FUEL SUBSIDY REMOVAL: MATTERS ARISING

That the presidency intends to remove the subsidy on petroleum come next January is no longer news. It is doubtful if anyone can claim to be shocked by the disclosure as It’s long been coming. The presidency disclosed that about N1.5 trillion is expected to be expended on subsidizing the price of fuel this year, as against the N568 billion provided in the 2011 budget. The removal of the subsidy in itself is not a bad idea. Under ideal circumstances, it is necessary that the government spends more on infrastructural development and education if we truly intend to move forward as a nation. However, the prevailing circumstances in Nigeria are far from ideal, and the government cannot feign ignorance of this.

In the argument put forward by the presidency in support of the removal, it was stated that the estimated sum of N1.5 trillion could have been spent on other areas of the nation like education, infrastructure and health. The presidency also stated that the sum constitutes a large drain and huge burden on the economy. In addition, it was said that the subsidy has contributed immensely to the quick depletion of the nation’s external reserves, which has been depleted by over $3 billion this year. Perhaps most interesting in the argument is that the subsidy majorly favours a “cabal” in the petroleum industry, who benefit through numerous crude and illegal processes (Why members of this “cabal” have not been identified and prosecuted is a matter for another day) and there is the unending argument as to reduction of overall government expenditure. These are some of the major reasons put forward in support of the intended removal of the subsidy.

It should be noted the major reason for subsidizing the cost of fuel is the fact that all of our refined fuel are imported. It is quite ironical as it is saddening that a nation that is the 6thlargest producer/exporter of crude oil needs to import refined fuel at the prevailing world market price simply because there are no functioning refineries in the country. Nigeria, as the 6thlargest exporter of crude oil with a population of 162 million, has a combined refining power of just 445,000 barrel per day. Even with this disappointing figure, our refineries only operated at between a dismal 9–43% in 2010. This implies that the maximum quantity of refined fuel produced in our country last year was less than 200,000 bpd; while our daily local consumption is estimated to be over 40 million litres. This means we import virtually all of our total consumption, at prices subject to oscillations in the world market. Though it could be argued that purchasing fuel at the current world market prices is the major reason for such high value of subsidy, it should be noted that our nation has no business importing what we produce in mass quantity if we had functioning refineries. If we did, we would not be subject to the oscillations in the world market and would be exporting refined fuel and not the other way round.

However, as much as the federal argument argues that the removal of fuel subsidy l is pertinent to national development, it is not ideal in our country under the present circumstances.. In a nation where constant electricity is non-existent, our nation depends on petroleum as the major source of energy and power. Large factories, entire industries and small & medium enterprises depend on diesel and petrol to generate their power. Fuel subsidy removal will translate into higher costs of productions for virtually all firms, thus driving the prices of quality, finished goods higher and out of the reach of the average citizen. In addition to this, the removal will not augur well for already our ailing manufacturing sector, as imported goods will become even relatively cheaper than they currently are. If electricity was constant, then the removal could have been welcome as there would have been minimal effect on industries, but in the absence of electricity and increase in petroleum prices, it spells doom.

Also, over 90% of transportation within the country is on road, which implies that our human and commercial transportation is highly dependent on the availability and cost of petroleum products. With the high cost of air travel and the inexistence of railway lines and metro services, road transportation is the only mode available to the average citizen who cannot afford air travel. Increase in the cost of petroleum products will naturally translate into higher cost of road transportation. This will also translate into higher costs of goods as firms will need to add up the higher cost of moving their goods, which in turn will be finally passed over to the final consumer- the masses. The multiplier effects do not end there. Prices of food stuffs will increase, cost of living will skyrocket, the new minimum wage will become insufficient to lead an average life and families will have lower disposable incomes. This will definitely negate the gains of the recently introduced minimum wage scale as living standard of the average worker will surely diminish.

Perhaps, most important is the persistent question on the minds of Nigerians: Even if the subsidy is removed, will the over N1.5 trillion set to be saved be used appropriately? Based on past experiences, it is doubtful if that the affirmative will be the case. The recovered Sani Abacha loot readily comes to mind. There is virtually no justification based on past actions of our leaders that removal of fuel subsidy will translate into the much needed infrastructural development. Neither is there any assurance that citizens will be better off in the end. Perhaps the only assurance is that only those in the corridors of power will reap the benefits of the policy. If Nigerians had the assurance, and if this administration through its actions in the past 6 months, had shown that it actually means well for the populace, perhaps this policy wouldn’t be such a hard sell; but past experiences and this administration’s attitude towards issues that should be of utmost national importance has made the policy quite difficult to agree to. The government has consistently failed to prove that its actions are in the interest of the people, such that even a seemingly well intended action is looked upon with great distrust by the masses. The lack of a meaningful, articulated and understandable presentation on the policy to Nigerians also doesn’t help matter. It only makes it seem like a self serving, greed motivated decision by our leaders, with no advantage whatsoever to the masses.

It should be noted that while the presidency states it intends to cut costs, there has been no mention of reducing the salaries and allowances of elected officials. Removing subsidy on fuel, while continuing to subsidize the lavish lifestyles of elected public officials, is just a no brainer on the part of the government. If the government is truthful in its bid to reduce cost, the first step should be a cut in the salaries and allowances of all elected public officers and not increasing the hardship of majority of the citizens by removing the subsidy on petroleum products. In a country where the essential infrastructural facilities like electricity and alternative means of transportation besides road are lacking, it is definitely hypocritical to remove fuel subsidy in the name of cost cutting while elected officials continue to receive millions of Dollars annually and can increase their pay to suit their avarice whenever they wish.

It should be stressed that Nigeria ideally should have no concern with fuel importation. However, the inefficiency, greed and corruption of our leaders have made that quite impossible. The Venezuelan ambassador to Nigeria, Enrique Arundell , kind of punctured any hint of credibility in the arguments put forward against the subsidy by drawing direct comparisons with the oil sector in his country. First, he debunked the argument that Nigeria has the lowest price of refined product among oil producing countries and said it costs about $2.35 to fill a 2 litre engine car in Venezuela while it costs about #5,000 ($32.25)to do the same in Nigeria. He went further to identify our nation’s problem as our preference to export rather than refine more of our crude- Refining more of our crude in the country will give our nation an higher stake in the deregulated market, stimulate medium service industries and provide greater job opportunities for the teeming size of skilled, unemployed youths. The same reasons are also responsible for the state of our power industry and transportation system. It is therefore foolhardy to expect the whole population to pay for the inefficiency and corruption of our leaders.

If the government provides constant electricity and alternative mode of transportation, such that our lives, national economy and national development do not depend on petroleum and its price, then there could be talks about removal of the subsidy. Also, when the government realizes that charity begins at home and reduces the salaries and allowances of elected officials by a reasonable percentage in a bid to reduce government expenditure, there can be talks of subsidy removal. Until then there should be a stay on this policy. It is the height of greed and selfishness, to make the 99% pay for the expensive lifestyles and suffer and bear the brunt of the inefficiency, greed and corruption of the 1%. Under the prevailing circumstances, removal of fuel subsidy come next January is just unacceptable and our leaders will do themselves a mighty favour by rethinking that policy.

God bless Nigeria
 
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This article was originally published at blogger.com in October 2011.


Originally published at blaqeagle.blogspot.de on April 30, 2016.

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