By CBN Gov. Sanusi Lamido Sanusi informally responds to article “The real cost of fuel in Nigeria. By Izielen Agbon Izielen”
I read the article and I will explain. First the cost of a litre of oil to nigeria being an oil importer is the cost of buying that litre on the market. You can easily check that by asking how much a litre of oil costs in Benin or Cameroon or Lome or Dakar, west African countries that import oil.
The fundamental flaw in the article, which by the way is excellent, is that it talks about cost of PRODUCTION and not economic cost. Let me explain.
Suppose the total cost of a barrel of crude up to the refinery is USD10. The government can make the crude available to the refinery at that price, and when refined ask for it to be sold say at a price of $30 in which case government making a PROFIT in accounting terms and not subsidizing it.
Now the catch is this. If instead of selling to the refinery the government sold this barrel to say china it would have earned $110. This means govt has forfeited $100 that would have come to it and been available for other things like say healthcare or infrastructure. The decision to sell at $10 is a decision to allocate $100 towards a service-which is the provision of cheap petrol, rather than other services like infrastructure. There is a real cost to the economy of cheap oil which is the $100 foregone in each barrel and that is the subsidy.
Now under Obasanjo he insisted that NNPC should pay the market price for domestic crude for transparency. So if NNPC pays $110 for instance and refines at a cost of $10 and sells at $30 there is a real subsidy of $90. Similarly if PPMC or Oando imports at $115 and sells at 30 government is paying the difference.
The government will always bear an economic cost either in direct cash outlays or in income forgone that could go to other uses. So to say that there is no subsidy is to make an argument that cannot stand.
On corruption, I called for investigation of any scams in this since 2010 so you are preaching to the converted. But I don’t supervise PPPRA or DPR or customs. Where I find corruption in the area I supervise I investigate it and dealt with it.
Culled from an active conversation on one of the Nigerian yahoogroups