The facts about the controversial hike in the pump

price of petroleum products in Nigeria.

ENGR. DOGGIE

FUEL PRICE INCREASE IN NIGERIA - FACTS AND

FIGURES AT THE PRESIDENTIAL VILLA
 FUEL PRICE INCREASE IN NIGERIA - FACTS AND FIGURES AT THE PRESIDENTIAL VILLA

Some of the people who were in the meeting with the FGN have changed their minds and decided
the Nigerian masses should suffer some more and make more sacrifices in support of the current fuel
price increase. They agree that only the fuel cabal will benefit from this fuel price increase and
corruption will continue. However, they think there will be no more queues at the petrol stations if
fuel prices increase. Furthermore, the FGN will get time to fix our domestic refining problems. For
instance, a Honorable wrote "I was at the Presidential Villa on Wednesday May 11th where a
stakeholders meeting involving the leadership of the National Assembly,
governors, Labour leadership, minister of state for Petroleum, ministers of Information and that
of Labour held. The meeting was chaired by the Vice President. It was a consultative meeting
ostensibly to get the buy in of stakeholders. I was pumped and ready to challenge any proposition
for an increase in pump price and my position was known to most people I spoke with. However by
the time the Honourable minister for petroleum finished his doomsday prognosis and gave a graphic
account supported with facts and figures of where we are and where we would be in a matter of
months if we did not alter the approach or fundamentally change the status quo, I had no option but
to capitulate. It was the first time I had been confronted with such a gloomy picture. I found
myself between a rock and a hard place. The facts were incontrovertible and the prognosis and
consequences dire. "

We sympathize with the situation that those at the meeting had to face. It must have been very
difficult. But, history is our best teacher. In 2012, the former Minister of Finance, the Minister for
Petroleum Resources and the CBN Governor under President Jonathan also gave graphic accounts
supported by incontrovertible facts and figures showing how subsidy was unsustainable and the
economy would collapse if fuel prices were not increased. We agreed the nation was broke in 2011,
but asked for time to verify the government data and their conclusion that fuel price increase was
the one and only true cure. The presented FGN data proved to be questionable under scrutiny (House
of Rep Investigations). The graphic presentation and recommendation for fuel price increase was
nothing but a cover up for the massive corruption in the subsidy regime. There was no fuel
subsidy; just a corruption subsidy. Today, the FGN arguments have not changed much. The only
difference is that high oil prices were used to justify the sudden fuel increase in 2012 while low oil
prices and high exchange rates were used to justify the sudden fuel increase in 2016. In both cases,
there were official facts and figures that showed the country was broke and the only way out was to
directly pass the burden of paying for the fuel cabals corruption subsidy from the FGN to the people.

Faced with a graphic account of doomsday data in an FGN policy meeting presentation, it is always
best to have the figures and data vetted and reviewed by other experts. A second opinion never hurts,
especially when the Petroleum Resources Minister is speaking for both the CBN Governor and Finance
Minister and is devaluing the Naira in support of a fuel price increase. It is extremely difficult to have
your own figures/data on your fingertips under such conditions, especially when you know that oil
revenue to the nation have decreased in the last year. Yet, it is fairly certain that under strict peer
review, we will find that some of those facts and figures that were presented in that meeting were
stretched estimates and other facts/figures that did not support the narrative of the Minister of
Petroleum Resources for an immediate fuel price increase and Naira devaluation were conveniently
excluded from his presentation. It is when all these data/figures have been vetted and all other
alternative policies examined that the intended and unintended consequences of fuel price
increase/Naira devaluation can be considered in all its totality.

For example, the Minister of State for Petroleum, later explained that the FGN arrived at the
PMS Price of N145/litre by a simple conversion of using foreign exchange at N285. That N285 is from
nowhere; it is basically the secondary source that people buy foreign exchange from, versus the
N320, which is the black market rate. If you convert it and throw it in, you will get about N141, N142
or N143. So there arent much of palliative elements left there for you to use. It is simply, go out,
find your product, your cost is covered, there is an opportunity for your efficiency to make money,
come and deliver. How can the N285 exchange rate be from nowhere? Why not N250, N300, N320
or N360 since we expect a backdoor Naira devaluation will lead to an increase in the black
market exchange rate? What is a secondary source of foreign exchange purchase? What happened
to the CBN? Are they not the institution responsible for changes in the exchange rate?

Apart from this, the PPPRA have played around with their price template. The
Storage/Lightening/Finance etc. costs were increased from N5.11/litre in Jan 2016 to N10.61/litre in
May 2016. Distribution margins were increased from N14.3/litres in Jan 2016 to N18.37/litres in May
2016. There was a total increase of N9.57/litre (49.3%) on the margins during this period. This is
the reward to the fuel cabal for a successful hoarding strike in April 2016. (In addition to an increase
in market shares from 22% to 58%). It signified the failure of the price modulation strategy. Another
NASS investigation of the 2015 subsidy payment of N1 trillion will reveal massive corruption and fake
imported PMS volumes. The FGN should have done such an investigation by now if it was serious
about fighting corruption. Nobody has been jailed for the corruption discovered in 2012 and nobody
will be jailed for the 2015 corruption when it is discovered.

A claim of N16.4 billion per month (from April 2016 to date), made by the minister of state, implies a
N13.67/litre under recovery or an OMP of N100.67/litre at 40 million/litre a
day PMS consumption. This N13.67/litre under recovery is high because PPPRA used price
modulation to add N9.57/little profit to the margins for the fuel cabal. There is no justification this
profit bonus. Without this price modulation economic magic, the under recovery would have been
N4.1 and the OMP for PMS would have been N86.5+N4.1 = N90.6 at an official exchange rate of
$1/N200 using PPPRA January 2016 import-parity model calculations. At a prevailing black market
exchange of $1/N320, this would give N145/litre. Unfortunately, someone might ask why
PPPRA want to use black-market exchange rates. However, if you invent a non-existent secondary
market, a $1/N285 from nowhere, impose price modulation on the margins to generate
higher under recovery of N13.67/litre and an OMP of N100.67/litre, you will get about N16.4 billion
per month subsidy payment and a N145/litre price. A N16.4 billion/month subsidy payment would
scare anybody compared to a N4.1 under recovery, which generate an expenditure of N4.92 billion
per month. The PPPRA templates showed over recovery of N1.4/litre, N4.7/litre, N7.49/litre,
N10.5/litre and N16.06/litre for January 1, January 11, January 20, February 6 and February 11 2016
respectively. This amounted to a total over recovery savings of N20.2 billion for the months of
January and February 2016. The FGN/PPPRA/FMPR assured the nation that this savings would
be used to cushion future under recovery payments under the price modulation strategy. So what
happened to the savings of the price modulation exercise? There are so many questions and we have
not even started a serious examination of the facts and figures.
All stakeholders should have been consulted and given a chance to come up with better facts/figures
and alternative policy recommendation (both short term and long term) before
the villa meeting. Then a final decision should have been made as per the law with a constituted
PPPRA board. Had this policy review/implementation work flow been followed (a few more weeks at
most), I am certain that a policy with no fuel price increase, that ensures equitable sacrifices from all
stakeholders, would have come up.

There were many other policy options that could have been pursued during the last year and can still
be pursued today given the low revenue situation. The FGN could have eliminated more corruption,
blocked more leakages, stopped impunity in PMS delivery and petrol station sales prices, improved
surveillance of petrol stations, Improved price template, forced the marketers to consolidate and
reduce cost by improving efficiency, repaired and secured the pipelines, improve refining efficiency
and jailed the fuel economic saboteurs and hoarders. New technological breakthrough, better work
flows, mergers, higher productivity, lower apex and apex, less corruption, less greed and taking a loss
when necessary are some of the methods used by USA unconventional shale oil and gas producers,
refiners and marketers to survive the current low price and profits conditions. There are no
guaranteed corruption subsidies given to inefficient capitalist companies by the US government.
Those firms that cannot survive close shop. In Nigeria, the FGN chose to institutionalize the corruption
subsidy of the fuel cabal by increasing fuel prices, devaluing the Naira and passing the cost to the
Nigerian masses.

As of 2016, we do not have a functional general equilibrium model that capture the external global
economy (international oil, gas and petroleum products markets), the 30 major sectors of our
national economy (manufacture, transport, petroleum, oil refining, food & beverages, electricity,
agriculture etc.) and the informal sector. The 2010 Nigerian input-output tables needs to be updated.
Our data collection and maintenance are poor. Our database is poor. We do not know our
employment multipliers (how many net jobs we lose because of fuel price increase). We have no idea
how our national demand for fuel is affected by fuel price increases or what impact this policy have
on the other sectors of the economy. If the lines are shorter, is that because there are
fewer customers? Does the average number of customers remain the same while the amount
purchased per customer decline when fuel prices are increased? What are the implication of these
results on economic productivity? We are not even sure just how much petroleum products we
consume.

The CBN econometric model does not capture the global economy or dis-aggregate the petroleum
and oil refining sectors. It has no informal sector. I do not think the Fed. Min. of Finance has a better
model. Neither does the Fed. Min. of Petroleum Resources. We have no regional input output
modeling system (RIMS) to capture regional impact of fuel prices increases. If the price in the rural
areas was N120-N160/litre when the official price was N87/litre in Abuja and Lagos, what will be the
prices in the rural areas when official price is N145/litre.? Will the price increase to N300/litre? What
impact will these high rural energy prices have on FGN agricultural policies and programs? We have
no social accounting matrix (SAM) multiplier model.
The IMF bases its policy recommendations, ultimatums and advises on its 2005 Nigeria national
accounts. Yet, we have econometric experts in UI, ABU, Ife, Nsukka who can build all-
embracing general equilibrium models for policy evaluation if well-funded. Rather, we still chose to
make snapshot decisions or plan without facts as done by Wolfgang
F. Stolper (Planning without Facts - Lessons in Resource Allocation from Nigeria's Development. With
an Input-Output Analysis of the Nigerian Economy, 1959-60) while preparing our first national
development plan (1962-68). Most policy decisions are based on personal opinions, textbook neo-
liberal economic theses, group economic interests and guesswork. There is a need for more
objective homework.

A fair and detailed independent review of all available facts/figures and the FGN/FMPR public
statements from May 2015 to May 2016 will likely reaffirm the previously held principles and beliefs
of those formerly opposed fuel price increases but have now changed their minds. It is imperative
that the masses of Nigeria fight this anti-human pro-IMF fuel price increase policy. The fuel cabal
ensured a change of policy that favored the payment of their corruption subsidy with many well-
planned protracted hoarding strikes. They gained this policy advantage from the FGN at the expense
of the masses. The FGN did not ask them to make any sacrifices. Their greedy, corruption-
ridden profits are guaranteed by the fuel price increase. The masses have to fight back in order to
survive. If they do not cry out, their interests will be swept aside by stronger forces and
classes. We hope those at the FGN meeting who now support fuel price increase will revisit
the FGN fact/figures critically (both those presented and those not presented at the meeting) before
permanently declaring their neutrality in this unfolding strike for mass survival in our motherland. We
will not pay for corruption, mismanagement and inefficiency. We encourage the masses to fight for
their own interests and support the ongoing strike.