"Fellow Citizens:
I
have read the various observations about the fuel pricing regime and
the attendant issues generated. All certainly have strong points.
Permit
me an explanation of the policy. First, the real issue is not a
removal of subsidy. At $40 a barrel there isn't much of a subsidy to
remove.
In any event, the President is probably one of the most convinced pro-subsidy advocates.
What
happened is as follows: our local consumption of fuel is almost
entirely imported. The NNPC exchanges crude from its joint venture share
to provide about 50% of local fuel consumption. The remaining 50% is
imported by major and independent marketers.
These
marketers up until three months ago sourced their foreign exchange from
the Central Bank of Nigeria at the official rate. However, since late
last year, independent marketers have brought in little or no fuel
because they have been unable to get foreign exchange from the CBN. The
CBN simply did not have enough. (In April, oil earnings dipped to $550
million. The amount required for fuel importation alone is about
$225million!) .
Meanwhile,
NNPC tried to cover the 50% shortfall by dedicating more export crude
for domestic consumption. Besides the short term depletion of the
Federation Account, which is where the FG and States are paid from, and
further cash-call debts pilling up, NNPC also lacked the capacity to
distribute 100% of local consumption around the country. Previously,
they were responsible for only about 50%. (Partly the reason for the
lingering scarcity).
We
realised that we were left with only one option. This was to allow
independent marketers and any Nigerian entity to source their own
foreign exchange and import fuel. We expect that foreign exchange will
be sourced at an average of about N285 to the dollar, (current interbank
rate). They would then be restricted to selling at a price between N135
and N145 per litre.
We
expect that with competition, more private refineries, and NNPC
refineries working at full capacity, prices will drop considerably. Our
target is that by Q4 2018 we should be producing 70% of our fuel needs
locally. At the moment even if all the refineries are working optimally
they will produce just about 40% of our domestic fuel needs.
You
will notice that I have not mentioned other details of the PPRA cost
template. I wanted to focus on the cost component largely responsible
for the substantial rise, namely foreign exchange. This is therefore not
a subsidy removal issue but a foreign exchange problem, in the face of
dwindling earnings.
VICE PRESIDENT YEMI OSINBAJO, SAN
May 13, 2016
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