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Petrol price hike and new local refineries

By Doyin Okupe


For many years economists, financial advisors and public analysts have often pontificated that part of our problems in being unable to arrest the ever increasing fuel prices was our sustained failure In fixing our aging refineries.
The general belief is that once we refine locally, petrol price will automatically tumble and cascade downwards!!

By serving in two federal governments, some informations I gathered independently and official convinced me long ago that continued efforts in trying to fix those completely depreciated and structurally aged contraptions was a total and unnecessary drain on our economy and a conduit pipe for siphoning scarce resources.

Somewhere along the line albeit belatedly, this obvious facts became accepted by the powers that be and the circus of incessant “turn around maintenance” was stopped.

Sadly activists still pressure governments to continue to pursue this unrewarding project in the strange and bewildering belief that this is the panacea for halting fuel price increases.

Fallacy upon fallacy, all is fallacy!
The newest of our 4 refineries is over 40years old. Most of them have actually become unserviceable because the parent companies who made them are out of business or have actually discontinued the models more than 3 decades ago.

I remember one incidence when I was in government and government decided to bypass middle men and instead sought the assistance of the actual manufacturers. After paying agreed sum quoted for repairs in an escrow account abroad to convince the manufacturers of government’s commitment, the said sum was returned by the company after several months claiming that they cannot do effective repair of their own machines because they have become so obsolete that they may have to resurrect some of their dead engineers to bring the refinery back to life.

It is heart warming to state that the Nigerian engineers in that refinery came together to fix it at that time. Now that Dangote, Samad Rabiu and some others are coming up with new refineries, the hopes of Nigerians including me, that we will soon witness a low pricing regime for petrol has been rekindled.

That was up till yesterday when I listened to Mustafa Chike Obi, on Arise TV. The chairman of Diamond bank and former MD of Amcon , argued correctly that local refining of crude oil does not necessarily guarantee cheaper petrol prices. He cited the astronomically high prices of cement in Nigeria despite the fact that all the component raw materials for cement production are sourced locally. He also gave a few other similar cases to buttress his point.

For me another classic case is that of locally produced Rice. Today at Daleko market in Lagos, Nigerian Rice spld for N23,500 while Cotonou rice, (imported) sold for N26,000. So what is the difference? And how has local production with all the government incentives paid the masses?

As it is for rice, so it is for Textile.
Cotton is grown here, lint and yarn are produced locally. Yet the influence of the locally fabricated economic Demon still make it impossible for Textile millers to prosper without government protection.

I concur with Chike Obi that when we finally have Dangote Petrol, we shall still pay through our noses!! And there will be more than enough justifiable reason for the high price.
So what is the way out???
It’s tough options all the way.
At N160 per liter, government still subsidises petrol with more than N50 per liter. This is because landing cost today is close to N220 per liter, excluding taxes.

At the previous price of N148 per liter, true subsidy is not less than N70 per liter.
If we consume 50m liters per day,nationally, (NNPC figure is 60m) then subsidy per day is N3.6B. That works out to be N1.3 Trillion a year or about 13% of our annual national budget.

When this facts are on the table , Nigerians through a wide national debate can decide if they want the subsidy or not . Government on its part must convince us that it can or cannot afford the subsidy and reveal to us what will suffer if the subsidy must stay.
There are other issues but I will save them for further discussions in the nearest future.

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