The subsidy on petroleum has been there for as long as the nation has been an oil producing nation. It has been there even when all our refineries were producing at 100% capacity and there was no need for importation of refined products. Therefore, the oil subsidy in a nutshell was a benefit of the masses of Nigeria from its government for the blessing of crude oil. That appears to be the only means by which the ordinary Nigerians were supposed to feel the impact of being an oil exploring nation. What really is the subsidy? What is the government subsidizing? A little check-up of this reveals that government is paying for the extra cost of producing a litter of Premium Motor Spirit (PMS), otherwise known as petrol and Kerosene less the real pump price amount being paid as a retail price to the ordinary consumer. That is, if it costs the country N10 to produce a litter of fuel, it is selling it at say, N4 to the consumers and bearing the burden of N6. In this case, N6 is the subsidy.
During the military regime of President Ibrahim Babangida, a phased removal of the subsidy began as part of the government’s economic blueprint in order to release needed funds to the system as the international price of oil dropped in the mid-1980s coupled with the desire to fulfill conditionality for the implementation of the IMF-backed Structural Adjustment Programme (SAP). However, in spite of the removal of subsidies in those days, as at 1999 when the current political dispensation took root, the pump price of PMS (petrol) was still at N11.00 per litter.
The President Olusegun Obasanjo administration constantly adjusted the pump price until it came to N65.00 per liter which the Yar’Adua/Jonathan administration inherited.
What really has been the reason for this constant removal of subsidy over time? The truth really is this: government has neglected the oil and gas sector of the economy systematically to the point that all our four major refineries today are either half dead or producing at an embarrassingly low capacity. This ushered in the massive importation regime of petroleum products. What has therefore sustained the retention of the N65 pump price over the years is the subsidy that the government has had to pay. According to a recent statistics as presented by the Federal Ministry of Finance and the Nigerian National Petroleum Corporation (NNPC), the landing cost of PMS per liter is about N145.00. The government pays a subsidy of almost N90/liter to ensure that the pump price remains at N65/liter.
The basic idea is to ensure that the subsidy will ensure that life is bearable for most Nigerians. However, the paradox which the government has hinged the removal of oil subsidy on is the fact that it is paying a fortune for subsidy while a certain cartel enjoys the benefit and the effect is not telling on the consuming public. The Senate during the first week of December, 2011 reeled out the names of organizations that have continued to feed fat on the subsidy which government says for 2011 stands at about N1.4 trillion. This it claims is almost above the budget for capital projects in the 2011 budget. The purpose of the subsidy it claims, is not achieved while a few rich organizations in the oil and gas sector are enjoying the proceeds. The subsidy removal therefore is to meant to pull the carpet off the feet of the cartel or cabal while the proceeds are channeled to providing basic necessities for the Nigerian public.
While the argument sounds logical and populist, a closer scrutiny reveals that with the subsidy gone, the pump price of petrol will naturally increase to about N120/per litter. This will immediately have a spiral effect on every aspect of the economy as transportation cost will skyrocket and costs of goods and service will increase geometrically. It will effectively put paid to the relief the so-called N18,000 minimum wage was supposed to provide and further impoverished the already over-stretched Nigerian masses.
This disadvantage of the removal of oil subsidy therefore is huge and the effect on the personal economy of the common man will be disastrous. The opinion of this writer is that the subsidy SHOULD STAY but government should look for other creative means to source for funds to do its business while ensuring that the subsidy benefits are properly enjoyed by the Nigerian masses. The remaining part of this write-up is devoted to suggesting how this can be done.
Covering the Subsidy Hole
The major concern of government is the fact that it spends a colossal amount of money funding the subsidy. Let us look at this critically. This money is this much because there are so many holes that monies are emptied into in the process of importing petroleum products. One major job the government should do immediately is to fix all our refineries and build new ones to totally stop the importation of fuel. This is the best way to checkmate the cartel or cabal and destroy their back-bone. How long really does it take to build a refinery? In the last three years, our northern neighbours, Niger built a world-class refinery. They are in the process of joining the large number of petroleum exporters to Nigeria! Is it not funny that we transport crude to Niamey from the creeks in the Niger Delta by trucks through inland roads across the country to Niger and then they in turn return these trucks in reverse to us with refined fuel? What is really difficult in building a refinery if the old ones cannot be fixed? The government must be proactive and think creatively in solving a problem that looks like it has defied all solutions.
Secondly, while it is working on getting the refineries fixed, while supporting the subsidy, the government must look inwards to source for funds to cover up the hole that the subsidy creates.
There are so many other sectors of our economy that continue to consume funds without a commensurate contribution to its growth. These sectors and institutions have merely become drain-pipes. The idea is to re-channel funds from there for redistribution to critical areas needing urgent resources. The list here is not exhaustive as there could be more:
a) Cost of Governance at all levels: We have reached a point where the cost of maintaining government officials and their respective agencies is becoming unsustainable. Starting from the executive arm of government, we can free a whole lot of money by rationalizing some offices and cutting down on the expenditure of many. There is absolutely no reason why we should continue to engage the services of so many Special Advisers & Special Assistants whose duties are merely a repetition of what most ministries and agencies are already doing. The President should start by cutting down on some of its expenditure profile. For all intents and purposes, the Presidential Aircraft Fleet should be reduced to at least 5 from the present number of 11. If a holistic audit is carried out with a view to maintaining only very NECESSARY offices in each sector of government, then billions of naira will be saved and the hole created by the subsidy will be adequately covered.
The National Assembly recently came under fire by the Nigerian public because of CBN Governor’s outcry that it consumes about 25% of the national budget. Whether the figure being bandied was 25% of recurrent expenditure or it’s a percentage of the total budget is not really relevant. What has become important to the public is the fact that the cost of maintaining members of the National Assembly is too expensive. There should be a bold step taken between the Executive and the Legislature to drastically cut their pay and allowances. If indeed they are serious about making necessary sacrifices for the survival of the nation’s economy, then they should show examples by taking a pay-cut of at least 50% and cutting down on the pecks of their offices. They should not expect Nigerians who are already over-stretched to continue to pay high for fuel while they continue to drive around in gleaming cars and feed fat by attending plenary sessions for just screaming “nay” and “yea”.
b) Checkmating Corruption
The government is paying a steep price by funding corruption at the highest places. Contracts are inflated; awarded contracts are poorly executed while state officials just line their pockets with money for no just cause. It must take urgent steps to institutionalize the nabbing of corrupt officials to avoid the leakages that presently pervade the system. If this singular step is taken and corruption is brought to a minimal level, a huge sum will be freed to enable government have what it takes to fund infrastructural development across the length and breadth of Nigeria. If the government does not develop the will to exemplify sacrifice by cutting down the cost of governance and take further steps to stamp out corruption, it should not expect cooperation from the masses to further impoverish them by taking away the subsidy which promises to bring them to further poverty.
There is palpable anger in the air amongst Nigerians. The youths are in their most dangerous restive mood across the land. Unemployment is higher than admitted figures in the media. There are millions of families who cannot afford a square meal a day. There are many whose hopes of surviving is so deem that the only rational thing they think about is how to hurt others to get to survive. This is not the kind of population the government should be thinking of dropping another burden upon with a subsidy removal. They should look somewhere else to cover up the gap. If they look very well enough, they will find enough leakages to cover up and we can be on track to economic emancipation. Leadership is not about dumping responsibilities on others but by taking the bull by the horns and finding creative solutions to intractable difficulties. I agree with someone who said a while ago that the office of the Nigerian President is the most powerful in the black world. Why should the most powerful black President shirk from the responsibility of confronting a cabal that seeks to sink the ship of state? Except that high office is collaborating with the cabal, it is time to show how powerful it is. God bless Nigeria.
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