He said the issue was about foreign exchange problem in the face of dwindling earnings.
Osinbajo, who supervises the nation’s economy made the clarification in a document tagged, “A personal note to Nigerians” and made available to journalists by his Senior Special Assistant on Media and Publicity, Mr. Laolu Akande.
In the document titled, “The fuel pricing debate: Our story,” Osinbajo said he had read the various observations about the new fuel pricing regime and the attendant issues generated.
While saying all the observations had strong points, the vice-president said the most important issue was how to shield the poor from the worst effects of the policy.
That, he promised, he would address in another note.
Osinbajo said the fuel price hike was not about removal of subsidy because there was not much of subsidy to remove at the current price of crude oil.
He said President Muhammadu Buhari was one of the “most convinced pro-subsidy advocates.”
The vice-president explained, “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 Nigerian National Petroleum Corporation exchanges crude from its joint venture share to provide about 50 per cent of local fuel consumption. The remaining 50 per cent 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 $550m. The amount required for fuel importation alone is about $225m!) .
“Meanwhile, NNPC tried to cover the 50 per cent shortfall by dedicating more export crude for domestic consumption. Besides the short term depletion of the Federation Account, which is where the Federal Government and States are paid from, and further cash-call debts pilling up, NNPC also lacked the capacity to distribute 100 per cent of local consumption around the country.
“Previously, they were responsible for only about 50 per cent. (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.”
Osinbajo said the Federal Government’s target was that by Q4 2018, Nigeria should be producing 70 per cent of its fuel needs locally.
He said at the moment, even if all the refineries were working optimally, they would produce just about 40 per cent of the nation’s domestic fuel needs.
The vice-president said, “You will notice that I have not mentioned other details of the Petroleum Product Pricing Regulatory Authority 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.”
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