REVISITING FUEL SUBSIDY

A few weeks ago, I published a post on this blog where I vehemently stated my opposition to the proposed policy of withdrawing fuel subsidy. For a while, I felt I reached my opinion too quickly, as I found myself oscillating between opposing the policy to supporting it and back. I have tried to educate myself on the quite complex subject of oil subsidy in Nigeria vis-à-vis the Nigerian economic and political situation, reading at least 2 articles on it daily.

For starters, I avoid and abhor the too-simplistic argument that we should retain fuel subsidies because as an oil-producing nation, it would be wrong to pay above the current prices for fuel products. Like most populist ideas, it oversimplifies the situation and gives a solution that is not sustainable in the long-term. The fact is that we cannot this fuel subsidy forever. Not only is it grabbing a huge chunk of our budget, but also that it continues to make overnight billionaires out of a connected few due to the corruption and secrecy involved in it. This is not just my opinion and that of the government, but also that of many other Nigerians and even international think-tanks such as the London-based Chatham House and the International Monetary Fund.
However, before the government proceeds to stop subsidizing fuel, there are a few things they ought to put in place or achieve:

Firstly, we need to have a full and complete exposure of the transactions that take place as regarding the importation of refined fuel into this country and the payment of subsidy. I don’t think there is any aspect of government dealings or economic sector in Nigeria that is as shrouded in secrecy as that of the oil industry. There is no official data on how many litres of petrol is consumed by Nigerians daily so as to determine how much is imported. There are many questions that demand answers: how did annual subsidy payments jump from N350bn to N1.3trillion in a year without a rise in consumption? Since our own refineries are not totally inoperative, how many million litres of petrol is refined locally? Is the locally-refined petrol subsidized too? How come the NNPC paid over a trillion naira over 4 years as demurrage costs while simple economics, and also common sense, should have told them that a fraction of that money would have been applied to expanding the Atlas Cove Jetty where imported fuel is landed, hence reducing the amount of time vessels spend at sea awaiting to dispose of their load and also demurrage costs? Even more, that trillion naira or more would have built us a sparkling new 400,000-barrels-a-day refinery. Why did nobody think of that? Do we pay the same amount per litre regardless of the quality of the refined fuel, because they are different grades of petrol? And the most politically-sensitive question: which companies are licensed to import refined fuel and who are their owners? Once the answers to these questions are known, then we can now debate on the best way forward, beyond just merely removing subsidy.

Secondly, if the government is claiming that subsidy removal is necessary in order to save money and to apply same to capital projects and ‘to provide palliative measures for those that will be most affected by the withdrawal’, then those cost-cutting measures must apply across board. There are places where the government fat should be trimmed before our own fat is trimmed. There is no how that Nigerian masses can be convinced to support subsidy removal, which will translate to paying more their fuel at the pump, and ultimately almost every other thing, while government continues to spend lavishly on our political office-holders. Why in God’s name is the FG proposing to build a new house for the Vice-President at the cost of N7bn? Why should the President go to the Commonwealth Heads of Government Meeting (CHOGM) in Australia with a 120-member delegation in 3 executive jets, when the entire British delegation, which includes both the Queen of England the Prime Minister, was just 15-member strong and flew there via British Airways? Why should the President appoint 4 more special advisers, which means more expenses when already the cabinet is bloated? Why should the House of Representatives want to buy 360 new cars for its members, when less than a year ago, the last assembly did same? Let us not even go into breaking down the budget of the Presidency, where more than half a billion naira is budgeted for spending on food, about N47million monthly. Are they eating elephants for meat? All these frivolous spending leads to a serious crisis of confidence for the Nigerian government. The popular opinion is that the money saved by withdrawing fuel subsidy would be frittered away by the politicians. This opinion gains weight considering the fact that nobody has come up with a concrete plan of where that money is going to be applied to.

Lastly, if fuel subsidy has to be removed, it should not be removed in one fell swoop as is being proposed. Doing that would only cause what is known as the cold turkey syndrome, which would make the economy cave in. The sensible thing is to make it a phased withdrawal, spread out over, say, 4 years. A certain percentage is withdrawn and people and the economy gradually adjust to the effect. Even more, as the phased withdrawal is going on, efforts should be made to increase our local refining capacity. 4 years is not too much to build up to 2 refineries with the savings. After all, the Obasanjo military government built 2 refineries between 1976 and 1979.

If this government truly proposes to make a positive mark on the lives of Nigerians and the economy, it should take heed to the counsel, especially from the opposing side. Wrapping themselves in a bubble and going headstrong with its proposed policy would only end in disaster for us all.


7 Comments on this post

  1. true talk. I don’t doubt that removal of subsidy will be good for the nation, but they should start with cutting their own expenses

    King / Reply
  2. If only the so called nigerians would heed to the words and idealistic initiatives of her masses there would not be a better thing than subsidy removal but woe to them God would judge them accordingly

    Dogara Durkwa / Reply
  3. If only the so called nigerian leaders would heed to the words and idealistic initiatives of her masses there would not be a better thing than subsidy removal but woe to them God would judge them accordingly

    Dogara Durkwa / Reply
  4. APT…
    Very! Who will make them listen.
    Truth is…Truth anytime,anywhere..no matter how long.SINCERITY OF PURPOSE still in doubt!

    DAISI / Reply
  5. I think people’s apprehension to the removal is a trust issue. The plans for the funds preserved from the subsidy removal sounds good but so are many plans (including the 7 point agendas etc). Both reasons you mentioned point at why the government cannot be trusted to handle the funds.
    Check out the cartoon here, it expresses my (and many people’s) take on the issue http://bilnigma.wordpress.com/2011/11/17/shock-therapy-fuel-subsidy-removal/

    bilnigma / Reply
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