Sunday, November 1, 2015

Let’s do away with fuel subsidy


Fuel subsidy came into Nigeria’s economic lexicon about mid-1990s when the country resorted to heavy importation of refined petroleum products aftermath of inability of Nigeria’s four petroleum refineries in Port Harcourt, Warri and Kaduna to work at optimum capacity. For more than two decades now, Nigerian state has been supposedly subsidising petroleum products as a mean of cushioning the harsh effect of the high cost of importing and distributing the refined products from overseas.  The argument then was that should the Federal Government totally deregulate the downstream sector of the petroleum industry by leaving the pricing to the laws of demand and supply, the cost of the products will be very prohibitive and it will lead to high cost of living.

This does not necessarily have to be so.  However, in Nigeria, petroleum products are central to our lives. There is no household that is not using any of the products. For instance, those using cars, power generators, stoves, grinding machines, motor cycles, tri-cycles, vulcanizing machines, etcetera cannot avoid using premium motor spirit otherwise known as petrol, diesel and kerosene. Ointments and body lotions from by-products of petroleum products are also to be found in many homes. Aircrafts cannot also fly without Jet A1 or Aviation Fuel. Petroleum products are also used in construction industry not only to power industrial machines but also they are part of the ingredients used in road constructions. Our dependency on petroleum products is worsened by lack of electricity which in itself also depends on gas for the thermal stations to function. Gas is a by-product from crude oil. Unfortunately, while there is no enough fuel to power our thermal electricity companies, we still flare most of this gas thereby causing environmental degradation, ozone layer depletion and concomitantly, climate change. Thus, Nigeria’s energy crisis is a conundrum!

When the importation of refined petroleum products started in the 90’s it was to be for a short term. It was supposed to be a stop gap measure while turn around maintenance is carried out on the country’s refineries in order to enable them perform optimally. Alas! What is meant to be short-lived has become permanent. The TAM was not done and as such the country perennially embarks on wholesale export of crude oil to foreign countries only to import refined products back into the economy. This backward policy is fraught with many losses. Nigeria losses jobs, foreign exchange, and national pride.  Not only that, the effort of federal government to make petroleum products available to Nigerian masses at affordable prices had been taken advantage of by some saboteurs who indulge in all manner of sharp practices and malpractices.

Some of the fraudulent practices uncovered by different committees that have been set up to look into the fuel subsidy regimes shows that a lot of barons licensed by the Petroleum Products Pricing  Regulatory Agency (PPPRA)  to import fuel upon which government is made to pay heavy subsidy were short-changing the country. Many of them either under supply or did not supply any products at all. They nevertheless are able to submit fake documentations to claim subsidy. In short, the country has lost trillions of Naira to corrupt practices under the subsidy regime. Quite unfortunately, many individuals indicted by various probe panels of government (both legislative and executive) are still walking free as their prosecution has been very tardy. To rub salt on festering injury,  in spite of the supposed subsidisation of the products,  Nigerians are not getting the products at official government controlled price. While diesel has been fully deregulated, kerosene and petrol are still been subsidised. In most places, Kerosene sells above the N50 per litre official price while petrol also sells above the N87 per litre official price except at state capitals.

For many years, I was against the removal of fuel subsidy. I and my wife joined labour and civil society to protest and resist the January 1, 2012 increase in the pump price of fuel from about N65 to N140 per litre. With the benefit of hindsight and given all the extant sharp practices and fraud ridden subsidy regime, I hereby canvass for the full removal of subsidy on petroleum products. I am of the opinion that the best way to deal with the gargantuan fraud in the oil and gas sector of this country is to allow the forces of demand and supply to determine the price. For me, if the government does the needful by ensuring proper and genuine turn around maintenance on our ailing refineries, or better still, sell them off to private investors who will produce and refine locally in a short term, we would be off importation of petroleum products.

Also, with appropriate pricing regime, many of the licensed foreign and local investors who are supposed to have built private refineries but have refused to hitherto do so will be motivated to embark on the capital intensive venture. I am of the opinion that while those who are supposed to build refineries rather opted to obtain license to import refined petroleum products is due to the fact that they will not be able to recover their investment and make profit at the present subsidised price regime. Moreover, with mere trading in importation of fuel, many of them have been making super profits thereby joining the league of noveaux riches with private jets.

Though the removal of petroleum products may be painful and unpopular in the short term, however, it is the best option available if we are ever going to get out of the quagmire of the rot in the oil sector of Nigeria’s economy. The subsidy regime is not sustainable given the billions of Naira that Nigeria currently owes importers of the products. These marketers have on several occasion threatened to stop fuel importation if the arrears of debts owed them is not paid. Unfortunately, the money with which government can pay the subsidy is diminishing given the fall in the price of oil in the international market. Yet, Nigeria remains a monoculture economy with over 80 per cent of its national income coming from the oil and gas sector. The country also face unprecedented thievery of the crude and refined petroleum products across the country, especially in the Niger Delta region.

It is not yet late in the day for the new administration of President Muhammadu Buhari to come clean with the people, explain the parlous state of the economy to Nigerians and crave their indulgence on the imperative of having to remove fuel subsidy from 2016. I believe Nigerians are very understanding people and if there is sincerity of purpose on the part of government and there is clear demonstration of reduction of wastes and profligacy in government, the masses of this country will support the painful move. Therein lies our salvation from economic doldrums!

Jide is the Executive Director of OJA Development Consult, Abuja