READ: Subsidy: Consequences & Rewards

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The PMS subsidy has been removed and the FG sets a limit of N145/litre on sale of PMS and also, any individual interested in shipping in PMS from any country into Nigeria is welcome to join the Market.

Now that the subsidy has been removed, I believe a little reducation should be considered for those who don’t see beyond price hike from N86.50/litre to a max N145/litre. Its really good news and before sharing it’s benefits, we could share the benefits of subsidy to the population:

Say a country has the a disease outbreak, which is taking a toll on the Country’s population, the cure to this disease costs an arm and leg, and the most infected are the less privileged of the Country, to save the population, the Government could decide to pay a percentage of the actual cost of the drug to the manufacturer (if produced in the said country) or to the distributor; actual cost is N10,000/pack and Government gives 75% subsidy (pay N7,500/pack) and it is then sold to the populace at N2,500/pack. Only in this case, the disease has taken a sizeable percentage of the populace, the Governments decides on a 100% subsidy (free to the population), as the Nation heals and immunity is being built in the system against this disease and the subsidy is then reduced to 75%, and the earlier 25% is used to fund a research into the cause and prevention of this kind of outbreak in the near future, until the whole disease is wiped off and the whole subsidy removed, what is then left is a healed Nation and a better Health system in place.

The above is how a Country benefits from subsidy. Lets come back from wonderland and talk about our Fatherland, Nigeria. The fuel subsidy was placed in the first place when all the refinery output was getting reduced by the year and specific high placed individuals started shipping in refined fuel (PMS, Kerosene, and Diesel), and instead of selling at prices to profit them (which would be way above the price of the Nigerian produced fuel), the Government decided to subsidise it so it could be sold to the population at the normal locally refined price.

To fully grasp the wealth in just being a marketer alone in our previously subsidized fuel economy, I’ll paint a picture I the following lines (prices stated are imaginary): Marketer brings in fuel for $0.5/litre and decides to sell at $1 to Distributors who then sells at $1.5 retail price per litre. To subsidise these product, the Government decides to pay off the chunk of the proposed importation cost price; Parallel Market exchange rate is N320 to Government’s N199 rate, the cost price being N160 (instead of the CBN’s N99.5) to be sold at N320 (CBN N199) to the distributor who then sells at N480 (CBN N298.5) to the public, the Government pays the Marketer the difference in the Dollar and also buys up a substantial amount of the Cost so as to bring the cost price to about N60/litre, which equals N420/litre is paid by the Government so it can be sold to the Distributor at N70/litre and then N86.5/litre at retail, all because, the locally produced one cost about N60/litre to produce.

Lets pick this N420/litre subsidy and check the rate with 10million litres, which amounts to a whooping N4.2Billion on every ship that arrives in the name of 1 marketer as subsidy, an these people claim to bring in about 10ships a month (N44Billion) and N528Billion (2012, it was N1.3Trillion) a year. That’s a lot of money for a microscopic percentage of the population and that is why the banks place this sector in the low risk rating for doing business with, and like every human needs, they got greedy and asked for more.

Subsidy has been removed, for the first time in decades the output of local refined PMS has increased and current Kaduna refinery figures reads about 22.4Million litres per week, and 3 refineries are working simultaneously for the first time in the last 15years. Good news is the importing market is now under reassignments by the banks on unlimited credit facility provided earlier based on the subsidy buffet, and the market is open and fruitful to who can quickly sell his product at the depots i.e. there is now a price competition and the limit on the pricing is N145. Hence, it could be sold from N86.5 – N145 based on the marketer the product was purchased from, and this will reduce the price by itself as the fuel business is based on quantity in the littlest time, and the bank will continue to fund whoever keeps the tap running on both ends of the supply chain i.e. the cheapest marketer available. This price shift will continue until all the current 5 refineries (4 Government owned) and Dangote’s new refinery produces fuel enough to meet the country’s daily estimated consumption (40million litres/day), then the new business will be exporting fuel to African countries, which is more money in the foreign reserves.

This removal means the fictional calculated N528Billion subsidy or the 2012 N1.3trillion can be used for something else; Agriculture so as to drive down prices of foodstuffs by flooding the market with more locally produced foodstuffs than imported ones. It could also be used to cure the epileptic power which has plagued the this country for decades, which inevitable reduces the daily consumption of PMS (as Generators are the major consumers of PMS) and so doing reduces the cost of all products (edible and none edible) in the market, reduces importation, increases exportation, strengthens the currency. It could also be used to improve education in Nigeria by funding researches that could be applicable for the use of Nigerians. Or to improve our IT so as to have a satellite that works and in so doing reduces the cost of data in Nigeria.

The use of this saved revenue is limitless and the only thing wrong with the subsidy removal is if the officials in charge embezzle this fund. The immediate effect of this removal is inflation, and if the Government could just channel this to give successful 24hrs electricity in Nigeria, then the effect will be reversed as the only reason for PMS will just be transportation and not for production and preservation of all local and imported products.

I plead with the masses to be patient after reading this and let us take time in building back this Nation. I know most of you after reading this will remain adamant because of your hate for Buhari and/or APC, but then, why would a Country with so much Oil have to subsidise its fuel when it doesn’t even export fuel. Once exportation is that high and the External Reserves is ridiculously high, the then Government (in power at the said time) could subsidise it to N0.10/litre (hopefully at a N1 = $2 exchange rate). Be open minded and not stubborn to learn that the essence of the subsidy removal is to continue to enrich a microscopic percentage of the population and respreads the wealth and create more jobs doing so.

Drops Mic

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