Fuel subsidy removal has been the most commonly discussed topic in Nigeria over the past few weeks. The Government has given a whole lot of reasons for which the subsidy has to be removed. The Goodluck Jonathan administration expects the citizenry to accept the subsidy removal and cooperate with the government.
Giving reasons why the government needs to embark on the total removal of fuel subsidy, President Goodluck Jonathan said funds saved from the removal would stimulate private sector investments to bridge infrastructure gap and create incentives for investment in refineries and the petroleum industry.
In an effort to defend the proposed action, President Goodluck Jonathan disclosed at a recent Presidential retreat that ‘there are proposals to phase out petroleum subsidies in a deliberate and responsible way that will harness revenues for capital stock formation and leverage on private sector investments in public-private partnerships (PPPs).”
The Government has claimed that long term benefit is the main focus in the fuel subsidy removal and that the gradual removal of subsidies is a step towards deregulating the sub-sector.
It is believed by those supporting the subsidy removal that the resultant deregulation is mainly aimed at attracting investors who would establish refineries in Nigeria.
Government sources have disclosed that the government loses N 1.2 trillion in the course of subsidizing the cost of petroleum products.
Nigerians are however of the opinion that fuel subsidy removal will not augur well for the average Nigerian on the street. Many have reasons to believe that the removal of the subsidy will automatically mean an increase in the pump price of fuel, which would also translate to increase in prices in every aspect of life including transport fares, school fees, house rent, foodstuffs and health care services.
Some analysts have also described the fuel subsidy removal is an “IMF-induced project” which will not do the country any good.
Though no one expects the idea to be rejected by the National Assembly, the Senate President, David Mark expressed a belief that “there is a cartel within the petroleum industry and whatever they do is just exclusive to them. Ninety per cent of people outside do not know. We must find out how much is spent on subsidy, who are the beneficiaries? Has subsidy benefitted us? These are salient points and we cannot run away from them,”
The Senate he presides over is of the opinion that the amount being expended as subsidy exceeds the amount budgeted for it. For instance, in the 2011 appropriation, N240 billion (N20 billion monthly) is budgeted. Of the N20 billion monthly allocated, N11.2billion was allocated for domestic fuel subsidy (NNPC) and N8.8 billion for domestic subsidy (market) as stated in the Appropriation Act 2011.
It was however made known on the floor of the Senate that although, N20 billion was set aside for subsidy on a monthly basis in the Appropriation Act 2011, in August 2011, the total figure expended was N165bn of which the NNPC was N88 billion and Independent Marketers was N77.7 billion.
Street Journal’s investigations have revealed that most of what the Nigerian government describes as subsidy can actually be termed to be the cost of systemic inefficiencies and a very high level of corruption within the supply chain.
One shouldn’t expect anything less than calls for subsidy removal when provisions for factors like demurrage and interest rate are included in the computation for landing cost of petrol. In other words, if the government has made a budget for an amount as subsidy for a particular month and the Naira slumps, it automatically means it ends up paying more. And on the issue of demurrage, why can’t the product be cleared from the ports in good time? And for the consignments that were cleared as at when due, where does the money go?
It is also funny that the Senate President could be talking of a “cartel” in the oil sector. Is he implying that the cartel is above the law? Why has the government not dealt decisively with those involved if truly they are fleecing the country of what should have been used as subsidy. If there is indeed a cartel, the first step should be to unmask those behind it and prosecute them. There are grounds for doubt that the subsidy removal will ever work if the cartel remains intact. In very simple terms, once the government makes its move, the cartel simply re-strategizes and it is business as usual.
The knowledge of the proponents of the fuel subsidy removal about the internal workings of the Nigerian economy is seriously in doubt. Or if they have the knowledge, they have simply chosen to overlook the workability of their proposition vis a vis the plight of the average Nigerian.
Another proof that the proposed fuel subsidy removal defies the rules of simple logic and common sense is clearly understandable from the statement of the Venezuelan ambassador to Nigeria, Enrique Arundel who recently compared happenings in the Nigerian oil sector with those in his home country. The diplomat disclosed that it costs N 400 (an equivalent of about $2.35) to fill the tank of an average car in his home country while to achieve a similar feat in Nigeria costs about N5000 (an equivalent of about $ 30), thereby proving that Nigeria does not have the cheapest pump price of refined products as being boasted of by the government.
The Ambassador also pointed out that Nigeria’s problem lies mainly in the preference to export more of her crude instead of refining it. Refining more of the countries crude would give the country higher stakes in a deregulated market, stimulate medium scale service industries and also provide job opportunities, he opined.
So, instead of treating the symptoms and allowing the disease to grow, the Federal Government should consider putting the nation’s refineries in good order. It is an open secret that none of them presently works at full capacity. Investigations have revealed that their present maximum output is less than 50% of what it should be.