Statement from the office of the Vice President on fuel pricing debate

Fellow Citizens:
I have read the various observations
about the fuel pricing regime and the
attendant issues generated. All certainly
have strong points.
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.
Thank you all.
VICE PRESIDENT YEMI OSINBAJO, SAN
May 13, 2016