Facts You Must Know: Fuel Subsidy Made Simple

1).Definition:To subsidize is to sell a product below the cost of production. Since the federal government has been secretive about the state of our refineries and their production capacity, we will focus on importation rather than production. So, in essence, within the Nigerian Fuel Subsidy context, to subsidise is to sell petrol below the cost of importation.
2) THE UNSUBSTANTIATED CLAIMS OF THE FEDERAL GOVERNMENT
The Nigerian government claims that Nigerians consume 34 million litres of petrol per day. The government has also said publicly that N141 per litre is the unsubsidised pump price of petrol imported into Nigeria. (N131.70 kobo being the landing price and N9.30 kobo being profit.)

3) ANNUAL COST OF IMPORTATION
Daily Fuel Consumption: ​​34 million litres
Cost at Pump: ​​​​N141.00
No. of days in a regular year: ​​365 days
Total cost of all petrol imported yearly into Nigeria:

Litres Naira Days
34m x 141 x 365

= N1.75 trillion

4) COST BORNE BY THE CONSUMERS
Nigerians have been paying N65 per litre for fuel, haven’t we? Therefore, cost borne by the consumers =

Litres Naira Days
34m x 65 x 365 = N807 billion

5) COST OF SUBSIDY BORNE BY THE GOVERNMENT
In 2011 alone, government claimed to have spent N1.3 trillion by October – the bill for the full year, assuming a constant rate of consumption is N1.56 trillion.

Consequently, the true cost of subsidy borne by the government is:
Total cost of importation minus total borne by consumers, i.e. N1.75 trillion minus N807 billion = N943 billion.

Unexplainable difference: N617 billion

The federal government of Nigeria cannot explain the difference between the amount actually disbursed for subsidy and the cost borne by Nigerians (N1.56 trillion minus N943 billion = N617 billion).click to continue reading...FanBox Desktop

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