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Deregulation Or No Deregulation? What's Your Take?

For me deregulation of the downstream petroleum sector has its pros and cons.

Pros

1. It will reduce corruption all in the name of subsidy

2. It will lead to the creation of more jobs

3. It will make our refineries work

Cons

1. It will lead to inflation

If I was to choose, I'll go for deregulation because of its long term benefits.

I guess this a poll question.

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30 answers

@ wily wily

WHAT DO YOU STAND FOR IN YOUR WRETCHED LIFE------ HATE AND BIGOTRY?

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Fellow Nigerians, in a democracy, in a free country, it is only right that we have a free market.

For government to keep dictating to us what price to buy what product, it is bound to keep them constantly dictating to us all of our lives.

When the government gives us freedom of association, why didn't all of you say that government is insincere so let them control our freedom to gather together till such a time as they can build a grand conference hall where we can comfortably associate. Why have we not asked the Federal Government to seize our freedom of speech till when the government has freed itself from every form of corruption and insincerity?

Some people say a Cartel will come and rip Nigerians off and hold them to ransom. Well, maybe we should try to remember here. When the telecommunications industry was deregulated, MTN and ECONET formed a cartel. They fixed prices at N50 then it slid to N45 and they claimed they could not shift to per second billing, they claimed that they could not shoot their ADs in Nigeria, they did many crappy stuff, but the good thing about deregulation is that the market is open to anyone who qualifies to enter and therefore came Globacom. Globacom knew that if they continued this cartel thing with the other two companies, they would not make as much money as they should. Globacom sold SIM cards for N1 when the other networks were selling theirs at N21,000. They then had to bring their prices to N200 where it is today. Globacom started per second billing and in order not to lose the market, the others followed. MTN was charging for customer care but when GSM users formed a conference and started putting pressure, boycotting some networks, they straightened up. This is the beauty of the free market.

In countries like Iran, the government has regulated the petroleum market to an extent that now, besides the fixing of the price to be bought, they also fix the quantity to be bought or sold, more than which you cannot demand!

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but all they do is hold onto it looking to resell these licenses or perhaps tehy have been lazy as usual sourcing real funds needed for something that is not as simple as buying and selling oil

theres no soft landing in my view

@ citizenY

The output of our local refineries operating at full capacity cannot meet local demand

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@Citizen Y,

Why is it that almost all your posts here are oil oil- oil -oil- oil -oil -oil -oil,

If it is not how cost it will take to refine a barrel of oil, it will be what will it cost to Import or Export refined one.

Seems all your life are centered on oil oil this, oil oil that,

If you don't take time, you die on your Sleep because of thinking about oil- oil -oil -oil -oil -oil oil -oil -oil -oil.

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The Unspoken truth about deregulation is that the Naira will be devalued and it will be exchanging between 35% to 45% less its current value to the dollar. So in the New Year 2010 we should be looking at exchange rate between N202 to N217 to the dollar.

Surely there must be a net effect after all that quantitative easing and then top it up de-regulation.

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In nigeria, you rarely get competitors, all you get is companies colluding to set a fixed price for products,leaving the buyers with little option, even in a regulated environment one will expect price to range from say 63.50-65naira

but they sell for the maximum N65

the problem with regulation still lies with our insincere govt, how are we to believe the N600b+ saving from deregulation will be well utilised for rail/road transport, better healthcare, improved funding for the education sector?

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@CITIZENy

You seem to be confused. 106% profit on what? Crude oil or PMS?

We don't need to know how much it costs to produce a liter of pms because we don't produce enough in the country. 70% of our needed consumption is imported.

It is imported and the price changes with the market price of crude oil. All the other costs that add up are the import taxes, port fees and blah blha blha.

If you expect anyone to build a refinery when they know that the GOVT controls the price, you are in dreamland.

You don't wake up and build a refinery. It cost a lot of money and years to build.

Before anyone will venture into such a project they have to know they will make profit.

Even if it costs less than 65 naira to produce pms per liter locally, do you think that will entice investors. Imagine if they do build a refinery in this situation and the price of crude goes back to $140. How will the refinery make profit if there is a peg on the price of PMS when the raw material needed for PMS (crude oil) keeps changing.

Price fixing can not and will never help.

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Do you know what happened last time the refineries were going to be privatised?

cries everywhere of cronies blah blah blah, privatisation in Nigeria is a big problem especially

with selfish uneducated labour leaders around looking for popularity votes, if the govt privatise the

refineries they will be accused of selling national assets however inefficient those assest are!

Licenses have been sold and not a single refinery is up, many states signed empty MoU with

empty companies abroad with nothing but to show for it

I think building and running a refinery is too complex for Nigerian businessmen they rather buy and sell-much simpler that way

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quote from Courage

[b]

@ citizen Y

I'm not saying we should not refine our own crudeoil. All i'm simply saying is that to achieve and enjoy the real proceeds of deregulation, you need many player. Competition needs to intensify. Companies have to see a need and appetite to build a refinery. Keep in mind also that Building a refinery is not a joke. To build a simple refinery which only includes (Distillation column, Hydrotreaters, Fluid Catalytic crackers, Alkylation Unit,  depending on our specs) will cost above $1billions. This also depends on the capacity. How  many of these players can afford that kind of money currently?. Also if you going to invest that kind of money in a country (Nigeria) with high political risk, the economics have to be real robust to convince management. Where and how are they going to raise that kind of money? Don't also forget that it might take about 3 years+ before the product come onstream. How does the company make money on the short run? They have to import to satisfy current demand.

[/b]

I have made several refernces and you may not have seen that thread.

Let us break everything down--

1) What is the cost of producing one barrel of cruse oil from exploration/, exploitation to the tank farm?

2) What is the cost of one liter of petrol ex works?

Let us not be deceived, the literature i am referring to at the beginning of this thread, gave indications that

even at 2005 rates, government was making 106% profit. In effect they were not subsidising anything.

If this claim is false let someone deny it. We are just being mesmerised by sweet nothings by NNPC and PPPRA.

They should be honest enough to give the bare facts and not .

If there is a profit of 106% and a price of N65 per litre, who is subsidising who?

If you import, you must pay all attendant costs and if the landed cost is above market price, the subsidy atises.

What we are saying is that our refineries should be made to work to give government 106% profit and employ Nigerians

and in the process avoid any subsidies.

NOBODY SHOULD PUSH DEREGULATION DOWN OUR THROATS WHEN THERE IS EVIDENCE TO SHOW THAT subsidy  DOES NOT EXIST.

We all know that you cannot buy a refinery off the shelf. What we are saying is continue your subsidy and give a time frame

within which you get the refineries to work.

Mr. Courage, if you want deregulation, you have must give proof that there is subsidy by giving the cost elements to produce 1 litre.

Start from there , establish if there is subsidy or not . Please do not listen to these guys in NNPC or wherever. No noe in NNPC is

ready to give you the costs /data . are you surprised that even production, export and other vital statistics are not correct?

Now this one?

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quote from Courage

[b]

@ citizen Y

I'm not saying we should not refine our own crudeoil. All i'm simply saying is that to achieve and enjoy the real proceeds of deregulation, you need many player. Competition needs to intensify. Companies have to see a need and appetite to build a refinery. Keep in mind also that Building a refinery is not a joke. To build a simple refinery which only includes (Distillation column, Hydrotreaters, Fluid Catalytic crackers, Alkylation Unit, depending on our specs) will cost above $1billions. This also depends on the capacity. How many of these players can afford that kind of money currently?. Also if you going to invest that kind of money in a country (Nigeria) with high political risk, the economics have to be real robust to convince management. Where and how are they going to raise that kind of money? Don't also forget that it might take about 3 years+ before the product come onstream. How does the company make money on the short run? They have to import to satisfy current demand.

[/b]

I have made several refernces and you may not have seen that thread.

Let us break everything down--

1) What is the cost of producing one barrel of cruse oil from exploration/, exploitation to the tank farm?

2) What is the cost of one liter of petrol ex works?

Let us not be deceived, the literature i am referring to at the beginning of this thread, gave indications that

even at 2005 rates, government was making 106% profit. In effect they were not subsidising anything.

If this claim is false let someone deny it. We are just being mesmerised by sweet nothings by NNPC and PPPRA.

They should be honest enough to give the bare facts and not .

If there is a profit of 106% and a price of N65 per litre, who is subsidising who?

If you import, you must pay all attendant costs and if the landed cost is above market price, the subsidy atises.

What we are saying is that our refineries should be made to work to give government 106% profit and employ Nigerians

and in the process avoid any subsidies.

NOBODY SHOULD PUSH DEREGULATION DOWN OUR THRATS WHEN THERE IS EVIDENCE TO SHOW THAT IT DOES NOT EXIST.

We all know that you cannot buy a refinery off the shelf. What we are saying is continue your subsidy and give a time frame

within which you get the refineries to work.

Mr. Courage, if you want deregulation, you have must give proof that there is subsidy by giving the cost elements to produce 1 litre.

Start from there , establish if there is subsidy or not . Please do not listen to these guys in NNPC or wherever. No noe in NNPC is

ready to give you the costs /data . are you surprised that even production, export and other vital statistics are not correct?

Now this one?

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My take on the issue of deregulation is that we dont have to get too academic on the issue, but just one pertinent question we need to ask ourselves which is can this government be trusted?. Then we can proceed from here, if after 2years of being in the saddle infracstructural facilities are still the way they are and we are talking of less than 40% budget implementation for this despite the initial promise at the start of the year then your guess is as good as mine that the gains that could be realised from deregulation will be splash on frivolities and perharps help them prepare for massive settlement and rigging of 2011 election. I think deregulation is a good thing but neeeded a sincere government to implement and definitely not this present do nothing 7 pointless agenda govt. Thank you.

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The govt should privatise the refinery and give license to those who wants to build refineries then we can stop the importation of fuel.

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@ citizen Y

I'm not saying we should not refine our own crudeoil. All i'm simply saying is that to achieve and enjoy the real proceeds of deregulation, you need many player. Competition needs to intensify. Companies have to see a need and appetite to build a refinery. Keep in mind also that Building a refinery is not a joke. To build a simple refinery which only includes (Distillation column, Hydrotreaters, Fluid Catalytic crackers, Alkylation Unit, depending on our specs) will cost above $1billions. This also depends on the capacity. How many of these players can afford that kind of money currently?. Also if you going to invest that kind of money in a country (Nigeria) with high political risk, the economics have to be real robust to convince management. Where and how are they going to raise that kind of money? Don't also forget that it might take about 3 years+ before the product come onstream. How does the company make money on the short run? They have to import to satisfy current demand.

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I agree with your assertion. Its going to get tough before it get better, but everything boils down to our regulators. How hard can they enforce the rule of law and allow efficient market to reign, and destroy status quo of monopolistic market. If they take the right approach, we should not suffer too much. By deregulating the industry, you increase importing licence mainly to increase competition. This will on the short run (6months - 1year) increase gasoline prices because of the economics and attract many more players, but consistency will be the problem. Going forward when competition intensifies, companies objective will have to change from making huge profit to operating with marginal or no profit at all. Thats when we benefit.

I don't think we have any assurance because nobody have the crystal balls to forecast the future. But our current situation doesn't serve us better as well. If we don't regulate the industry right now when the price of crude oil is hovering at $80/bbl, when do we do it? Do we wait till the price get to $145 or $250. Our best strategy will be to deregulate right now, so that we can find alternatives including building and operating refinery in our own country. At least this option will remove paying for logistics, foreign taxes, foreign royalties, and the end result will be reduced gasoline/diesel prices when crude prices trend higher.

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i av heard arguments for and against deregulation in the past and i would say its not a totally bad idea but many will agree with me that the Nigerian state is simply a stubborn state where notin seems to work.

One thing i vehemently disagree with is "Deregulation will lead to competion btw players in the industry therby bringing down prices of petroleum products" Instead if this is implemented, i forsee a very powerful cartel who will be as powerful as the govt itself that will dictate at what price they want Nigerians to buy these products. By the way, i learnt both Diesel and kerosene (stand to be corrected though) has since been deregulated or so (Govt no longer subsidize these products), if this is so i believe Nigerians have started enjoying the dividends from the deregulation of theseproducts then.

i would love a situation where we av what i call "Govt Controlled Deregulation" where govt will not totally hands off. All over the world now, Govts are not handing off instead they are getting more invovle with what is going on within their domain. Nigeria shouldnt be an exception.

Cheers.

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@courage89,

We have been educated severally that "deregulation" is in our best interests in the long term but very harmful in the short and medium terms so I am yet to understand why some people are so eager to push it down unilaterally on us.

What happens to our interests in the terms before the expected fruits germinate and what are the assurances that the fruits will germinate and not get caught up in the volatile screen we call the future. Not with the unpredictability of technology and advancement. Are we then to suffer in vain?

What are the pallatives to enable us bear the short and middle-term inconveniences?

What are the assurances that the so-called deregulation would not play into the hands of insensitive foreign capitalists who care only about their profits and who would merely continue to exploit us the way they have been doing in the upstream sector with the active connivance of corrupt public officials?

We all read about illegal refineries in the creeks. In the mood of amnesty, can we not harness the brains and capabilities of these boys to improve our refining sector first before we then talk of deregulation by which time, anybody benefiting from the deregulation has no choice but to make and spend and retain the money here in Nigeria?

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I think they should privatise PHCN first before worrying about anything else.

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You are talking as if they are interested in the well being of the nation over their pockets.

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@ COURAGE

1) WHY DO YOU WANT TO IMPORT WHAT YOU HAVE?

2) WHY DON'T YOU REFINE AND EXPORT?

3) HAVE YOU READ WHERE GOVT MAKES 106% PROFIT ON LOCALLY REFINED PETROL PRICING?

4) WHERE HAS OIL WINDFALL EVER TAKEN US TO IN THIS COUNTRY?

MY POSITION

1- ACCESS TO FUNDS WILL ONLY LIBERATE THE THIEVING INDUSTRY IN NIGERIA

2) GOVT WANTS TO MAINTAIN THE THIEVING INDUSTRY WITH THE SUBSIDY TO BE REMOVED, BUT IT DOES NOT EXIST ANYWAY

3) GOVT SHOULD DELAY DEREGULATION( WHATEVER THAT MEANS) AND PUT OUR REFINERIES TO WORK.

4) BALANCE OF PAYMENT IS IMPROVED WHEN YOU ENHANCE EXPORT AND PRODUCE WHAT YOU NEED AT HOME.

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I think deregulation is the way to go for so many reasons

1. Improves competition

I believe deregulating the industry will allow market forces to take over, and eventually drive down the price. This will only happen if our government increases the level of importing licences, and allow these companies to compete like they are suppose to rather than letting them monopolize and control the industry.

2. Provide the incentives for building refineries in the country.

When there is competition, majority of these companies will want to modify their business model to improve their competitive advantage. One option will be to integrate their importing and marketing venture with refining. This will allow them to cut cost (logistics, foreign taxes and foreign royalties) and refine their own product. Deregulation will help mitigate some of the investment risk, and make project economics achievable.

3. Liberate other industry

Depending on the kind refinery companies decide to implement (Simple, comlex or very complex), cheap products like heavy Naphtha, fuel oil, Heavy fuel, coke, sulfur, asphalt, will be produced. All these products are feedstocks/raw materials for producing other products that will help industrialize our country.

4. Create employment

When there is competition, more people will be employed. Building and operating refineries, other plant will also improve employment problem in the country.

5. Improve our Balance of Payment

The country has embarked on continous BOP deficit for the past years. When there is competition, and companies begin to refine the country's crude. The long term effect of this will be massive surplus from our current account (reduce our import and possibly improving our export) going forward. Overall effect will be positive change in our Balance of payment (BOP) which will help us in attracting more Foreign Direct investment.

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EXACTLY , MY DEFINITION AS A LAYMAN AND FROM THE LITERATURE I HAVE READ AND QUOTED ABOVE.

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Just a wonder that the UKs and USes have their own way of regulating aspects of their citizens' lives such as housing, medicare, education despite the simultaneous presence of private investors and interests. Yet we so gullibly swallow all their bitter pills on deregulation irrespective of our local wisdom and peculiarities, what a shame!!!

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What is deregulation? Is this another way to steal money?

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@dappssee

That is the issue. That is why i do not like to hear that word mentioned. It gives me the shakes.

Unfortunately, our leaders have already put their mouth on that Tip. They cannot let go. That is why

I support NLC but unless government comes out officially and publicly accepting templates and suggestions

of bodies like SUPA, all protesters will be portrayed as rabble rousers.We are all whistling in the dark . No one

in NNPC has the moral courage to bell the cat and you do not expect those in favour of the policy to do so.

For now we should support NLC

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I totally agree. There's nothing to deregulate so why dont we 'deregulate' and remove the damn corrupt pipelines that stretch all the way from New York to Abuja?

If the sector is deregulated, market forces will determine prices and if it is cheaper producing locally than refining, the desire to make profit will make it happen.

As it stands, the so called subsidy is a direct way of ripping us off. If they import 1 million litres of PMS and tell us 10 million was imported and as a result, the subsidy should be on 10 million litres, who will question them. If we are going to save anything, it will be after subsidy has been removed. At least there will be no excuse not to use the billions of naira puportedly spent on subsidy annually, on developmental projects.

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@phuckNL

It is not a case of confusion, pease

At the expense of being repetitive, I refer you to this address.

http://www.supanigeria.org/index.php?option=com_content&task=view&id=20&Itemid=34

I have given snippets of that document and I request anybody who wants to see my point to read it first.

Surely, you start from the known to the unknown.

My argument is that Nigerians have not been told the truth about the state of affairs in the oil industry.

In the absence of transparency, all sorts of sharp practices are brought into play and this is where we find

ourselves today. I am not oblivious of the fact that oil is being imported but how did we reach this stage? Our

oil industry guys have taken us for a ride under the wings of a secretive and obnoxious official secrets regulation

that has denied us any information regarding this vital natural resource. In the process, there is no figure that can

be taken for a fact. In addition, official ineptitude has laid our refining capacity prostrate. In a bid to ascertain the

position of things, i came across this document which indicates that the 106% profit is on petrol, after the refining process.

In asking our leaders to commit suicide, we are pleading with them to it in trances. Repair the refineries now while your associates import

the shortfall. Embark on more local refining in a gradual manner and the subsidy will go down in the same manner. Do not do it in one

day. The best way to do it is :-.

1) You cannot seize the toy from the baby and expect it not cry. Let there be imports (inevitable),in the short term so that they could keep their

lifestyles; If not , these desperadoes will devise more diabolical schemes to bring down the roof.

2) You wean them gradually by substituting import with local refining capacity. It is defeatist and inefficient for you to import what you can produce and

by so doing, new business segments must germinate and these importers may now start looking outward- to export crude oil fractions and by products.

I believe that this is the best way to handle this issue . To do otherwise is to begin another series of needless disruptions in the polity. Ultimately, the

ordinary citizen , whose welfare is the sole purpose of government is made to carry the can . The savings from the subsidy goes into the pockets of others.

Finally, in the course of this thread, no one has indicated that he has read the document I am quoting copiously from. In the same vein, I have to date not heard of

any official documentation in respect of 'appropriate pricing' of petrol as that produced by these gentlemen. Surely, someone in the corridors of power must have had

access to this information but it has been ignored in the light of enlightened self interest

So dear sir, before you say I am confused, read that document.

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@ dappsee

You don't get my drift.

-If you produce your essential oils from your refineries say at 2005 conditions, govt makes 106% profit

in addition to taxes , royalties and trickle downs - employment, social welfare etc.

- These mandarins have frustrated the rebuilding process and forced us to import at debilitating costs but

on terms dictated by them. Why expose yourself to harsh international trading terms when you can refine

your oil at home?

- Why don't we use the SUPA indices as a template and update cost estimates for 2009. Thereafter will there

be any need for subsidy? The answer is , no. So why do you need to import oil and subsidise at the expense

of your own refinery?

- My position is that the expected spin off from the supposed subsidy will go to areas of need- THEIR POCKETS.

The cake is becoming too small so we need more flour!!!!,sugar and butter.

- These funds are required against 2011, and to satisfy the greedy mandarins.

-You may probably not have realised it. Civil servants are now endangered species, especially at the top. So they need to

feather the nest in case,

- On the other plain, lawmakers are feeling the heat from more competent guys that were muscled out of contention and

of course a more alert electorate. The goal posts are no more shifting. Once the electoral reform bill is allowed to pass, there

shall be weeping and gnashing of teeth.

In summary, there is nothing to deregulate. The government should be bold enough to get our refineries working. The expected

savings from the deregulation you want is the poison you are trying to avoid. They want to get their hands on this money and

have a ball at your expense and you are backing them. Better the money is in our pockets, in kobo that for us to assemble and channel

everything into their greedy mouths.

Any comments?

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I agree the cost of labor is significantly lower in 9ja but the cost of operations and setup certainly 'makes up' for it.

If these facts are anything to go by, I think deregulation is the way to go as some people are profiting from our ignorance to rip this country to shreds.

If this is the only thing this administration can achieve, it will be go down in historyas the biggest blow to the machinery of corruption.

It is those who profit from the rot in the system that will fight against deregulation. It may be painful on the short term but its long term benefits cannot be over emphasized.

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@ mr, dapssee

With the above presentation, despite being a 2005 publication, where do you stand on deregulation.

My position is that this word should not have even been a point of discussion as all available operational data

do not point in that direction.

It is the fabrication of some swindlers disguised as leaders, civil servants and politicians. They have paralysed local

refining capacity to favor import. The stupidity of the whole thing is that they stand to gain more with local production

but they prefer access to dollars through letters of credit transactions.

I am yet to understand why new refining cannot be enlarged , going by the attendant benefits if government was making 106%

profit per liter in addition to royalties and taxes not to talk of the employment opportunities for Nigerians.

If you have more current ,material on this subject, please let us have it. Otherwise, I will advise government to rather stop this

nonsense and use the respite it has got from MEND to work on these refineries. It is criminal to talk of deregulation.

The fortunate thing about government is that everything is done secretly and shrouded in officialdom and deliberate delays . If

government was run like a supermarket, some people will not live to reach the cashier and we all know them- THE CROOKS IN ALL

POLICY /DECISION MAKING ORGANS OF GOVERNMENT. As Nigerians become more conscious of this madness, many people will be lynched.

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Some few days ago, I initiated a thread, pls see

http://www.nairaland.com/nigeria?topic=335452.msg4705505#msg4705505

I wanted to ascertain what it costs to produce I barrel of oil from a Nigerian oilwell

On 10th October, 2009,My good friend emyah graciously gave me:-

'' The cost is about $1.50/gal once the refinery extracts the gasoline from the Crude Oil.

Nearly 50% of a barrel is Gasoline. So if a barrel of oil costs $70 for 42/gallons, then about 20/gallons of gasoline is about $35. And $35 / 20gallons = $3.25/gallon base.

The price beyond that point is Taxes which usually run about $0.40 - 0.50/cents a gallon, The station owner might only see a few pennies per gallon in profit. They make their money selling you $1.00 Twinkies they bought for $.10/cents.

Diesel is even more expensive because you only get about 10/gallons of diesel from a 42/gallon barrel of Crude Oil. Before diesel was cheap because the market was awash in diesel fuel. Now that diesel demand has grown world wide as the global community develops, diesel prices have gone through the roof, That's why Diesel is about $0.50 - $1.00 more than Gasoline right now.

i hope u can start from here .''

For which I am very grateful.

Another lead :-

http://www.supanigeria.org/index.php?option=com_content&task=view&id=20&Itemid=34

examined the situation of our local refineries and established that as at 2005

PETROLEUM PRODUCTS PRICES AND SUBSIDIES IN NIGERIA.

The prices of petroleum products in Nigeria have been a source of contention and controversy. T[b]his paper proposes to clarify the actual total cost by adding the costs of all components in retail supply of Premium Motor Spirit (PMS aka Petrol or Gasoline) the most widely demanded and utilized petroleum product.

[/b]

BACKGROUND

The prices of petroleum products in Nigeria have been a source of contention and controversy. This paper proposes to clarify the actual total cost by adding the costs of all components in retail supply of Premium Motor Spirit (PMS aka Petrol or Gasoline) the most widely demanded and utilized petroleum product. The cost components are finding, developing, producing, refining, distributing and marketing. The amount of subsidy on the retail price is then determined by the difference between the actual cost and the retail price.

The method adopted for this cost determination is similar to that used by the American Petroleum Institute (API) for the analysis of the actual total cost of gasoline (PMS) in the U.S. It splits the retail cost into the major components: cost of crude oil, the cost of refining and marketing and the sum of all taxes. This method is simple and accurate.

The most accurate industry data has been obtained from and confirmed independently for this effort by industry experts. The draft paper was also reviewed and endorsed by several other experts. The data and analysis herein are as at October, 2005. Exchange rate applied is N130/USD.

THE PETROL PROCESS

To purchase petrol in Nigeria, we typically drive to a Fuel Station. The fuel attendant pumps the requested quantity and payment is made in cash, electronically (Value card, Top card, etc.) or otherwise.

The Fuel station typically receives its supply from road tankers which have been loaded at an NNPC or other fuel depots. The NNPC depots receive their supply from local refineries through pipelines. Imported petroleum products are evacuated from ocean-going tankers to local depots which then supply to Fuel stations by road tankers.

Local refineries receive their feed Crude oil through pipelines from oil terminals. The Crude oil is produced by oil companies from wells in their OMLs (Oil Mining Lease). The Federal Government of Nigeria (FGN) is the senior partner in Joint Ventrure (JV) oil producing companies. The NNPC manages FGN investments in the JVs. Production Sharing Contracts (PSCs) are a different relationship from Joint Ventures. This determination is based on JV production which represents most of the Nigerian production. PSC production can be similarly treated.

COMPONENT COSTS

Crude oil is first discovered (Exploration), then the discovery is developed (Field Development) before it can be produced (Production Operations). It is then refined into petroleum products which are distributed and sold for utilization. The costs of Exploration, Field Development, Production Operations, Refining, Distribution and Marketing (Retail sales) are identified herein. The sum of all product cost components is the actual cost of the product.

EXPLORATION COSTS

Exploration costs typically include seismic acquisition and interpretation costs. Exploratory well costs can be included in development costs since the exploratory well can be easily converted to a development well. 3D Siesmic acquisition costs vary based on contractor, coverage, terrain, time, season, water depth, methods, commercial terms, special considerations, etc. Typical costs range from 20 – 70,000 USD/KM2. Interpretation costs range typically from 2-8,000 USD/KM2. We will use 50,000 USD/KM2 as estimated cost of 3D seismic acquisition and interpretation. For a 10 KM2 field with 20 Million barrels recovery; exploration costs can be estimated to be about: - 0.025 USD/Bbl. This is equivalent to, 0.02 N/Litre.

DEVELOPMENT COSTS

Opportunity development costs depend on field location, size, development philosophy and concept. Development cost will include capital costs of field facilities design, procurement, transportation, installation and commissioning. Cost of wells and pipelines to existing terminals are also included. It will typically vary from 2-5 USD/Bbl.

At the NAPE (National Association of Petroleum Explorationists) annual conference in 2005, offshore development costs was indicated as 5 USD/Bbl. However, historical data for completed projects offshore are closer to 3 USD/Bbl. Onshore development costs are also significantly lower than offshore costs. To averagely represent the entire JV operational environment scenarios (offshore and onshore) this paper will capture development cost as: - 4 USD/Bbl. This is equivalent to, 3.27 N/Litre.

OPERATION COSTS (OPEX)

Current (2005) production operation costs of major oil companies surveyed indicated a range of 1.5-4 USD/Bbl. This includes all overhead costs across relevant functions. This paper will capture OPEX as: - 3.0 USD/Bbl. This is equivalent to, 2.45 N/Litre.

Therefore, actual crude oil production cost to the Nigerian JV can then be estimated as:

(0.025 + 4.0 + 3.0) USD/Bbl = 7.025 USD/Bbl.

(0.02 + 3.27 + 2.45) N/Litre = 5.74 N/Litre.

Previous government (NNPC) estimates (1994 - ’98) yielded 5 USD/Bbl. The difference in these estimates can be attributed to rising oil industry service costs due to international market dynamics, inflation and/or to estimate basis differences.

For typical refinery yield of 95%; 5.74 N/Litre translates to – 6.04 N/Litre.

This compensates for volume losses inherent in the crude oil refining process.

REFINING COSTS

Installed refining capacity in Nigeria stands at 445,000 Barrels per day (BPD).

This is made up of:

1. Old Port Harcourt Refinery - 60,000 BPD

2. New Port Harcourt Refinery - 150,000 BPD

3. Warri Refinery - 125,000 BPD (Upgraded from 100)

4. Kaduna Refinery - 110,000 BPD (Two trains, 60+50)

Refining cost data from these refineries could not be obtained during our survey. Even when such data is available, they are very unreliable. According to the Nigerian Vice-President during an interview with Thisday newspaper in August 2005, "We have never got correct statistics from NNPC. They will never be able to tell you the correct thing. We have that problem with NNPC".

To estimate refining costs, we can rely on international industry data from similar refineries. Contemporary refining technology is of the Fluid Catalytic Cracking (FCC) process like most Nigerian refineries. This process requires fluidizing the solid catalyst and re-circulating it continuously from the reaction section of the cracker to the catalyst regeneration section and back to the reaction section.

Data published by the American Petroleum Institute (API) estimates Gross Refining and Distribution/Marketing Costs and Profits at $1.00 per Gallon in October 2005. Using a 50/50 split as established by historical U.S. cost trends, it can be clearly concluded that Refining costs and Profits, account for $0.50 per Gallon. This value includes the profits of the refineries.

The estimate can be used for this determination since it is from mostly FCC process based refineries just as most Nigerian refineries. Actual refining costs may be lower in Nigeria since labour costs are significantly lower in Nigeria. $0.50 per Gallon translates to $21/Bbl. We will capture refining costs as $21/Bbl. This is, 17.17 N/Litre.

DISTRIBUTION COSTS

Distribution costs in Nigeria are established by regulation. This is the cost margin allowed for Road Tankers that transport Petrol from the Depots to the Fuel Stations. As at Oct. 2005, it was, 2.42 N/Litre.

MARKETING COSTS

Marketing Costs in Nigeria are also established by regulation. This is the cost margin allowed for Oil marketing companies that operate Fuel Retail Stations. As at Oct. 2005, it was, 5.87 N/Litre.

TOTAL COST

The total cost can then be determined as the summation of all relevant cost components previously estimated viz., Exploration, Development, Production Operations, Refining, Distribution and Marketing.

Total Cost = (6.04 + 17.17 + 2.42 + 5.87) N/Litre.

= 31.50 N/Litre

Therefore, we can conclude that the Average cost of the Petrol dispensed at retail Fuel Stations in Nigeria is, 31.50 N/Litre.

CURRENT RETAIL PRICE

Current retail Price as established by regulation has been, N65/Liter since 2005. This regulated price is split to cost components in line with the following benchmarks;

56.71 - Depot Price.

2.42 - Transportation Margin.

1.15 - Dealer’s Margin.

4.72 - Marketing Company Margin.

65.00 Retail Price.

SUBSIDY

Subsidy can be determined as Actual Cost – Sale Price.

Consequently,

Subsidy = (31.50 – 65) N/Litre.

=-33.50N/Litre

CONCLUSION

We can confidently conclude that government makes a profit of 33.50 N/Litre on PMS (Petrol) at the current price of 65 N/Litre. This translates to a very high 106% profit per litre.

In addition the government benefits from royalties, taxes and fees which were not factored in this simplified analysis. When factored, the actual crude cost per barrel to government is significantly less and its profit correspondingly higher.

The claim of subsidies on petroleum products is clearly incorrect

I reserve any further comments and leave everybody to imagine the nonsense we are getting for being law abiding citizens. These people molest us from all locations of our orifices and will not even let us have respite. They refuse to allow the immense profit that accrues to government through local production by neglecting the refineries and allowing import where every transaction is in dollars and only their associates have facilities for such heavy cash transactions.

With this paper from SUPA, I begin to wonder what business this government has to do with deregulation. All they want is to make their ''dividends'' bigger by taking away the few kobo remaining in our hands.

Finally, Nigerians should expect this deregulation immediately the FIFA under 17 football tournament is concluded. These people are heartless. I am sure the government cannot be oblivious of the presentation by STRATEGIC UNION OF PROFESSIONALS FOR THE ADVANCEMENT OF NIGERIA (SUPA),. I am very grateful for their enlightenment as this publication , copiously reproduced above has given me an insight into the type of diabolical leaders we have had and are still having today. I expect that this document should have been a manual for any prospective leader of this country whether as president , minister of petroleum or finance. MY COMPATRIOTS , I AM TOO ANNOYED TO SAY ANYTHING ELSE.

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