FUEL SUBSIDY; MYTH OR REALITY PRESENTED BY HENRY OLUMIJI BOYO - - PowerPoint PPT Presentation

NIGERIANS UNITED FOR DEMOCRACY,

SOUTHWEST CHAPTER

CIVIL SOCIETY’S STATE OF THE NATION AND AGENDA SETTING ROUNDTABLE

PRESENTED BY

HENRY OLUMIJI BOYO

VENUE: SOCIAL JUSTICE CENTER, FEMI FALANA CHAMBERS 25, ADEKUNLE FAJUYI WAY, G.R.A. IKEJA DATE: JUNE 17TH, 2015 CONVENER THEME

FUEL SUBSIDY; MYTH OR REALITY

1

2

WILL MORE REFINERIES ELIMINATE SUBSIDY?

CONSTRAINTS

CONSTRAINTS PRIVATE SECTOR REFINERIES

• PUBLIC SECTOR

REFINERIES

• REGULATED PRICING
• HIGH DOMESTIC COST OF

FUNDS

• SECURITY THREATS
• INEFFICIENCY OF PUBLIC

UTILITIES

• CONSTANT SHUT DOWNS
• $ BILLIONS ON NEVER

ENDING TURNAROUND MAINTENANCE

• HEAVY LEAKAGES DUE TO

POLITICAL INTERFERENCE

• UNPROFITABLE

PPPRA PRODUCT PRICING TEMPLATE

BASED ON AVERAGE PLATTS’ PRICES FOR 12TH JUNE, 2015

Conversion Rate(MT to Litres = 1232 Exchange Rate (N to $) = 196.60 HHK AGO PMS

• 1. Cost Element:
• 2. C+F

• 3. Trader’s Margin
• 10.00

• 4. Lightering Expenses (SVH)

• 5. NPA

• 5. Financing (SVH)

• 6. Jetty Depot Thru’put Charge

• 7. Storage Charge

• 8. Landing Cost

• 9. Distribution Margins:
• 10. Retailers

• 11. Transporters

• 12. Dealers

• 13. Bridging Fund

• 14. Marine Transport Average (MTA)

• 15. Admin Charge

• 16. Subtotal Margins

• 17. Total Cost

• 18. Under/Over Recovery(Subsidy)

• 346.86

• 26. Retail Price (Subsidized)

• 592.52

• 130.74
• 137.93
• 3

PPPRA PRODUCT PRICING TEMPLATE;

LOCAL PRODUCTION WITHOUT SUBSIDY N196.6=$1

HHK AGO PMS

$/MT NAIRA/LITRE $/MT NAIRA/LITRE $/MT NAIRA/LITRE

• 1. Cost Element:
• 2. C+F

646.24 103.28 614.49 103.95 751.49 110.34

• 3. Lightering Expenses (SVH)
• 4. NPA
• 5. Financing (SVH)
• 6. Jetty Depot Thru’put Charge
• 7. Storage Charge
• 8. Landing Cost

646.24 103.28 614.49 103.95 751.49 110.34 Less 5% 32.31 5.16 30.72 5.20 37.57 5.52

• Est. Net. Ex Refinery Gate

613.93 98.12 583.77 98.75 713.92 104.82

• 9. Distribution Margins:
• 10. Retailers

28.78 4.60 27.19 4.60 31.33 4.60

• 11. Transporters

18.71 2.99 17.68 2.99 20.36 2.99

• 12. Dealers

10.95 1.75 10.35 1.75 11.92 1.75

• 13. Bridging Fund
• 14. Marine Transport Average (MTA)
• 15. Admin Charge
• 16. Subtotal Margins

58.44 9.25 55.22 9.34 63.61 9.34

• 16. Unsubsidized Price

672.37 107.37 638.99 108.09 777.53 114.16

• 17. Under/Over Recovery(Subsidy)
• 18. Retail Price
• 4

PPPRA PRODUCT PRICING TEMPLATE

IF NAIRA APPRECIATES BY 50% (WITHOUT LOCAL PRODUCTION)

HHK AGO PMS

$/MT NAIRA/LITRE $/MT NAIRA/LITRE $/MT NAIRA/LITRE

• 1. Cost Element:
• 2. C+F

646.24 103.28 614.49 103.95 751.49 110.34

• 3. Lightering Expenses (SVH)
• 4. NPA
• 5. Financing (SVH)
• 6. Jetty Depot Thru’put Charge
• 7. Storage Charge
• 8. Landing Cost

646.24 103.28 614.49 103.95 751.49 110.34 Less 5% 32.31 5.16 30.72 5.20 37.57 5.52

• Est. Net. Ex Refinery Gate

613.93 98.12 583.77 98.75 713.92 104.82 50% Naira Appreciation if N400=$1 (100% Depreciation) 306.97

• 49.06

196.24 291.89

• 49.38
• 356.96
• 52.41

209.64

• 9. Distribution Margins:
• 10. Retailers

28.78 4.60 27.19 4.60 31.33 4.60

• 11. Transporters

18.71 2.99 17.68 2.99 20.36 2.99

• 12. Dealers

10.95 1.75 10.35 1.75 11.92 1.75

• 13. Bridging Fund
• 14. Marine Transport Average (MTA)
• 15. Admin Charge
• 16. Subtotal Margins

58.44 9.25 55.22 9.34 63.61 9.34

• 23. Unsubsidized Price

if N400=$1 (100% Depreciation) 365.41

• 58.31

205.49 347.11

• 58.72
• 420.57
• 61.75

218.98

• 25. Under/Over Recovery
• 26. Retail Price
• 5

6

• A. NEGATIVE IMPACT OF FAULTY MONETARY FRAMEWORK

(SUBSTITUTION OF N FOR $ REVENUE) ON REVITALISATION OF THE REAL/PRODUCTIVE SECTOR

$1bn

Monthly allocations

CBN

Substitution

(N200bn)

N1,000-2000bn

Banks’ Increased credit capacity

CBN monthly mop up

• f , say, N150bn

(attracts over N500bn service charges annually for such debts)

 High interest rates  High production cost  Uncompetitive local products  Higher cost of fuel  Contracting industrial space  Rising unemployment  Insecurity  Increasing National debt  Rising fuel subsidy values

CBN intermittent supply of limited $ to market

Over N600bn credit capacity remain in banks even after mop up!

• Weaker Naira
• Lower purchasing power
• Higher cost of petrol (with subsidy over

N1,000bn for 2011) + corruption/inefficiency

• Lower consumer demand/falling output
• Increasing rate of smuggled/contraband imports
• Higher price of $ for imports by government and MDAs
• Reduced valuation of pension funds

7

• B. REQUISITE PROCESS FOR REVITALISATION OF

THE NIGERIAN ECONOMY

(POSITIVE IMPACTS OF $ CERTIFICATES FOR PAYMENTS OF $ REVENUE)

$1bn Monthly

allocation

$ cert. to 3-tiers of govt/MDAs

• No increased

money supply

• No need for eternal

liquidity mop up

• Lower interest rates
• Reduced crowding out of

real sector by erstwhile govt unending borrowings

• A public sector annual

savings of over N500bn for erstwhile debt service charges

• Enhanced revenue for

infrastructural/human capacity development Relatively more dollars chase existing N Balances in banks  Increasingly stronger N

 Cheaper fuel prices  Lower machinery/material cost

 Lower production cost  Cheaper products  Lower inflation

 Stronger purchasing power

 Increasing demand  Increased capacity utilisation

 Increased agricultural output

 Higher employment  Improved security  Reduction of debt accumulation

(savings of over N500bn annually) Total elimination of fuel subsidy Possibility of N10/litre sales tax Full deregulation + refineries

THE GOOD NEWS WHAT THE CONSTITUTION SAYS ABOUT REVENUE ALLOCATIONS

• 162. (1) The Federation shall maintain a special

account to be called “THE FEDERATION

ACCOUNT" into which shall be paid ALL REVENUES COLLECTED BY THE GOVERNMENT OF THE FEDERATION, except the proceeds from the

personal income tax of the personnel of the armed forces of the Federation, the Nigeria Police Force, the Ministry or department of government charged with responsibility for Foreign Affairs and the residents of the Federal Capital Territory, Abuja.

8

9

THANK YOU

“SAVE THE NAIRA, SAVE NIGERIANS”