Resurgent fuel price hike: Lessons from international circle
Sola Fadare, Lagos - updated: Tuesday 26-08-2008
Odein Ajumogobia,
Minister of State
for
Energy
(Petroleum)
THE issue of appropriate pricing of the price of oil
or removal of subsidy, whichever phrase we use,
has become an untreated cancer which may linger for long.
The erstwhile Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Engineer Funsho Kupolokun, and the Executive Secretary of the Petroleum Products Pricing Regulatory Agency (PPPRA), Dr. Oluwole Oluleye, were the arrowheads of the policy under former President Obasanjo’s administration and their popularity paid the price for that.
Second to religion, the deregulation of petroleum products and the attendants increase in the pump prices is an emotive issue which makes Nigerians throw reasons and economies, no matter how sound, to the wind and emotions take the centre stage. The comparison in terms of the prices in international community without taking cognizance of the cost and standard of living in Nigeria and these other economies, by those in charge, calls for concern.
It is no longer news that Nigeria is the sixth largest exporter of crude oil and earns billion of dollars daily from the sales, especially as the cost of crude has continued to skyrocket in the international community. The bane of oil exploration in Nigeria is the sorry state of the three major refineries which can hardly refine 40 per cent of national demand for refined products. It has been said that they actually produce 360,000 barrels of petrol per day, against 445,000 bpd their installed capacity, which has been estimated as one-third of the domestic demand.
In a vicious circle, Nigeria now goes back to the people it sells its crude to, and imports refined products at higher prices with attendant excruciating freight, demurrage and other charges. In an attempt to eliminate or (at least alleviate) the pangs of this critical situation, the controversy of whether government should continue subsidizing the cost of the imported products, or remove the subsidies which will make Nigerians to buy the products at international prices, still rages. The worn argument of the proponents of the subsidy removal is based on the fact that it is the best way to guarantee adequate supply of products and eliminate the intermittent shortages and increase the prices.
The cerebral, Minister of state for Energy (Petroleum) Mr. Odein Ajumogobia, maintained that empirical data indicated that the rich enjoy the subsidizing the price of petroleum products more. He once said at a meeting with the Trade Union Congress (TUC) recently that “In theory, subsidies make products more affordable for the masses but in practice, it is not totally so. To abolish subsidies overnight will create distortions in the market.” That sounds academic and plausible, indeed, but not infallible enough to make Nigerians keep sealed lips.
It is common in Nigeria to parade pseudo-economic figures as indicators of welfare without examining how they affect that shoe maker in the street. The different prices of oil as we see in some foreign nations may not really work out in Nigeria , though a member of the Organization of Petroleum Exporting Countries (OPEC). The cost and standard of living are the major denominators through which the welfare of Nigerians vis-à-vis oil prices and citizens of other countries can be compared.
In developing countries like Benin Republic, Burkina Faso, Ghana, Mauritius and others, and advanced countries like USA, Britain and other European nations, petrol sells at around equivalent of N200 per litre. For instance, in Mauritius , a litre of petrol sells for about 50 Rupees, which is about $1.95 or N229.75 per litre. In USA , a gallon of unleaded Petroleum Motor Spirit (PMS), which is also known as petrol sells for between $3.89 and $4.35, around N459.02 and N513.30. In the UK , a litre of PMS sells for an average of 132 pence (?1.32) around N311.52.
This analysis validates the point that certain independent and major marketers, who mostly re-export the product for re-resale at higher prices in other neighbouring countries are really benefiting from the sale of petrol below N100. It is then clear, from academic point of view (only) that it does not make sense for us to keep selling petrol at the ridiculous price of N70 per litre.
To say that the standard of living is the same in all these countries with that of Nigeria , is to say the least. It will be very suicidal and unjustifiable to make comparison of the pump price of fuel without comparing other variables that make for living. In spite of the much talked about oil, the poverty level is still unbearable, the power sector is impacting negatively on business operations, the infrastructure is fast decaying, corruption has eaten deep to the fabric of our society, lives and property are insecure even with over bloated population of unemployed youths. Can our government deny this?
In his defence, the petroleum Minister said whatever gotten from the subsidy would be used to fix these problems. Ajumogobia stressed that Nigerians would gain so much from it because it would make petroleum products pricing more competitive within the country so as to attract investment in the sector. He contended that the subsidies on the products have not been going to the masses intended for; we think the government should be responsible for that. The Economic Management Team (EMT), a team of technocrats in their fields want to make Nigerians, who do not collect estacodes from frivolous trips and unnecessary workshops, believe that fund garnered from the subsidy would be used for the benefit of all. Like it has been done in the past?
The president of the National Union of Petroleum and Natural Gas Workers (NUPENG), Comrade Peter Aktapason put it well. He said “since Obasanjo came into office, they have been telling us that the money send on subsidy can be used to build roads and execute infrastructure projects. What of the excess crude account? Have they built the roads? now we have over $40bn in the excess crude account; who are we reserving it for? Why can’t it be used to build refineries?Are they ready to build anything? Akpason streesed that when you talk about subsidy, affordability must be the next issue.
“N9500 minimum wage caused a three months strike in Oyo State but in Switzerland , the minimum wage is 3,000 francs. If you allow petrol and diesel to sell at whatever rate, how much will it cost to bring food from farms to the cities? Time could come when people will start burning buses if they cannot afford to pay transportation fares.”
To the respected broadcaster and prolific writer, Chief Yemi Farounbi, in his Better Days article on “May God Help Nigeria”, Farounbi said the problem of energy crisis is rooted in the non-functioning NNPC. He queried “Does Nigeria need an NNPC, in addition to Ministry of Petroleum Affairs? Perhaps we should start with a restructuring of NNPC” Farounbi noted that Nigeria should take a serious look at the concept of joint ventures. “In the past, when the OPEC countries considered it a matter of national pride to control all the processes of oil, the joint venture concept was fashionable.
Certainly not these days. Why should we sink the foreign exchange which is badly needed into joint ventures to support these oil giants, that is, Chevron, Shell, Mobil and others?
An industrialist, Mr. Dozie Obiaku condemned the subsidy removal campaign, noting that with oil price record height of about $200 per barrel, Nigeria ’s world sixth oil exporter and the fourth biggest oil exporter to the USA has found it difficult to improve the standard of living to the country’s 140million people.
He said “naturally when price increase and the people’s income do not increase as well, it would affect the entire business and everybody as well.”
The president of Importers Association of Nigeria (IAN), Chief James Onuchukwu corroborated this, saying it is a pity that Nigerians are yet to experience oil wealth as it is in other oil producing countries of the world. “ Saudi Arabia is building a nation on oil. We can see the amazing things that countries like Dubai , Qatar in the Gulf States , Canada and even the war torn Angola have done with their oil wealth. But here in Nigeria , what have we done with ours? he questioned.
By and large, government should note that it is not justifiable for any increase of the pump price to take place with bad roads, extinct electricity, lack of proper medication which make our leaders to fly abroad at the slightest excuse, and lack of social security to the poor contrary to what we have in other oil producing countries. The Economic Team should put on their thinking caps before (mis)advising President Yar’Adua to jack up the price to avoid unwarranted more hardship and industrial crisis.
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NIPCO set to maximise gas potentials
Emmanuel Odusina,
Minister of State
for Energy (Gas)
Rasheed Komolafe writes on the new drive of NIPCO Plc towards taking Nigeria into the committee of nations that uses gas as fuel, the inherent advantages in compressed natural gas and what the Federal Government should do to make the project a reality.
SINCE late 50s when oil was discovered and became the country’s prime export commodity, a thorny
problem has been what to do with gas found while drilling for oil-associated gas.
Nigeria proven oil reserve is over 30 billion bbls, making it the 11th largest producer of crude in the world. Nigeria’s gas reserve was conservatively put at 175 tcf, the 8th largest in the world and first in Africa. Nigeria, as a matter of fact, is more of a gas country than oil but, unfortunately, Nigeria has not harnessed her gas potential to the fullest.
Though effort made by the government to really harness the potential in gas for the benefit of its people and the economy has resulted in a number of liquifed natural gas train we have today and the level of success we have achieved in our effort at ensuring a zero flare out, much more still needs do be done. In export, Nigeria’s position in LNG has been consolidated through NLNG. Nigeria, through West Africa gas pipeline project will deliver about 200mmscf/d of gas to Ghana, Benin and Togo this year.
Perhaps, the most profounding effort has been in the development of the domestic market. Government has initiated the Nigeria gas master plan which takes a comprehensive view of the gas sector and solution that will catalyse a fast growing gas market.
The latest effort of the government in ensuring the development of the domestic market is the new initiative to introduce compressed natural gas called CNG, as a vehicular fuel in Nigeria sometime in the year 2005 which was seen as natural for a country with 187tcf of natural gas as proven reserve importing about 70 per cent of its refined fuel requirement.
Compressed Natural gas is nothing but Natural gas in compressed form.
It is environment friendly and if used as an automative fuel, it emits much less harmful emissions than the one emitted by vehicles running on liquid fuels.
It is a new phenomenon. It is the in thing in the world. Today, there are over 7 million vehicles successfully running on CNG and the country in the lead is Argentina, followed by Brazil, Pakistan, Italy, India, Iran, USA, China etc.
In the year 2007, the Federal Government issued licence to three different companies to create CNG infrastructure in three different cities. The companies are:
1. Global steel holdings limited for the city of Abuja and also Lagos
2. Center Global limited
3. NIPCO plc for the city of Benin
Out of the three, only NIPCO has actually progressed significantly towards the implementation of the CNG project at Benin City.
The Minister of State for Energy (Gas) Mr. Olatunde Odushina, who paid official visit to the project sites in Benin over the week-end commended the management team of NIPCO plc for their effort in making the dream a reality within a short period. “I have visited the project sites along with the project team and I am very much impressed to see the progress made by NIPCO on the project.
I am informed that the company is targeting to commission its first CNG fueling station along with CNG kit conversion workshop sometime in December 2008. I am sure that the company will be able to keep its commitment of the commissioning schedule so that we again can assemble here in December 2008,to witness the same”The minister who also paid a courtesy visit to the Oba of Benin and the Governor of Edo state as part of his programmes to solicit support for the project, said the monarch and the governor expressed their support for the project.
The minister, who was also at the project office in Benin, had an interactive session with the project team put in place for the inplementation of the project by the company. The minister also inspected the lands purchased for creating CNG stations and also for establishing the kit conversion workshops. He inspected the procured materials like steel pipes, fittings, values meant for the project.
The minister disclosed that the company had completed all the formalities to receive the Final Environment Impact Assessment Approval from the Ministry of Environment and the Department of Petroleum Resources (DPR) for laying gas pipelines and to construct the CNG fuelling stations which is very important to the project.
The minister disclosed that NIPCO Plc was not alone in the new drive at strengthering domestic market for gas. He said that the company was in partnership with the mother of gas industry in Nigeria—the Nigeria Gas Company (NGC), which has an equity partnership to co-own and operate the project and that for that purpose a Special Purpose Vechicle (SPU) was under formation.
Advantages inherent in introducing CNG as an alternate vehicular fuel in Nigeria, according to the minister, were anormous as it would save for the country foreign exchange by way of reduced importation of refined fuel, which would relief the government subsidy on fuels for vehicles.
Dry out of petroleum products, which is the order of the day in our fuel stations, will not be lots of the new project since CNG stations will have supply of gas through pipelines.
CNG projects, according to the minister, will drastically reduce our dependence on refineries which are capital intensive and technical manpower intensive.
It would also provide additional employment opportunity, reduced movement of heavy tankers on road thereby ensuring safety and less pollution from these heavy vehicles, reduced running cost per kilometer run of the vehicles.
CNG, according to the minister offers dual fuel option to the users by providing flexibility of running the vehicle either on CGN or on petrol simply by flicking a switch installed at the dash board.
NIPCO, according to the minister, shall create up to 10 CNG stations and two CNG kit conversion workshops in phases between now and December 2009. About 50,000 vehicles shall be converted into CNG in about three to four years time out of which about 6,000 shall in the first year. Domestic and indust rial consumes in Benin City will also benefit from the Piped Natural Gas.
For this all important project to succeed in Nigeria, the Federal Government must, like it is done in order countries, put in place a special price regime for the Natural Gas for CNG project requiring high capital cost and associated with high gestation period, financially viable.
It must also ensure fiscal incentives by way of tax and vat exemptions on CNG equipments, services and vehicle conversion accessories. This, along with the special price regime, will make it possible for the CNG providing company to keep the CGN price affordable and competitive to the liquid fuels.
The FG must also review existing system on grant of different approval to make the project implementation faster and effective. This shall apply for permission and also for construction of CNG fuelling stations requiring several approvals and also from several departments.
In fact, it is also nesssary to put in place a National Policy that would promote CGN in the country as this would enable a sustainable and structured growth in the CNG vehicle population in the country. The policy needs to cover the following areas:
(1) To decide on the useful life of commercial for replacement.
(2) To issue directives for compulsory commercial vehicles (e.g. Taxes, Public Buses etc) into CNG.
(3) Grant of soft loans or any other incentive to the owners of commercial vehicles for CNG coversion or purchase of new CNG vehicles Government must put in place a system that will ensure faster gas supply and signing of purchase Agreement for the project with the Gas supplier as this will help in reducing the uncertainties on the project and will immensely help in facilitating the flow of investment to build the project.
While the edo State Government where the project is located must in conjuction with the Federal Ministry of works facilitate laying of gas pipelines alongside the Bridge to take the pipelines over Ikpoba river Edo state ministry of works should help in facilitating laying of gas pipelines alongside the state roads and also assist in providing sewage connections.
The chairmen of local governments namely Oredo, Egor, Ikpoba, Okha and Uhumwode in Edo state should help facilitate smooth progress of work that fall within the jurisdiction of their respective local government.
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