Fixed Price of Petrol Possible in Nigeria

Fixed Price of Petrol Possible in Nigeria?

Emmanuel Y. Kwache

This thought provoking feature is courtesy of Tell Nigeria’s Independently Weekly Magazine No. 18 May 5, 2008, pages 46,47 and 48 and compilations from New Democrat Newspaper Vol. 1 No. 003, Monday April 28 – Sunday May 4, 2008 page 27, Daily Trust – the online edition 5^th March 2008 and Daily Trust, Monday, April 21, 2008, Vol.18 No. 19, page 27 also.

The contention is that Oil and Gas Industry In Nigeria has the capacity to have a fixed price of petrol, once our leaders are decisive.

Let me quote the Chairman, Revenue Mobilization, Allocation and Fiscal Commission, Engr. Hamman Tukur, says in an interview with the Editors of Tell Magazine, as mentioned on page 47 second column, 4^th paragraph and I quote verbatim. “On pricing the issue is, is Government going to subscribe? If the answer is yes, okay let every Nigerian pay a fixed amount for petrol, kerosine, gas and so on; you now subsidise. Why should Nigerians pay a kobo above this price? In 2006/2007 in the Federation Account; Government made a provision for N150 billion for subsidy, which means we must pay a certain fixed price for petrol in respect of fluctuation in the International Market. But you know many things, between 2006 and 2007 fuel price was increased. So, was there a change in policy as related to subsidy? Where is the N150 billion you reserved in the Federation Account? In 2007/2008, they again made provision of N100 billion for subsidy and fuel price was increased. What again happened to this money? Immediately this Government came in, there was a plan to increase fuel price again. The whole commission (that is The Revenue Mobilization Allocation and Fiscal Commission) ran to Mr. President. We asked Mr. President, why do you want to increase fuel price? Is it international market or what? But you budgeted for this subsidy and the money is there in the Federation Account, why must you subject Nigerians to paying an additional N10 for petroleum product, when there is provision on the ground to cushion this effect? What is the talk about international market fluctuations? You budgeted for it, the money is there, take it and pay. You don’t have to transfer the burden to Nigeria, we told him. The worst part of it is that NNPC is with holding N25 billion to N30 billion monthly from the Federation Account, all in the name of fuel subsidy, yet you say Nigerians should pay more. THANK GOD, WE HAVE A RESPONSIBLE PRESIDENT WHO LISTENS. TTHAT WAS HOW THE PRICE INCREASE, COUPLED WITH THE PRESSURE FROM LABOUR WAS AVERTED. The money is Nigerians’ money, so why do they have to pay more? Is the essence of Government not to cushion the suffering of the common man? Don’t forget that whenever you put N1 on petrol, everything you can think of in Nigeria will have its price increased. This illegality of deducting monies from the Federation Account by NNPC, the Federal Government and its agencies must stop. We must be told by Petroleum Products Pricing and Regulatory Agency (PPPRA), if subsidy is cost consumption or cost recovery. If it is cost consumption, then Nigerians have been taxed enough, but if it is recovery then we must be educated on this. NNPC or PPPRA have no constitutional right to take money from the Federation Account in the name of a so-called subsidy that is abracadabra” these words speak for themselves. So it is possible for a fixed price of petrol, when the rules are followed. Then who has been taking Nigerians for a ride this long time that the burden, which the subsidy was to bear, was transferred to fellow Nigerians? I tried to find the meaning of subsidy in the Oxford, Advanced Learner’s Dictionary and this is the exculpation, I discovered: subsidy according to the dictionary in the money that is paid by a Government or an organization to reduce the costs of services or of producing goods, so that their prices can be kept low. That is it in a simple definition. Other related complications, which have bedeviled our country and money is stolen by visionless leaders that borders on the oil sector is the excess crude Account. This “Excess Crude” is a misnomer and not part of our constitutional provisions says Engr. Hamman Adama Tukur in The New Democrat, Monday April 7- Sunday April 13, 2008, page 27, second column paragraph 2. It has never been part of any law and has become a reality on the ground for several years, he continued. Oil benchmarking is to encourage the misuse or abuse of Excess Revenue Account. There are four parts that summed up the Excess Revenue Account. I WILL LIKE YOU TO ASSIST IN EDUCATING NIGERIANS WHAT THIS ACCOUNT IS ALL ABOUT, he pleaded. There are three parts of this Excess Revenue Account, which are in dollars, and the fourth part in naira. The three-dollar parts of the Excess Revenue Account are (a) Excess Equity Crude Account (b) Excess Petroleum Profit Tax Account and (c) Excess Royalty Petroleum Account. You also know that everyday the Nigerian National Petroleum Corporation (NNPC) picks 445, 000 barrels of crude oil for domestic refining, which is monetized in naira into the Federation Account. The fourth part is the Excess Domestic Crude Account in naira. We have three-dollar accounts and one naira account. All these are referred to as the Excess Revenue Account. All of them have something to do with benchmarking, which he said is not part of the Appropriation law. Benchmarking has brought about problems bordering on these Excess Accounts and the misuse of the accounts. Looking at these problems of the Excess Accounts over the years, The Revenue Mobilization Allocation and Fiscal Commission is now thinking of another approach to benchmarking: They have reviewed the current practices of benchmarking and observed that the difference between the benchmarking and the actual crude price was not properly accounted for. This has led to the creation of illegal Excess Crude Account amidst infrastructure decays. The Chairman with a patriotic passion says instead of putting the money in what he called “illegal account” the excess proceeds should be used to develop specific infrastructure. There is no electricity, no water, no roads, no railways, no hospitals and no schools. The philosophy of the new approach is to exclusively translate crude oil revenue into infrastructure development and also to allow for minimum governance without budgetary distortions. The new thought from the commission boldly emphasizes that the new approach seeks to use Excess Revenue for specific infrastructural development. This is deliberately designed to allow for the fixing of benchmark used to specific priority projects without negatively impacting on the minimum cost of governance as already contained in the 2008 budget.

In other words, the new method is a simple and practical process whereby a predetermined crude oil benchmark is allocated to specific priority project such as power, railway and other critical infrastructures. This is without touching the minimum governance. If you are to fix any benchmark, the critical issue is what are you going to do with the difference between the budgeted benchmark and the actual Oil Price in the International Market? Unless it is part of the law you are passing, it makes no meaning whatsoever. This is because, it has been misused over the last four to five years. Anything called benchmark, which creates Excess Account is unconstitutional. To fix a benchmark, you have to look at the Federal Government of Nigeria budget. What is the minimum amount required for governance? What revenues are you expecting to do that minimum governance? How much of the revenues are coming from oil? You know the quantities you are exporting because the Organisation of Petroleum Exporting Countries (OPEC) tells you, what quantity to export, so the money required for minimum governance divided by the quantity of crude oil expected will give you the benchmark. The balance of oil money in other accounts should now be for specific capital infrastructure projects. That is the position of the commission, so it is unethical to arbitrarily fix oil benchmark at $53 or $59 or $60 per barrel. What is minimum governance? From the minimum governance you now work out the minimum oil price you expect will allow you to accomplish the minimum governance. After which you now translate all your oil money above the minimum governance into infrastructural development. This is what other countries do to benefit maximally from high oil prices. The Government can now translate the high oil prices into electricity, railway system, agriculture and others. Every quarter, the government can review what it spends its crude on. Assuming the government earns $40 or $50 per barrel above the minimum governance or oil benchmark, it can appropriate $3.9 per barrel per day for power, $6.23 per barrel day for railway and $6.49 per barrel per day for coal and also for agriculture.

Another interesting aspect and what most Nigerians do not know its quantum, quality and future is the Gas Industry in Nigeria . When the Editors of the Tell Nigeria’s Independent Weekly Magazine, No. 18, May 5, 2008 page 48 asked the Chairman of The Revenue Mobilisation Allocation and Fiscal Commission his view and stake on Gas and flaring? “Which gas?”, the accomplished bureaucrat and technocrat asked in return. “ Nigeria does not have gas”, he revealed. The Nigerian Liquefied Natural Gas (NLNG), you people talk about is sold for 20 years to foreign companies operating in Nigeria . Nigeria has a minority share in NLNG; that is why you heard them saying they had no gas to power Obasanjo’s power projects. They have sold the gas they would produce for the next twenty years. The ownership of the NLNG was originally 60 percent Nigeria . It mysteriously became 49 percent. So we don’t have the power to really determine what happens to our gas reserves between now and the next 20 years. Gas flaring cannot end because it is cheaper for the foreign companies to flare the gas and pay penalties than to take the burden of cost to contain the thing and we have no control over them. To add my own and many other firms, companies like Ajaokuta, Steel Rolling Mills, Iron Ore Mining Company Itakpe, NITEL and even NNPC may be sold to Global Holdings International Limited (GHIL) and others in that order. But hear what the Chairman of the Revenue Mobilization Allocation and Fiscal Commission says when asked this question “Do you see the NNPC getting privatized in the future: he retorted “only a mad person would want the NNPC privatized. The flow of dividends or revenue from NLNG to the Federation Account is still shrouded in mystery and the loans the NLNG is collecting from left, right and centre will have a reverberative effect on Nigeria in the future. With all these lofty talks what of if the crude oil price crashes in the International Market asks Idris Ahmed of The Daily Trust, Monday, April 21, 2008 page 27, the Electrical Engineer noted they did their research on the oil market before coming out with any new concept

THE DEMAND FOR OIL CAN ONLY INCREASE.

Oil has a lot to do with the energy sector; in the world economy. It accounts for about 60 percent of the energy demand. Oil and coal are still used to generate energy in the world. It cannot change, not for now. The use of other substitute to power cars cannot even be sustained. Oil prices have been increasing for the last 10 years, why should it crash this year or next year? Let us suppose a disaster happened and oil prices crashed to the oil benchmark of $59 per barrel or below what the Government can do is to suspend the projects tied to the Excess Revenue. The Government may explain to the public that it is suspending two of the five infrastructures being built because oil prices have gone down to $ 40 per barrel or so. Government should not go and take loans to build infrastructure in the country, why should it? We have funds in the Foreign Reserves, which included the Excess Revenue Account. The said Government should not take loans to build infrastructure in the country. “The Chinese Government is offering US$50 billion loan for the funding of infrastructure development. Are you saying this offer should be rejected by the Government?” asked the interviewer. The Chairman emphatically said “I told you earlier that the Excess Crude Account is currently about $17 billion, what will the Chinese loan do, when we have some idle funds? The Excess Crude Account is enough to solve our power problem, develop a good railway and transportation system, establish schools and put drugs in the hospitals and rehabilitate our health care system. What will Chinese loan now do, when we have funds to address these problem? We sold our gas for 20 years to Nigerian Liquefied Natural Gas (NLNG) and we are now saying we are going to construct thermal power stations to use gas. Their committee is looking at the agreement, which the Government signed with NLNG under solid minerals. And they said; they cannot query it. They will do nonetheless, otherwise, there will be no sufficient Gas in Nigeria to run the thermal power stations. He was talking as an Electrical Engineer, who knows the functions and operations of generating and transmitting light. We thank God, that in this country, we have such citizens that display an uncommon courage in the discharge of their duties. Other seemingly unpopular stance this gentleman has taken which have not been reflected in the newspapers, magazines and on websites mentioned at the beginning of this opinion is when the commission opposed the funding of the integrated power project from the Consolidated Revenue Account, which they found to be illegal. This is truly a fearless icon; bold and courages and has consistently reminded Nigerians that development is not proportionate to the revenue that has accrued so far from oil, 50 years after discovery. Nigeria , absolutely lacked the needed managerial capabilities and leadership to convert these resources to wealth for the benefit of the common man. The vintage personality, Engr. Hamman A. Tukur, The Chairman, Revenue Mobilization Allocation and Fiscal Commission even before the House of Representatives Committee on Banking and Currency is of the view according to http:// news. Daily Trust. Com/content/view/5295/27/, Friday, 02 May 2008, written by Tashikalmah Hallam suggested the rising price of crude oil on the international market, the most realistic benchmark for the 2008 budget should be arrived at by basing the daily cost of any project in a given sector on daily crude production and calculating it against the chosen $59 per barrel benchmark. The RMAFC Chairman said “for instance, if the following sectors are identified as national priorities; power, railways, agriculture and coal reactivation, etc, then to determine their benchmarks, the formula applies; daily cost of project by daily crude production which equals to benchmark” According to him, “If the power sector requires $ 4 billion for reliable power over the period of say four years, then annual requirement is $ 1bn. Monthly requirement of funds is $ 1bn over 12 months that is $ 83.3 per month; daily requirement of funds is $ 83.3 for 30 days which equals to $2,777,777 per day. The amount the Chairman said can be sourced daily and dedicated to the power sector, adding that with 712,950 barrel of crude oil per day production exclusively to the Federal Government, the new bench mark would read $2,777,777 per day over 712,950 which equals to $3,90 per barrel per day. Therefore the benchmark required to realize the $ 4b earmarked for the power sector is $3.90 per barrel per day” adding that $ 3.90 per barrel per day be allocated to the power sector, after every $59 per barrel per day benchmark earmarked in the 2008 budget. The Chairman observed meticulously that the same formula could be applied to the other three sectors he cited as example to determine the appropriate benchmark for each. The formula is a deliberate approach designed to reduce inflation through the importation of capital goods because the demands of the identified sectors are largely sourced outside the country and are therefore within the medium term expenditure framework of the World Bank and the IMF, thus the fear of inflation does not arise. Thus the application of the new formula would enable Nigeria conserve and utilize whatever excess amount accrued from the fluctuation of the sale of crude oil instead of depositing it in the countries foreign reserve, which is often used more by other countries. Who says knowledge is not power? Engineer Hamman Adama Tukur was born on January 24, 1942 in Jada, Adamawa State . A learned gentleman and can hold any position of responsibility. He attended various schools at home and abroad. He has a B.Sc. in Physics from the famous Ahmadu Bello University and M.Sc in Electrical Engineering in England . He started his work career at consolidated Tin Mines in Jos before moving to the academia as a lecturer at Kaduna Polytechnic. He was Head of Department of Electrical / Electronics, before he became the Rector of Kaduna Polytechnic. After fourteen years in the academia, the Federal Government appointed him, Managing Director, National Electric Power Authority, defunct NEPA, then Director General, Federal Ministry of Power and Steel and later Permanent Secretary, Federal Ministry of Petroleum Resources. Engr. Hamman A. Tukur has received awards and commendations from groups and credible institutions. He is a member Institute of strategic studies, Kuru, Fellow, Nigerian Society of Engineers, Fellow, Yaba College of Technology and member, Institute of Electrical Engineers ( England ). He is also altogether Officer of the Order of the Federal Republic (OFR), amongst several other honours.