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Ending subsidy conundrum as tool for curbing poverty

By Collins Olayinka, Abuja
16 April 2019   |   4:22 am
Once again, cacophony of voices against the removal of fuel subsidy is reverberating. The chief instigator is not even at the scene of the action (Nigeria), but far away in Washington DC, the capital of the most powerful nation in the world...

Prof Wumi Iledare

Once again, cacophony of voices against the removal of fuel subsidy is reverberating. The chief instigator is not even at the scene of the action (Nigeria), but far away in Washington DC, the capital of the most powerful nation in the world – The United States of America.Again, from a familiar corridor – Bretton Woods Institution.

From the need for Nigeria to adopt the Structural Adjustment Programme (SAP) of 1986, to the present call for the removal of fuel subsidy, the International Monetary Fund and its twin Bretton Woods organisation, the World Bank, have remained steadfast on why Nigeria should cut subsidies on consumption but should rather commit huge spending on social services such as education and health. The Managing Director of the IMF, Ms Christine Lagarde, while addressing a joint annual spring meeting of the World Bank in Washington DC, last week, re-echoed this stance.
She asked Nigeria to remove subsidy on fuel in order to free resources for the funding of social sector as well as stimulate economic growth and place it on the path of sustainable development.

This submission, which is not new considering the stance of IMF on fuel subsidy, has expectedly drawn reactions from Nigerians.Petroleum experts insisted that only timely stoppage of fuel subsidy could prevent Nigeria from becoming another Venezuela. They argued that selling cheap petrol to her citizens pushed Venezuela into an untold humanitarian crises she is currently experiencing. Speaking in Abuja at the weekend on the preparation towards hosting the now on-going 12th Nigerian Association for Energy Economics (NAEE), the President of the group, Prof Wumi Iledare, opined that Nigeria is presently on the road to Venezuela if subsidy is not quickly halted. He argued that Nigeria is showing signs of a failed state, as she is no longer able to fund her budget, does not earn enough to pay salaries, and has to borrow money to service borrowed money. He lamented that the future is indeed very bleak.

To the President of the Nigeria Labour Congress (NLC), Ayuba Wabba, subsidy is a mother of all frauds, mythical and an avenue for unbridled corruption by those in privileged position in government. Iledare insisted that the benefits of subsidy are far less than the damage it is causing the economy.

While calling for a review of the subsidy regime, Iledare said: “Any time a government has a policy, there is always a need for it to be reviewed to see whether the benefits that come from that policy is more than the cost or they are equivalent. Let us look around. The roads are bad. The hospitals are bad. The schools are bad. The infrastructure is not available. The most uncomforting part of it is that looking at the budget for health, education and budget for defence, they are not up to what is spent on petroleum subsidy in 2018. Is it not time for government to look at all these?”

Of course, Iledare envisaged opposition that the labour movement would lead against subsidy removal. He urged government to engage labour, unfold an enduring roadmap to a sustainable commercialisation of the downstream sector, and then explain the benefits to the Nigerian people. “Yes there would be some social unrests whenever subsidy is removed, but such unrest would be only for a while. Government must mount aggressive public education for the populace to see that petroleum subsidy benefits no one. Government must also have a solid plan on how the downstream sector would be managed to avoid fleecing the people,” he said. Iledare opined that at about 50 million litres daily consumption figure, Nigeria is obviously subsidising the consumption of neighbouring countries.

He insisted that Nigeria does not subsidise petrol that is consumed in the country, but petrol that is imported into the country. He explained: “What is imported into the country is not what is consumed by Nigerians. Nigeria subsidises fuel that neighbouring countries are consuming. What we pay for is the petrol that NNPC imports and not what Nigerians consume. We must find out what Nigerians actually consume by working on our porous borders.”He also urged the Federal Government to stop premising its budget on oil prices that it has no control over.

“Nigeria currently budget on the basis of production and assume a price, and then use those combination to calculate the royalties government is going to get because royalty is a proportion of gross value. The unstable leg of it is the price which means that Nigeria based her budget on prices that are susceptible to market variables, which could change within a few months. That is why Nigeria struggles every year because she has to pay salaries with income that is not stable. Is it not time for Nigeria to sit back and rethink? That is exactly what the Petroleum Industry Governance Bill is intended to achieve,” he explained.

Re-echoing President Muhammadu Buhari’s stance that subsidy is corruption and a fraud, Wabba said: “In the first place, is there a subsidy? That is the question we as a country have not been able to answer. Let me align myself with what President Muhammadu Buhari said sometime ago that subsidy is corruption and who is actually subsidizing whom? Labour stands by that position and we have remained consistent.”He insisted that Nigeria could end subsidy when she increases her local capacity for refining crude oil.

The NLC chief argued that the three refineries in the country can function optimally and have their capacities increased to meet the current daily consumption of the country if the Federal Government has the will to make that happen.He said: “There is nothing that is wrong with our refineries. It is simply a conspiracy that is preventing them from refining what we need, and even export to the neighbouring African countries. We have examples of refineries that have been upgraded around the world. Why is our case different? We are going through what we are going through because it pays the corrupt individuals in the system for Nigeria to keep importing finished products.”

Strangely, Venezuela that is going through economic trauma as a result of mismanagement of her oil resources got applause from Wabba. The NLC helmsman blamed international conspiracy for the current humanitarian experiences Venezuela is passing through. Wabba also applauded Venezuela for standing against high petrol prices.

On his part, the General Secretary of Non-Academic Staff Union of Universities and Associated Institutions (NASU), Peters Adeyemi, also disagreed with the Managing Director of IMF on her views about subsidy regime in Nigeria. He said the IMF chief’s stance shows a lack of understanding of factors that underpin fuel subsidies in Nigeria. He also accused the Federal Government of bad faith regarding the way it handled subsidy removal in 2016.

His words: “After about one year after this administration came on board, government told Nigerians that they were going to remove subsidy and then went ahead to ignore the Nigeria Labour Congress, and Nigerians and removed the so-called subsidy. In fact, this government implemented the biggest addition of N58 from N87 per litre to N145 per litre. No government, not even the military, added such an amount to the pump price at once. So, what happened between then and now? If subsidy was removed in 2016 with N58 addition, what then is being considered in 2019?”He said labour had warned the Federal Government in 2016 that using forex that is sourced from the black market to import fuel was unsustainable, but was ignored.

Adeyemi submitted that the 2016 removal of subsidy was a failed exercise saying since 2016 only the NNPC has been importing petrol into the country. He asked what has made it impossible for this government to build a single modular refinery four years after coming into office.He said: “For as long as Nigeria continue to import and as long as the price of crude goes up in the international market and our inability to determine the landing cost of petrol, Nigeria will not go exit subsidy conundrum.”

Adeyemi accused the NNPC of usurping the mandates of other agencies as it assumed the role of determining the price, quantity imported and pays itself without the necessary checks and balances from other agencies such as the PPPRA and federal Ministry of Finance, saying the current practice represents the highest corruption in the history of Nigeria as a country. Adeyemi pointed at the N500 billion intervention fund meant to alleviate the effects of removal of subsidy in 2016 as another signature fraud of the Buhari-led government.

He explained: “Government said they had intervention fund when labour opposed the removal. They argued that the N500 billion intervention fund would be used to ameliorate the suffering that would be brought on the people by the subsidy removal. The government then set up a technical committee on palliative for Nigerian workers. I led the labour side to the technical committee meeting where government was to roll out the palliatives to cushion the effects of the removal and when we got to meeting, government officials that came said there was no single Kobo for the purpose. Government obviously lied.”He declared that any attempt to increase the price of petrol at this time is to entrench corruption, pauperise the already traumatised masses and enrich the few in government and their friends outside of it.