‘How government can stop wasting trillions on fuel importation’

I believe that your report in the front page of today’s Guardian Newspaper referenced above should have been titled “Why Fuel Subsidies In Nigeria Are Illegal And Unconstitutional”. This is borne out of my belief that the costly, clearly unsustainable practice of subsidizing fuel is at the heart of the seemingly intractable problem of a cost-effective and efficient fuel production, supply and consumption strategy in the country. The following are my reasons.

To start with, no law backs the practice of subsidizing petroleum products in Nigeria. Before reviewing the various extant legislations on the subject, it is essential to understand what a subsidy means. A subsidy is simply an amount of money paid by the government or an organization to reduce the cost of producing a product in order to keep its price low. See the Oxford Advanced Learners’ English Dictionary, 6th edition, page 1194. No law imposes such an obligation on the government. The relevant extant statutes in this regard are the following:-

The Petroleum Act, 1969, Section 6(1);
The Price Control Act, 1977;
The Petroleum Equalization Fund Act 1975;
The Petroleum Products Pricing Regulatory Agency Act 2003;
The erstwhile provision for subsidies in the annual Appropriation Acts or Budget (now discontinued under the present Government);
Item 62(e) of the Exclusive Legislative List in Schedule Two of the 1999 Constitution of the Federal Republic of Nigeria.

By virtue of this last enactment, i.e., Item 62(e) of the Exclusive Legislative List of the Constitution, only the National Assembly has the power to control the prices of any product in Nigeria. This power is, however, not at large, but is to be exercised only in respect of essential products and commodities as designated by the Assembly. With the exception of drugs, the National Assembly has designated no product as essential. To that extent, the aforesaid statutes are all ultra vires the Assembly, invalid, null and void: see Section 1(1) & (3) of the Constitution. It follows that the practice of the Federal Government, either through the NNPC, the Federal Ministry of Finance, the PPPRA, or otherwise, of subsidizing petroleum products is also unconstitutional, invalid, null and void. It is important to stress that what Item 62(e) of the Exclusive Legislative List of the Constitution recognizes is price control and not subsidization; the two are not the same, for, whilst a subsidy is a means of controlling prices, not all price control measures involve subsidies, as it depends on the modalities, if any, applicable in any given case. I submit that the express terms of the relevant one in this case, i.e., the Price Control Act, leave no room for conjecture that the National Assembly intended to subsidize petroleum products. Accordingly, the erstwhile practice of appropriating funds in the annual Budget for fuel subsidy payments is illegal because it is inconsistent with the Price Control Act – even assuming, without conceding that the National Assembly has designated petroleum products as essential commodities. Even though the present Administration of President Muhammadu Buhari has purportedly dispensed with this practice, (preferring, somewhat disingenuously, to absorb the subsidy as part of the “operational costs” of the State Oil Company, the NNPC), one must wonder whether this is not a not-too-subtle subterfuge to hoodwink Nigerians, given that the removal of fuel subsidies has historically proved to be unpopular. It remains to be seen. For now, we shall content ourselves with the law, starting with the Price Control Act.

The First Schedule to the Act lists nine different products as being subject to price control at the discretion of the Minister of Commerce; petroleum products are item 7 on that list. The Act is not silent on the parameters to be applied in fixing the open market price of any such product. Those parameters are contained in Section 5 of the Act, which recognizes two different scenarios – a basic price (Sec. 5(1)(a)) and a permitted variation to the basic price (Sec. 5(1)(b)). By virtue of Sec. 1(1) of the Act, the Price Control Board is the sole body responsible for fixing the basic price and the variation permitted thereto, for the whole country. This, the Board does by notice published in the Federal Gazette. With regard to the basic price, Sec. 5(2) of the Act differentiates between locally produced goods, and goods imported into Nigeria. In respect of the first, i.e., goods produced (or fuel refined) in Nigeria, the basic price is “the price which, in the opinion of the Board, properly represents the cost of production of the commodity, plus the manufacturer’s profit” – Sec. 5(2)(a). In the second case, i.e., imported goods, the basic price is “the duty-paid landed cost in Nigeria plus the importer’s profit” – Sec. 5(2)(b). Sec. 5(3) of the Act permits a variation to the basic price, being an amount which, in the opinion of the Price Control Board, “represents the transport and other costs plus the distributor’s profit, which ought properly to be added to the basic price in order to represent a fair controlled price, wholesale or retail, in any State.” This provision is the subject matter of an entire statute, the Petroleum Equalization Fund (Management Board, etc) Act, 1975.

It can be seen that the two, i.e., the basic price and the permitted variation, constitute the controlled price of the commodities listed in the First Schedule to the Act. This much is clear, I submit, because Sec. 18(1) of the Act defines “controlled price” as “the controlled price, wholesale or retail, fixed in accordance with Section 5 of this Act”. I submit that by virtue of Sec. 6(1) of the Act, the controlled price of a commodity under the Act is the open market price of that commodity. It provides that: “It shall be unlawful for any person to sell, agree to sell or offer to sell any or employ any other person, whether or not that other person is of full age, to sell any controlled commodity at a price which exceeds the controlled price.” (emphasis supplied).
To be continued tomorrow.

Sani wrote from Kano.