 4 litres per gallon. This is the official price. The government claims that this price would have been subsidized at N73/litre and that the true price of a litre of petrol in Port Harcourt is N138/litre or $3.52 per gallon.

They are therefore determined to remove their subsidy and sell the gallon at $3.52. But, On December 10, 2011, if you stopped at the Mobil Gas station on E83rd St and Flatlands Avenue in Brooklyn, New York, USA, you would be a able to buy a gallon of petrol for $3.52/gallon. Both gallons of petrol would have been refined from Nigerian crude oil. The only difference would be that the gallon in New York was refined in a US North East refinery from Nigerian crude exported from the Qua Iboe Crude Terminal in Nigeria while the Port Harcourt gallon was either refined in Port Harcourt or imported. The idea that a gallon of petrol from Nigerian crude oil cost the same in New York as in Port Harcourt runs against basic economic logic. Hence, Nigerians suspect that there is something irrational and fishy about such pricing. What they would like to know is the exact cost of 1 litre of petrol in Nigeria .

We will answer this question in the simplest economic terms despite the attempts of the Nigerian government to muddle up the issue. What is the true cost of a litre of petrol in Nigeria ? The Nigerian government has earmarked 445000 barrel per day throughput for meeting domestic refinery products demands. These volumes are not for export. They are public goods reserved for internal consumption. We will limit our analysis to this volume of crude oil. At the refinery gate in Port Harcourt, the cost of a barrel of Qua Iboe crude oil is made up of the finding /development cost ($3.5/bbl) and a production/storage /transportation cost of $1.50 per barrel.

Thus, at $5 per barrel, we can get Nigerian Qua Iboe crude to the refining gates at Port Harcourt and Warri. One barrel is 42 gallons or 168 litres. The price of 1 barrel of petrol at the Depot gate is the sum of the cost of crude oil, the refining cost and the pipeline transportation cost. Refining costs are at $12.6 per barrel and pipeline distribution cost are $1.50 per barrel. The Distribution Margins (Retailers, Transporters, Dealers, Bridging Funds, Administrative charges etc) are N15.49/litre or $16.58 per barrel. The true cost of 1 litre of petrol at the Mobil filling station in Port Harcourt or anywhere else in Nigeria is therefore ($5 +$12.6+$1.5+$16.6) or $35.7 per barrel . This is equal to N33.36 per litre compared to the official price of N65 per litre. Prof. Tam David West is right. There is no petrol subsidy in Nigeria . Rather the current official prices are too high. Let us continue with some basic energy economics.

The government claims we are currently operating our refineries at 38.2% efficiency. When we refine a barrel of crude oil, we get more than just petrol. If we refine 1 barrel (42 gallons) of crude oil, we will get 45 gallons of petroleum products. The 45 gallons of petroleum products consist of 4 gallons of LPG, 19.5 gallons of Gasoline, 10 gallons of Diesel, 4 gallons of Jet Fuel/Kerosene, 2.5 gallons of Fuel Oil and 5 gallons of Bottoms. Thus, at 38.2% of refining capacity, we have about 170000 bbls of throughput refined for about 13.26 million litres of petrol, 6.8 million litres of diesel and 2.72 million litres of kerosene/jet fuel.

This is not enough to meet internal national demand. So, we send the remaining of our non-export crude oil volume (275000 barrels per day) to be refined abroad and import the petroleum product back into the country. We will just pay for shipping and refining. The Nigerian government exchanges the 275000 barrels per day with commodity traders (90000 barrels per day to Duke Oil, 60000 barrels per day to Trafigura (Puma Energy), 60000 barrels per day to Societe Ivoirienne de Raffinage (SIR) in Abidjan, Ivory Coast and 65000 barrels per days to unknown sources) in a swap deal. The landing cost of a litre of petrol is N123.32 and the distribution margins are N15.49 according to the government. The cost of a litre is therefore (N123.32+N15.49) or N138.81 . This is equivalent to $3.54 per gallon or $148.54 per barrel. In technical terms, one barrel of Nigerian crude oil has a volume yield of 6.6% of AGO, 20.7% of Gasoline, 9.5% of Kerosene/Jet fuel, 30.6% of Diesel, 32.6% of Fuel oil / Bottoms when it is refined.

Using a netback calculation method, we can easily calculate the true cost of a litre of imported petrol from swapped oil. The gross product revenue of a refined barrel of crude oil is the sum of the volume of each refined product multiplied by its price. Domestic prices are $174.48/barrel for AGO, $69.55/barrel for Gasoline (PMS or petrol), $172.22/barrel for Diesel Oil, $53.5/barrel for Kerosene and $129.68/barrel for Fuel Oil. Let us substitute the government imported PMS price of $148.54 per barrel for the domestic price of petrol/gasoline. Our gross product revenue per swapped barrel would be (174.48*0.066 +148.54*0.207+172.22*0.306+ 53.5*0.095+129.68*0.326) or $142.32 per barrel. We have to remove the international cost of a barrel of Nigerian crude oil ($107 per barrel) from this to get the net cost of imported swapped petroleum products to Nigerian consumers. The net cost of swapped petroleum products would therefore be $142.32 -$107 or $35.32 per barrel of swapped crude oil. This comes out to be a net of $36.86 per barrel of petrol or N34.45 per litre.

This is the true cost of a litre of imported swapped petrol and not the landing cost of N138 per litre claimed by the government. The pro-subsidy Nigerian government pretends the price of swapped crude oil is $0 per barrel (N0 per litre) while the resulting petroleum products is $148.54 per barrel (N138 per litre). The government therefore argues that the “subsidy” is N138.81-N65 or N73.81 per litre. But, if landing cost of the petroleum products is at international price ($148.54 per barrel), then the take-off price of the swapped crude oil should be at international price ($107 per barrel). This is basic economic logic outside the ideological prisms of the World Bank. The traders/petroleum products importers and the Nigerian government are charging Nigerians for the crude oil while they are getting it free.

So let us conclude this basic economic exercise. If the true price of 38.2% of our petrol supply from our local refinery is N33.36/litre and the remaining 61.8% has a true price of N34.45 per litre, then the average true price is (0.382*33.36+0.618*34.45) or N34.03 per litre. The official price is N65 per litre and the true price with government figures is about N34 per litre (even with our moribund refineries).

There is therefore no petrol subsidy. Rather, there is a high sales tax of 91.2% at current prices of N65 per litre. The labor leaders meeting the President should go with their economists. They should send economists and political scientists as representatives to the Senate Committee investigating the petroleum subsidy issue. There are many expert economists and political scientists in ASUU who will gladly represent the view of the majority. The labor leaders should not let anyone get away with the economic fallacy that the swapped oil is free while its refined products must be sold at international prices in the Nigerian domestic market.

The government should explain at what price the swapped crude oil was sold and where the money accruing from these sales have been kept. We have done this simple economic analysis of the Nigerian petroleum products market to show that there is no petrol subsidy what so ever. In the end, this debate on petrol subsidy and the attempt of the government to transfer wealth from the Nigerian masses to a petrol cabal will be decided in the streets. Nigerian workers, farmers, students, market women, youths, unemployed, NGO and civil society as a whole should prepare for a long harmattan season of protracted struggle. They should not just embark on 3 days strike/protests after which the government reduces the hiked petroleum prices by a few Nairas. They must embark upon in a sustainable struggle that will lead to fundamental changes. Let us remove our entire political subsidy from the government and end this petroleum products subsidy debate once and for all. It is time to bring the Arab Spring south.

Izielen Agbon Izielen Agbon writes from Dallas, Texas. izielenagbon@yahoo.com
He is former HOD , Petroleum Engineering Dept, former ASUU chairman, University of Ibadan, trained many operators in nation’s energy industry with pratical experience on our practices and policy focus in the last 20yrs

Allegri praises Taiwo

Allegri praises Taiwo

Robbers attack Abacha’s house in Kano, shoot his last son

Al-Mustapha Abacha

A gang of suspected armed robbers, on Wednesday night, besieged one of the homes of the late General Sani Abacha in the metropolitan area of Kano, shooting the last son of the departed ruler, Alhaji Al-Mustapha Abacha somewhere near his stomach. A police source told Daily Sun that apart from Al-Mustapha, other persons sustained injuries, adding that those injured have been rushed to an undisclosed hospital.

Daily Sun was told that the shootout was sequel to the prompt response by Abacha’s bodyguards complimented by the resourcefulness of the police officers from the Nassarawa Police Division, whose office block is a stone -throw from the scene of the gun battle.

The incident happened at about 6.30pm at one of the Abacha’s properties, located on Bank Road in Nassarawa area. Members of the Abacha family, especially Mohammed had, from time to time, quartered themselves in the brick-painted building as an alternative to the family house situated on Gidado Road.
The five-member gang, it was gathered, came in a grey coloured End-of-Discussion Honda car and quietly made their way into the compound where they accosted Hajia Zainab Abacha, one of the daughters of the late General and demanded for money.
It was learnt that Zainab had no immediate cash to dispense with and was in a fix trying to negotiate a way out when things suddenly went out of hand.

The source told the Daily Sun that when the robbers took over the big house, they first arrested everybody within sight and seized all their handsets to ensure that none of them could contact the outside world. According to the source, unfortunately for the robbers just when they were certain that everybody was under check, the unexpected happened. They did not realize that not everybody in the building at that moment had been arrested.
The source said that Al-Mustapha was actually in the kitchen, eating a light meal when the tragic scene began to unfold in the house. Hiding in the kitchen he secretly put a distress call across to his elder brother, Mohammed, but was caught in the act, a reason he was instantly shot.

The source went further to state that Mohammed, on getting the message, quickly alerted their bodyguards as well as called in the police for help, leading to both teams storming the building within minutes. One of the robbers was arrested after he was shot twice in the leg as he made his escape from the troubled spot. The first shot came from the officers from Nassarawa Division while the second shot came from the bodyguards who gallantly defended their principal’s interest. Equally, some guns, were recovered from the robbers as they dropped everything on them and fled for their lives. The End-of- Discussion Honda Car used for the operation had been taken to the Bompai Headquarters of the Police Command.

The state Police Commissioner, Mr. Ibrahim K Idris has visited the scene of the crime to make a personal assessment even as it was gathered that the arrested suspect has been cooperating in the investigation. State Police Public Relations Officer, ASP Magaji Majiya confirmed the robbery attack on the Abachas and said that, the police responded quickly and positively, adding that the robbers did not take any property out of the house.
He also said that investigation is in progress, even as he assured the people of the Kano State of the readiness of the Police command to secure life and property.


Sources: sunnewsonline.com