Rejoinder by Mr Soyode: Fuel 'Subsidy':The Nitty Gritty

Rejoinder by Mr Soyode:

Do not subscribe to the economics of Prof. Tam David-West, my former boss. Will you rent a 3- bedroom apartment at Ajegunle for the same price as an exact same apartment in Ikoyi? Most probably not, except you are daft, if you are the lessor, or a favourite son or relative, if you are the lessee. The market is the determinant of pricing,not sentiments or wishful thinking, nor government bashing!

Let me use simple economics to illustrate my point. A market woman may decide to sell a bag of ofada rice to her family for internal consumption at any price different from market price, certainly not higher than market price. The difference, whatever that is, represents a loss in revenue, relative to her competitors, the other ofada sellers in the market. This loss is real since no reasonable business person will set up business to sell his or her wares at cost. This loss is the subsidy by the woman to her family. It is the difference between what she buys the rice from rice millers or wholesalers, and the market price, determined objectively by the interaction of willing buyers,or housewives, and willing sellers, other ofada sellers. In other words, by the market.

Let us now go to crude oil. If the international price is,say $100 a barrel, we as a nation can decide to sell it for domestic refining at $40 a barrel. Nothing stops us from exercising that sovereign right! We are so blessed a nation, and we must show off our wealth! However, the loss to our treasury, the Federation Account, is $60 a barrel, at least relative to other crude oil producers and sellers. It is not the difference between what it costs to produce the oil, as many voodoo economists would want us to believe. For further clarity, if the international price, or the market price, crashes, and goes below $40 a barrel, would it make any sense to insist that our refineries must continue to buy at $40? Certainly not! We heither reduce the price or let the refineries go shopping for the best price. Kindly note that the prices are indicative, and are not absolute. You can plug in any numbers you like,so long as you respect the relativity, meaning market will generally be higher than domestic price.

Now, let us put in some numbers. The difference in the prices above is $60 a barrel. For the gross domestic refining capacity of 445,000 barrels per day, this comes to $26,700,000 a day, or N4,272,000,000 a day at N160 to $1.00, or N1,559,280,000,000 a year. I have not considered any other cost, since all other costs can contain contributions from inefficiencies of the operators, corruption, cartel manipulation, or whatever. I have only considered the only truly objective material cost, crude oil, whose cost is determined by the global market. I am also focussing solely on this because, in the absence of fiscal taxation as in Europe and other economies, crude oil cost represents about 80% of the product price. Secondly, crude oil sales revenue is the largest component of the Federation Account, and is what the operators are laying their hands on to pay for the subsidy. Of what use is the crude oil to us if not for the revenue that we derive from selling it? What is the argument, indeed contention over derivation about, if not for the monetary revenue accruing therefrom? Why we have forsaken agriculture and other mineral exploitation for oil if not for the easy money from oil? Do you think the smugglers operating in the creeks are concerned about production cost or what the market will pay for their smuggled oil?

If we must argue about subsidy, it would help immensely if we are clear-headed about facts and figures, because for our nation,the stakes, or monetary costs thereof, are stupendously high in this case. We may still decide for subsidy, but with our eyes truly "shined" on the numbers.

For me the decision by the President is correct, albeit very painful. He is adhering to the Constitution that stipulates that all federally collected revenues should go into the Federation Account, from which distribution will be as prescribed by law. The fight should now start at State and Local Government levels, and also Federal, over these enhanced incomes are spent. This where the Labour Unions and NGO's can provide effective leadership to proactively monitor the various expenditure patterns and items.

Whether we like it or not, quantification of subsidy is very real, and we should not let any sentiments or government bashing cloud our judgement on it. We may decide to spend the money on subsidy, but we must know exactly how much it is costing us. If Prof. says there is no subsidy, then where has the money recently revealed to have been paid out as subsidy come from? Are we now going to deny that the money was not paid out? The beneficiaries would certainly welcome that! The money surely did not come from customs revenue, or Federal Income Tax!

Engr. B. A. Soyode