Oil Subsidy Saga: A Harbinger of Nigerian Arab Spring ?
Sulaimon Olanrewaju reports on the factors responsible for variations in petroleum products pricing system among Organisation of Petroleum Exporting Countries (OPEC) member countries.
It seems that for citizens of member countries of the Organisation of Petroleum Exporting Countries (OPEC), it is different yokes for different folks; while in some of these countries the burden of paying for petroleum products is so light, the same cannot be said of other countries. While in Nigeria, as well as a few other OPEC member countries, citizens have to pay through their noses for petroleum products, the reverse is the case in some other countries as petroleum products are sometimes cheaper than beverages in these other countries.
In Nigeria, a litre of petrol sells for N65 but the same litre of petrol sells for US$0.02 (about N3.20) in Venezuela. In Algeria it is 32 cents (about N51.20), in Iran it is 10 cents (about N16); in Kuwait it sells for 23 cents (about N36.80); in Saudi Arabia it is 16 cents (N25.60); in United Arab Emirate it is 47 cents (about N75.20) and in Angola it is 65 cents (about N104).
In Ecuador, it is 53 cents (about N84.80), in Iraq it is 78 cents (about N124); in Libya, it is 17cents (N27.20); and in Qatar it is 19 cents (about N30).
Similarly, the price of diesel varies from one country to the other. In Nigeria it is N115, while in Algeria it is US$0.19 per litre (about N30); in Angola, it is 43 cents (about N68.80); in Ecuador, it is (N45); in Iran, it is two cents (about N3.20); in Iraq, it is 56 cents (N89.60) and in Kuwait, it is 21 cents (about N34).
A litre of diesel sells for 13 cents (about N21) in Libya; 19 cents (N30) in Qatar, 7 cents (about N11.20) in Saudi Arabia; 71 cents (about N114) in United Arab Emirate and one cent (N16) in Venezuela.
But petroleum products are also cheap in a few other countries that are non-OPEC members. These countries include; Bahrain, Oman and Turkmenistan. A litre of petrol is 21 cents (about N34) in Bahrain; 31 cents in Oman (about N50) and 22 cents (about N35) in Turkmenistan. In Bahrain a litre of diesel goes for 13 cents (about N21); while it is sold for 38 cents (about N61) in Oman and 20 cents (about N32) in Turkmenistan.
But different factors are responsible for the price differentials in these countries. While some oil-producing countries are in firm control of the exploration and refining of their crude oil, some have left these in the hands of foreign countries and these account for how much petroleum products are available for domestic use and how much they are sold. In the same vein, while some countries find it convenient to subsidise the prices of petroleum products for their nationals, others do not.
Although prices of petroleum products are considerably cheap in Algeria, the country is not one of those where prices are subsidised. In Algeria, the bulk of the domestic fuel requirement is supplied by the Algerian national oil company, Sonatrach, which is in charge of exploration and production, transport, refining, processing, marketing and distribution. The secret to the low prices of petroleum products in Algeria is local refining of crude oil.
Just as it is in many oil producing countries, Algeria’s oil sector is not fully open to foreign operators as such companies have to enter into a joint venture with Sonatrach, with Sonatrach usually holding majority ownership in these production-sharing agreements. Though, these other companies are involved in fuel supply, the bulk of this comes from Sonatrach and has largely been responsible for the comparatively low prices of petroleum products despite the non-existence of subsidy by the state.
In Late Muammar Gaddafi’s Libya, petroleum products were largely subsidised. The National Transition Council (NTC) which is currently in charge in Libya has not changed that, so Libyans still enjoy petroleum products subsidy. The country’s oil industry is run by the state-owned National Oil Company (NOC), which accounts for around 50 per cent of the country’s output.
Observers are of the opinion that the position of Gaddafi to subsidise prices of petroleum products was founded on his conviction that since nature has abundantly blessed the country with crude oil, the citizens should not be over-burdened. So, for most of his reign in Libya, prices of petroleum products were deliberately kept low to make them affordable to the citizens.
Venezuela holds the record of being the country where petroleum products are cheapest in the world. According to reports, the government subsidises about 90 per cent of the actual cost of petroleum products in the country. The effect of this huge expenditure has not been felt much by the government because Petróleos de Venezuela S.A, the state-owned petroleum company with responsibility for exploration, production, refining and exporting oil, as well as exploration and production of natural gas, is effective and is able to make fuel available on demand in the country. Although there have been plans by the government to remove the subsidy, the government has not been able to muster enough courage to put such plans into effect. This is probably because of what happened in 1989 when an attempt to cut the subsidy resulted in violent protests that left thousands dead, thus forcing the government to reverse itself. A move by the current president, Evo Morale, to reduce the subsidy in January this year led to violent protests, a situation that forced the government to throttle the proposal.
In December last year, Iranian government announced a cut in subsidy on petroleum products. With the cut, the government plans to save about $100billion yearly on subsidy. However, despite the cut in subsidy, Iran is still one of the countries where petroleum products are cheapest with petrol selling for 1,000 rials (about N16) per litre. There is, however, a proviso; each motorist is entitled only to 60 litres of petrol monthly. Anyone who needs more than 60 litres will pay 7,000 rials (N112) per litre.
National Iranian Oil Refining and Distribution Company (NIORDC), an arm of the Ministry of Petroleum, is responsible for refining crude oil and producing a variety of oil products and providing more than seven million vehicles with their required daily fuel.
It is also responsible for production, transfer and distribution of 250 million litres of petroleum products daily. NIORDC is also saddled with the responsibility of providing different sectors with fuel for their activities.
The Ecuadorian government has repeatedly stated that it will not allow petroleum products prices to rise in the country.
According to Katiuska King, Ecuadorian Economic Policy Minister till October, “Ecuadorians will not pay more for the gasoline and other fuels they consume even if the per-barrel price of oil rises.”
Her reasons: A reduction in subsidies would precipitate an increase in fuel prices and make the cost of transportation and prices of goods and services in general more expensive. This, she said, would be harmful to the poor.
She added, “Subsidies are not bad per se. You can work on making sure they are better targeted.”
So, in Ecuador, the determining factor for retaining subsidy is a consideration for the poor; the need to make the poor pay less, not a desire to make the rich pay more.
Recently, the Angolan government announced a cut in subsidy on petrol and diesel. The cut resulted in a 50 per cent increase in the price of petrol and 38 per cent rise in the price of diesel with the duo now selling for 60 and 40 Kwanzas respectively.
According to the government, this measure was taken to reduce the 440 billion Kwanzas (about $4.8 billion) expended on fuel subsidy annually by about 20 per cent each year. The government plans to use the money saved in the process to improve living standards in the country.
Sonagol, the state-owned oil company, saddled with the responsibility of exploring, refining and marketing petroleum products in the country is only able to supply 37,500 barrels per day, which is an equivalent of 30 per cent of domestic requirement.
According to Jose Botelho de Vasconcelos, Oil Minister, a new $8 billion refinery being constructed in Lobito to boost local supply of petroleum products is expected to come on stream in 2014.
Things have not remained the same in Iraq since after the war. Since then, there has been a drastic reduction in subsidy on petroleum products. This is in consonance with the agreements for loans from the International Monetary Fund (IMF) as well as relief from debt incurred during the Saddam Hussein regime. So, since 2005, prices of fuel have been climbing up in the country. The first surge in the price of petrol was in December 2005 when it went up from about 1.25 cents (N2.00) per litre to about 14 cents (N21). There has not been any respite ever since till it got to the current price of 78 cents (N124).
Fuel prices are subsidised in Kuwait for the purpose of stimulating economic growth without overburdening the citizens. The government is convinced that when energy prices are cheap, there will be more economic activities which will result in the overall growth of the economy.
The government is also careful not to put too much pressure on families; hence it has put a lid on prices of petroleum products largely because the state-owned Kuwait National Petroleum Company (KNPC) saddled with refining and distribution of petroleum products is very efficient.
The government of Saudi Arabia spends a whopping 50 billion riyals yearly on fuel subsidy but the government is not considering increasing pump prices of petroleum products because it sees subsidy on fuels as part of its social contract with the people. The kingdom does not only subsidise on fuels, it also subsidises the cost of electricity.
The country has been able to achieve this largely because of the efficiency it has been able to manage in its processes. The state-owned Saudi Arabian Oil Company (Saudi Aramco) has responsibility for exploration, producing, refining, chemicals, distribution and marketing. Its refining capacity is more than four million barrels per day. This is in excess of what the kingdom requires. So, after taking care of domestic needs, it sells the rest to other countries; that is what takes care of the subsidy for local consumption.
The Qatari government has always subsidised prices of petroleum products to the extent that the people are used to paying next to nothing for fuel. So, when the government announced a slight increase in fuel prices earlier in the year sequel to a cut in the subsidy that was necessitated by the international market prices of crude, it was shocking to the people. The local market responded with an increase in the prices of food items and other commodities and the people wondered why the fuel price hike was necessary with some of the people calling on the government to start subsidising food items as is the practice in Kuwait.
To stave off protests, the government came out assuring the people that it would put measures in place to cushion the effect of the increase in place.
United Arab Emirate
Despite being an oil producing country, UAE does not refine its crude oil; rather, it buys it at market prices on the international market and sells it at a reduced rate in the country. Thus the government is daily subsidising domestic consumption of fuel to the tune of $4.2million. So, despite sitting on a large quantity of crude oil, the country is facing serious shortage of petrol and diesel as the state-owned filling stations have been largely without petrol and diesel since June.
The state-owned fuel retailing outlets have been running at a loss. According to a report, “Three of the UAE’s four fuel retailers – Dubai government-owned Emirates National Oil Co (ENOC), Emirates Petroleum Products Co and federally owned Emarat – have been making losses for many years. The fourth is Abu Dhabi National Oil Co, which has been largely unaffected because its upstream operations and vertically integrated supply system allow it to absorb any potential losses.”
In addition, some of the retailing outlets in the country have been facing serious shortage of supply since June. This has in effect resulted to the high prices of petroleum products in the country.
Hon. Ibekwe Alexander
Director, Health Link Org.
South East Secretary National Youth Council of Nigeria (NYCN)