Cont'd from last week

The paradox here is, that while the cost of crude extraction went down steadily throughout OBJ's regime, almost to half of what it was under IBB, the market price spiralled upwards almost in geometrical progression, to average more than 500% of its cost under IBB and more under Abacha. Even when weighted against wage increases and other socio-economic indices, to its Net Present Value (NPV), OBJ still enjoyed an incredible price boom advantage. Yet his administration's pump prices soared to dizzy heights, rather than plunge to sober levels.

Mercifully, this latest increase was promptly reverted to its old price of N65/litre by Yar'Adua on his access to power same year! Under Abacha, crude oil price once fell to as low as $9.00/barrel and yet his pump price was N11/litre in October, 1994! Thus only IBB kept the pump price in the kobo range, well below N1/litre (see Table below), up to the end of his administration, August, 1993.

The PMS price increase profile is summarised below.

Date Price per litre Head of State/President

Dec 19, 1989 60 kobo Gen. Ibrahim Babangida

March 6, 1991 70 kobo Gen. Ibrahim Babangida

August 27, 1993 70 kobo Gen. Ibrahim Babangida

October 4, 1994 N11.00 Gen. Sani Abacha

June 1, 2000 N30.00 Chief Olusegun Obasanjo

January 1, 2002 (N40) -N26.00 (by NLC) Chief Olusegun Obasanjo

June/July, 2003 N40.00 Chief Olusegun Obasanjo

2005 (N75) -N65.00 (by NLC) Chief Olusegun Obasanjo May, 2007 N75.00 (-N65 by Yar'adua) Chief Olusegun Obasanjo

In an absurd move for an oil producing country, the World Bank advised the Obasanjo government to adopt its so-called international pump prices for Nigeria. Even in the United States, the pump price of regular petrol was $1.79 per gallon of 3.8 litres in early 2005, which converts to N69.70/litre at $1 = N148, in 2005. Yet the minimum wage in the U.S. is over $1,000 or N156, 000/month, compared with Nigeria's N7, 500 (federal workers) and N6,500 (states).

THE SAUDI ARABIA EXAMPLE

In late 2004, the then Managing Director of SHELL, van Den Berg, announced with glee in his valedictory speech, that by deploying "state-of-the-art" technology, SHELL had become the first oil company in the world to extract crude oil at the cost of a mere $2 per barrel (in Nigeria). This contrasted with the cost of over $6/barrel in Saudi Arabian operation. This reality dictates, when computed, a pump price of PMS (petrol) of no more than N47.36/litre ($0.32) in 2007, at $1 = N148.

In Saudi Arabia then and today, the cost of crude oil extraction still is over thrice Nigeria's and the cost of refining it is also much higher than in this country. Yet the (pump) price in 2007, of their 91-octane was 0.45 riyal ($0.12), which equals the ridiculously low sum of N17.76/litre at 0.60 riyal = $0.16 (compare with OBJ's price of N75/litre, which he put in place on the eve of his quitting office). This 91-octane petrol is the exact quality of the Nigerian import, which the former OBJ Government claimed cost it around N120.00/litre to import (source: Vanguard, January 2, 2007, p.23). Whence arose the wrong claim of 'subsidy' of the pump price - wrong because it is inconceivable that Nigeria would subsidise another country's refined products from crude oil, which that country purchased at $75/barrel and which was available in superabundance to Nigeria at cost - $4.50/barrel.

As in the IBB case, Saudi's low pump price was made possible because the Government sold its domestic crude quota to its refineries at less than international prices, but still at good profit over its extraction costs.

The Saudi Government made a further gesture on the pump price of its locally manufactured PMS (petrol) and other refined products in the same 2007. The State Oil company had in 2007, recommended a 25% increase in the pump price of the 91-octane PMS, which would have brought the price to 0.56 riyal/litre (N15.00/litre), but the Head of State, King Abdullah, ordered its cancellation. So, the price of the 91-octane PMS which is similar to the Nigerian quality, remained unchanged at N12.00/litre! The reason given was:

"This measure is in line with the King's concern to improve living standards and is aimed at confronting the early signs of growing inflationary pressures". The King cancelled the increase, even as he had issued a decree nine months earlier in April, 2006, slashing petrol and diesel prices by 30%!

The King's gesture was simply amazing, when one realises that Saudi Arabian inflation rate was less than 1.8% for the seven-year period, 1998 to 2005, while Nigeria's swung crazily between 24% and 18% throughout OBJ's 8-year regimes (1999-2007), according to the World Bank. Again, Saudi Arabian per capita income was said to be over $30,000.00, while Nigeria's was between $360.00 and $430.00, within the same period. It is, therefore, difficult to rationalise Nigeria's pump price of N75.00 at the time (later reduced to N65, following workers' strike) against Saudi Arabia's N12.00/litre for similar petrol quality! Saudi Arabian Government's gesture to its people is true subsidy, because the selling price is below its refinery's production costs. The cost differential is now given as a grant to the refinery as subsidy.

It is clear from the IBB paradigm and Saudi Arabian patriotic example, that local refining of crude petroleum results in ridiculously low product prices, yet with good profitability accruing to the four principal operators: Government, Refinery, NNPC and marketers. It has been shown that rather than subsidise petroleum products prices, Government, indeed, makes a kill that almost gravitates to "profiteering," viz: 100% on crude sale to refineries and over 18% on refined products! Clearly, with local refining, there can be no talk of subsidy.

So one wonders why OBJ spurned local refining in preference to importation.

Concluded