Nigeria Oil Facts in International (OPEC) Context
By Tony Okoromadu
OPEC
Organisation of Petroleum Exporting Countries. Formed in September 1960. Algeria, Indonesia, Iran, Iraq, Libya, Kuwait, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, Venezuela (and the Saudi-Kuwaiti Neutral Zone: territory between Saudi Arabia and Kuwait; the production there is shared 50/50 between the two countries and is included in their respective OPEC quotas).
Much of the discourse so far about the appropriate pricing of petroleum products and the economic and social considerations that should (or should not) be taken into account, has been carried on without recourse to data. Specific empirical facts about Nigeria's oil in a macroeconomic context are essential if a precise and informed conclusion will be reached.
Basically, there exist two broad sides: one which argues that deregulation of the downstream petroleum sector, with the consequent (free) market determination of price levels, is the solution to the existing haphazard and unreliable supply of fuel. The other (if I may lump together various but largely similar shades of position) insists that pursuing the free market course would be abdicating the welfare responsibilities of the government since these fuels (petrol, diesel, kerosene) are central to the everyday life of the average Nigerian and even have the peculiarity of strongly and adversely affecting inflation and other macroeconomic factors.
Both positions have their distinct merits. But neither could claim conclusive status without a thorough analysis of the data as they presently stand. "Data don't lie," said the late Professor Julian Simon, a celebrated economist at the University of Maryland, years ago, and his enunciation will always ring true.
The charts, comparisons and observations that follow are meant to aid the drawing out of, in my view, a more accurate picture of the fuel problem, and thus, hopefully, the articulation of more precise solutions to it. I believe a deeper and objective study of Nigeria's oil structure in the direction offered will inexorably point towards a largely similar set of viable solutions.
The sources of data used are the World Bank, in its 2005 World Development Report and OPEC in its 2003 Annual Statistical Bulletin. The latest compatible data available in the public domain has been used in all cases.
This body of work is only a bird's eye view of some social and macroeconomic parameters related to the petrol problem. But that does not at all detract from the work's significance. Instead, it allows this survey to be used as a platform from which to burrow deeper and structure a firm and feasible oil policy in its myriad of facets. It is hoped that the survey will point the persons responsible for such policy development in the right direction
Appropriate Pricing
The lack of recourse to facts and data when speaking of oil "subsidy" is unfortunate. The Group Managing Director of the Nigeria National Petroleum Corporation (NNPC), Funsho Kupolokun, is reported to have told the Senate that Nigeria is the only country in the world subsidising the cost of petrol. The Finance Minister, Dr. Ngozi Okonjo-Iweala, also told reporters that the "subsidy on petrol" has to go if economic reforms are to succeed.
As the charts show, at the end of last year, Nigeria's petrol (at N41 a litre), diesel (N38) and kerosene (N38) were the most expensive within OPEC. Petrol in Nigeria cost almost twice the OPEC average, and diesel and kerosene cost more than twice OPEC average. If at N41 (and now N53) Nigeria subsidised petrol, the rest of OPEC must be guilty of a much worse crime. But the snag is: they seem to be doing far better by any available social or economic index!
Whatever the case, it does not speak well for the quality of NNPC management that its chief executive does not place Nigeria's oil characteristics in accurate context before enacting weighty policy. That is sad, for it illustrates the lack of thoroughness that all too often accompanies governance in Nigeria.
One conclusion a study of available data does throw up is that whatever the problems are with the downstream petroleum sector, it has little to do with "appropriate" pricing. Indeed, in this context, "appropriate pricing" would mean bringing prices within comparable bands as the other successful countries (eg OPEC) which share a similar macroeconomic structure with us.
Quality Of Life
Nigeria is the worst place to live in within OPEC. You earn the least money and are likely not to survive past the age of 45 years. Indeed, if you were Iraqi, you would live one and a half times as long: up to 63. Anywhere else within OPEC and you would almost be sure to live to nearly 80. Babies also get the stick: Nigeria's infant mortality rate is four times the OPEC average.
It is difficult to sympathise with the government here. Figures show that Nigeria spends the least on basic needs (healthcare, education, etc) of its inhabitants. Even within Sub-saharan Africa, we bring up the rear.
Cost Of Living
Dismal performance, again. Even though Nigerians consume the least amount of petrol per inhabitant in OPEC, they pay the most. 50 litres of the fuel would gulp 43 percent of a worker's monthly earnings. In Venezuela, it would cost one percent. The highest in OPEC after Nigeria is Indonesia with 13 percent. Diesel and kerosene share similar characteristics.
So much for the NNPC Group MD's cry about not being able to pay salaries. In Qatar, petrol sells for half the price in Nigeria, yet its citizens earn 70 times more than Nigerians.
Okoromadu writes from Lagos
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