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

CIVIL SOCIETY’S STATE OF THE NATION AND AGENDA SETTING ROUNDTABLE THEME FUEL SUBSIDY; MYTH OR REALITY PRESENTED BY HENRY OLUMIJI BOYO CONVENER NIGERIANS UNITED FOR DEMOCRACY , SOUTHWEST CHAPTER VENUE: SOCIAL JUSTICE CENTER, DATE: JUNE 17 TH , 2015 FEMI FALANA CHAMBERS 25, ADEKUNLE FAJUYI WAY, G.R.A. IKEJA 1

WILL MORE REFINERIES ELIMINATE SUBSIDY? CONSTRAINTS CONSTRAINTS  PUBLIC SECTOR PRIVATE SECTOR REFINERIES REFINERIES  INEFFICIENCY OF PUBLIC UTILITIES  CONSTANT SHUT DOWNS  REGULATED PRICING  $ BILLIONS ON NEVER  HIGH DOMESTIC COST OF ENDING TURNAROUND MAINTENANCE FUNDS  HEAVY LEAKAGES DUE TO  SECURITY THREATS POLITICAL INTERFERENCE  UNPROFITABLE 2

PPPRA PRODUCT PRICING TEMPLATE BASED ON AVERAGE PLATTS’ PRICES FOR 12 TH JUNE, 2015 Conversion Rate(MT to Litres = 1232 Exchange Rate (N to $) = 196.60 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. Trader’s Margin - - 10.00 1.69 10.00 1.47 4. Lightering Expenses (SVH) 32.24 4.30 25.95 4.39 28.61 4.20 5 . NPA 5.25 0.84 5.25 0.89 5.25 0.77 5. Financing (SVH) 3.34 0.53 3.18 0.54 12.65 1.86 6. Jetty Depot Thru’put Charge 5.01 0.80 4.73 0.80 5.45 0.80 7. Storage Charge 18.77 3.00 17.73 3.00 20.43 3.00 8. Landing Cost 710.85 112.75 681.33 115.26 833.88 122.44 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 46.98 5.85 34.58 5.85 39.84 5.85 14. Marine Transport Average (MTA) 1.20 0.15 0.89 0.15 1.02 0.15 15. Admin Charge 0.94 0.15 0.89 0.15 1.02 0.15 16. Subtotal Margins 107.56 15.49 91.58 15.49 105.49 15.49 17. Total Cost 812.44 129.84 772.90 130.74 939.38 137.93 18. Under/Over Recovery(Subsidy) 499.59 79.84 - - 346.86 50.93 26. Retail Price (Subsidized) 312.85 50.00 - - 592.52 87.00 Expected Open Market Price (OMP) 129.84 - 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 306.97 49.06 291.89 49.38 356.96 52.41 if N400=$1 (100% Depreciation) - 196.24 - - - 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 365.41 58.31 347.11 58.72 420.57 61.75 if N400=$1 (100% Depreciation) - 205.49 - - - 218.98 25. Under/Over Recovery - - - - - - 5 26. Retail Price -- - - - - -

A. NEGATIVE IMPACT OF FAULTY MONETARY FRAMEWORK (SUBSTITUTION OF N FOR $ REVENUE) ON REVITALISATION OF THE REAL/PRODUCTIVE SECTOR  High interest rates CBN monthly N 1,000-2000bn $1bn CBN mop up  High production Bank s’ Substitution Monthly of , say, N150bn (N200bn) cost Increased credit allocations (attracts over capacity  Uncompetitive local N500bn service charges annually products CBN intermittent for such debts)  Higher cost of fuel supply of limited $ to  Contracting market Over N600bn credit industrial space capacity remain in banks  Rising even after mop up! unemployment • Weaker Naira • Lower purchasing power  Insecurity • Higher cost of petrol (with subsidy over  Increasing National N1,000bn for 2011) + corruption/inefficiency debt • Lower consumer demand/falling output  Rising fuel subsidy • Increasing rate of smuggled/contraband imports values • Higher price of $ for imports by government and MDAs • Reduced valuation of pension funds 6

B. REQUISITE PROCESS FOR REVITALISATION OF THE NIGERIAN ECONOMY (POSITIVE IMPACTS OF $ CERTIFICATES FOR PAYMENTS OF $ REVENUE) • No increased Relatively more dollars chase $1bn $ cert. to money supply existing N Balances in banks Monthly 3-tiers of  Increasingly stronger N allocation govt/MDAs • No need for eternal  Cheaper fuel prices liquidity mop up  Lower machinery/material cost • Lower interest rates  Lower production cost • Reduced crowding out of  Cheaper products real sector by erstwhile govt  Lower inflation unending borrowings  Stronger purchasing power  Increasing demand • A public sector annual  Increased capacity utilisation savings of over N500bn for  Increased agricultural output erstwhile debt service  Higher employment charges  Improved security • Enhanced revenue for  Reduction of debt accumulation infrastructural/human (savings of over N500bn annually) capacity development  Total elimination of fuel subsidy  Possibility of N10/litre sales tax 7  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

“SAVE THE NAIRA, SAVE NIGERIANS” THANK YOU 9