The Vice President explains the reason for the rise in fuel price.
In a statement issued in Abuja he said “I have read the
various observations about the fuel pricing regime and
the attendant issues generated. All certainly have
strong points.
The Statement:
“The most important issue of course is how to shield
the poor from the worst effects of the policy. I will
hopefully address that in another note.
“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”.
In a statement issued in Abuja he said “I have read the
various observations about the fuel pricing regime and
the attendant issues generated. All certainly have
strong points.
The Statement:
“The most important issue of course is how to shield
the poor from the worst effects of the policy. I will
hopefully address that in another note.
“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.
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”.
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