Saturday, 30th September 2023

Petrol subsidy: Which way to go?

By Ray Ekpu
09 May 2023   |   4:21 am
It does appear or so it seems that the Buhari administration has found a way of sorting out the problem of petrol subsidy. It has borrowed a handsome sum of $800 million from the World Bank.

It does appear or so it seems that the Buhari administration has found a way of sorting out the problem of petrol subsidy. It has borrowed a handsome sum of $800 million from the World Bank. It intends to use this money or part of it in taking care of 50 million persons or 10 million households. How the government arrived at the magic figure of 50 million has not been explained because we are not exactly efficient in the use of figures. We have not ever had a census that has not been disputed and the one that was to be held this month has been postponed indefinitely. So the figure of 50 million has a question mark beside it.

Don’t forget that the National Bureau of Statistics (NBS) has told us that there are 133 million Nigerians who are in multi-dimensional poverty. That means they are comprehensively poor, almost irredeemably poor. Then there is the issue of food insecurity which about 24.2 million people are said to be facing right now. With the present state of our economy that figure may go up astronomically.

But first it is arguable whether it is right to borrow such a huge sum of money to put in consumption rather than production. If you put money in revenue-yielding activities you can get positive results. But if you put money in the provision of palliatives in an opaque fashion there is a problem. It is arguable, too, whether it is better to give people fish to eat or to teach them how to fish.

Many Nigerians were aghast when the EndSARS riots broke out and tons of palliatives were found hoarded by some state governments. These palliatives were expected to be distributed during the COVID-19 campaign. Some politicians and their co-conspirators, civil servants, decided to hoard them for possible utilisation by their friends and families. So what is the guarantee that the palliatives expected to be given to the poorest of the poor will get to them. It is our experience in handling matters like this in an opaque manner that breeds cynicism about government policies that involve the distribution of money or materials as palliative.

Of the $800 million the sum of $53 million is to be spent on hiring staff, offices, logistics, administration, committee overheads, training etc. Many people think that this figure is excessive considering the fact that the Federal Government has been claiming that it has a database that it has been using in making cash transfers to these vulnerable groups of people. If that is the case then it means that there is already on ground the architecture for the administration of this $800 million. These speculations are likely to be recycled once there is no clear evidence of transparency in the administration of affairs in the country since we have achieved notoriety for corruption over the years.

It is pertinent to ask why the Buhari administration has chosen to effect the petrol subsidy a few days after its exit from governance. The life of the Buhari government will end on May 29 and the scrapping of the petrol subsidy takes effect from June 1. Isn’t this something like a booby trap for the incoming government? Has the matter been fully discussed with the officials of the incoming government? Has their consent been got for the immediate execution of a policy that has been dogged for years by controversy?

Even though I believe that this so-called subsidy will have to go at some point, I also think that the timing for scrapping it is also important. If the subsidy is removed fully in June I am certain that there will be massive protests, which will not augur well for the new government. The new government has to have the opportunity to enjoy its honeymoon no matter how brief. If subsidy is removed in June 2023 that honeymoon will be aborted.

I also believe that the incoming government must be given the opportunity to see clearly what the Buhari government is handing over as to be able to take its decisions and bear the consequences of such decisions. Handing over notes never ever tell the full story. They are written in such a way as to paint the outgoing government in good light. It is only when the new government takes over that the full and true situation is likely to be unveiled. That is why there have been in the past disputes between outgoing and incoming governments on what exactly was handed over.

From what we already know, what Buhari is likely to handover is not going to be the equivalent of a dinner at Buckingham Palace. Our public debt has risen to N44 trillion. As at March this year inflation was 22.04%; unemployment was said to be 33.3%. Many factories have shut down and many of our young and even experienced professionals are japa-ing. The 2023 Federal budget is N21.83 trillion while the deficit is N6.25 trillion. Of our total revenue 96.3% of it was spent on debt servicing in 2022. This is a very ugly state of affairs. But that is not all. Oil theft has come into the picture too. Between 2009 and 2020 oil theft was said to be about N12 trillion.

The view is that this has been going on for many years and the various governments have been aware. The governments have either felt unable to stop the theft or its officials have been compromised over the years. It is a major problem that needs to be faced frontally since oil still remains our major source of revenue and especially of foreign exchange. Because of the relatively low income from oil and non-oil exports our foreign reserves have declined and the value of the naira compared to other currencies has also dropped. Now you need N760 to be able to buy one dollar. In the 70s the value of the naira was higher than the value of the dollar.

The Nigerian Extractive Industry Transparency Initiative (NEITI) says that Nigeria has spent N16 trillion on petrol subsidy from 2005-2021. That is the expenditure for 16 years. A report that NEITI submitted to the House of Representatives ad hoc committee investigating the petrol subsidy regime from 2013 to 2022 showed that petrol subsidy has jumped from N316.7 billion in 2015 to over N2.565 trillion in 2023. What do we attribute the sharp rise to? More consumption of petrol in Nigeria? More smuggling of petrol from Nigeria to other countries? Higher cost of petrol importation? Higher cost of crude oil in the international market? Corruption by those involved in the petrol importation value chain?

I don’t know exactly why the subsidy keeps escalating but some of the issues listed above may be responsible. Subsidies have been removed on diesel, kerosene, aviation fuel and lubricants and there hasn’t been such an uproar that precedes or accompanies the removal or threat of removal of petrol subsidy. Why? Petrol is massively used by all Nigerians. Okada and Keke, saloon cars and buses all consume petrol. Petrol is used by artisans and small-scale business owners to power their i-better-pass-my-neighbour generators. Most buses use petrol too for mass transportation. Road transportation accounts for more than 90% of the means of transportation in Nigeria.

Nigerians also use air, rail and water transportation too but these are relatively insignificant when compared with road transportation. And because road transportation is the dominant mode of transportation any increase in the price of petrol affects the prices of everything including food, building materials, household items, confectionery and individual trips within and between towns and cities.

Petrol subsidy is a problem because we import all the fuel we use in the country. We have no control over the cost of importation, transportation and insurance etc. Second, we do not actually know the exact quantity of petrol consumed in Nigeria. We have been told that petrol costs higher in the neighbouring countries so there is smuggling of petrol from Nigeria into those countries for sale.

The question that nobody has been able to answer is why the customs officials have not been able to stop the smuggling of petrol from Nigeria to other countries. Are they compromised such that when the smugglers trucks arrive they look the other way or they choose to play ludo or choose to sleep? This question arises because at our borders there is a full complement of customs officials and other security elements. The question also arises because it is unlikely, most unlikely, that petrol can be smuggled in large quantity through the NADECO route. So it is likely, very likely, that it is smuggled through the normal routes, which are manned by Nigerian officials.

For more than a decade now our four refineries have been asleep. They are not discharging their responsibilities to Nigeria. They have not been repaired. They have not been sold. And no new refineries have been built by the Federal Government. This state of indecision is baffling. And the Buhari government is about winding up its eight-year tenure without the refineries producing refined petroleum products. Is the turnaround or servicing of refineries the equivalent of rocket science? It is not. It is just that we do not know what our priorities ought to be or corruption has made us blind. It comes down to this.

If we fix our refineries we may not need to import refined petroleum products at suspiciously high prices. That will take food from the mouths of the corrupt people involved in the corrupt scheme.

As I said earlier, I believe that subsidy will have to go at a certain point because it is not sustainable. But the conditions have to be right for its removal. Appropriate incentives that can provide a soft landing, a cushion, must be arranged. People’s buy-in must be sought through appropriate information management. Road transportation is the most commonly used means of moving people about. There must be an arrangement that makes public transportation accessible and affordable for those who use them.

As was done in the past through the Nigeria Labour Congress, buses can be provided in all the states of the federation and the Federal Capital Territory (FCT). Even with all these I believe it is better not to remove the subsidy in one fell swoop. It must be done in phases so that the pain of its removal may not be too harsh.

At present we are between the rock and the hard place. There are not many choices. Removing petrol subsidy will come with consequences. Keeping it also has consequences too. It will have to go but it must be well planned and a soft landing provided.

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