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Review this monster called fuel subsidy 

By Editorial Board
11 July 2019   |   3:44 am
The echoes of the vexatious issue of fuel subsidy in Nigeria and its removal reverberated recently when the Emir of Kano and former Governor of the Central Bank...


The echoes of the vexatious issue of fuel subsidy in Nigeria and its removal reverberated recently when the Emir of Kano and former Governor of the Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi spoke to the conundrum at the third National Treasury Workshop, organised by the office of the Accountant-General of the Federation in Kano.

At that event, the former CBN governor referred to the Democracy Day address of President Muhammadu Buhari, in which the issue of lifting 100 million Nigerians out of poverty in the next 10 years was raised and the likelihood of achieving that objective. The emir warned that Nigeria is currently on the verge of bankruptcy as fuel and electricity subsidies, as well as debt servicing, continue to eat into government revenue and thus advised the President to scrap fuel and electricity tariff subsidies to stabilise the economy.

According to the emir, “If truly President Buhari is fighting poverty, he should remove the risk on the national financial sector and stop the subsidy regime, which is fraudulent.” He further said that, “we need to ask these questions: why are there high mortality rates, malnutrition, high rate of out-of-school children, among others, while the national treasury goes to petroleum sector?”

Since making this assertion, many stakeholders such as the Nigeria Employers’ Consultative Association, NECA, the Chartered Institute of Bankers of Nigeria, CIBN, the Manufacturers Association of Nigeria, MAN and others have risen in support of this position. The recurring narratives coming from these organisations are that the current fuel subsidy regime is largely fraudulent and therefore unsustainable. The consensus has always been that market forces should be allowed to determine the price of fuel such that the money currently going into fuel subsidy should be channelled into a productive sector of the economy and not consumption, as is currently the case.

This issue of fuel subsidy and provision of petroleum products to final consumers has preoccupied every administration in the history of governance in this country. Episodes of fuel shortages at different times particularly during festive seasons have marked the management of this malady. It has really been a serious challenge to all administrations.

To obtain a long lasting solution to this issue, a holistic perspective is necessary such that the various ramifications of all impinging factors that led to the existence of the subsidy in the first place are evaluated, first of which is the issue of fuel supply. The need to strengthen the domestic supply of the product to the populace at minimal cost is very critical. That implies that the refineries must work, at some reasonable level of capacity, to attain this objective. To date, these refineries are still not working as expected and have thus remained a drain on the national coffers through periodic turn around maintenance (TAM), which this newspaper called ‘a scam’ the other day. The current government which came into power in 2015 and was greeted with so much enthusiasm and euphoria by the majority of the electorate promised, through its then Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, that within a space of six months the refineries would be made to work and the issue of fuel supply particularly of the importation component would be a thing of the past.

So far, that appears to have been an empty promise, since till date, nothing tangible has happened, after four years in power. Currently, the bulk of the local consumption of fuel comes from importation and this is totally unacceptable. One way of minimising this importation is for government to encourage the local people in the development of modular refineries. Hence, the periodic destruction by government officials of these modular refineries is considered largely counterproductive. This is particularly so, at least in the short term when fuel importation is being done at great financial cost to the nation.

On the issue of fuel demand, which really drives the volume of importation, the figures being bandied around are quite depressing and largely suspicious. There is the quantum leap in the official data of the Nigerian National Petroleum Corporation, NNPC, on the increase in petrol demand from 30 million litres a day in 2012 when the economy was booming, to 44 million litres per day during recession in 2017 and 56 million litres in 2019. How possible is this? The narrative of smuggling as alleged by the oil corporation does not appear to stand the test of sound logic as the Nigerian Customs Service is unduly being exonerated in this regard. If almost 60 million litres of fuel is supposedly consumed in this austere time, then the allegation of corruption appears very real with great consequences and huge burden on the national purse. No wonder the subsidy figures recorded since the inception of the administration by far surpasses that reported during the Jonathan administration as well as others before it. This is definitely not sustainable. It also suggests the prevalence of massive corruption in the sector.

The Nigerian Economic Society (NES) has also scrutinised this conundrum.  While analysing this issue and its impact on the national economy the other day, it called for a phased removal of this subsidy, else the economy could be headed in the direction of serious bankruptcy. Removal of the subsidy will be painful in the short term but if well managed, it is projected to lead to a release of needed funds for critical sectors such as health, education and other growth drivers in the economy such as infrastructural development.

However, it is obvious that some persons or cabals are currently benefitting from the status quo. If government attempts to confront this problem headlong, these unscrupulous cliques will likely whip up sentiments against the move to protect their entrenched positions, which may force the government to reverse the policy, as it has happened many times in the past. Government and the Nigerian society must make up their mind to back up the subsidy removal despite the short-term pains.

In actual fact, subsidy actually enriches the rich in contrast to the wrong perception that the poor will be worse off with a removal of the subsidy. Most of the time, it is the civil society groups and trade unions that oppose subsidy removal, based on pure sentiments, as groups such as the Save Nigeria Group did during the subsidy removal imbroglio of the Jonathan era. They usually come with fictitious calculations of a fuel price less than N50 per litre. Surprisingly, these groups have become silent as if to suggest that their prime objective then was that of regime change.

Curiously, this oil subsidy issue has remained a mystery for the past three decades and so it is time to lay this matter to rest. Questions as to why government has not been able to build at least a refinery in the recent past is begging for answers too. Could it be that some ‘economic men’ and cliques are amassing wealth through this unrealistic fuel subsidy regime to fight other wars, which appear to be looming in the polity? Government needs to disabuse the minds of the public that there is not more to this than meets the eye on this issue. As a matter of urgency, authorities in Abuja should take the bold steps to address this issue and save the economy from an imminent collapse, particularly with debt service payments becoming unsustainable and government revenue projections in the budgets hardly attainable.