Simon Kolawole
8 November 2009
opinion
Lagos — Definitely, one debate that has been going back and forth in the last 24 or so years is on the so-called "fuel subsidy". The debate always generates passion and pain. It has led to paralysing strikes by labour unions. It has led to riots.
Lives and property have been lost. But take a critical look at the anti-subsidy campaign and you will realise that what the government has been saying all these years is very simple: Dear Nigerians, we need more money to spend. Government has always said this indirectly by hiding behind the pricing of petroleum products - which is guaranteed to improve government revenue partly through reduction in expenditure on subsidy and partly through more income from sale of fuel, depending on the price of crude oil at the particular point in time. The trouble the government has always had is how to communicate this simple fact to the populace.
At a time, we were told that the removal of subsidy was to curb fuel smuggling - as if millions of Nigerians should be punished for the criminal activities of a few people who should ordinarily be dealt with by the law. We were also told that fuel price had to go up because it was cheaper than a bottle of Coke - and, good enough, someone asked if Nigerians were now serving petrol in place of Coke at birthday parties. We were regularly told about fuel prices in Ghana and Burkina Faso compared to Nigeria, as if we have an obligation to price our products according to the dictates of other countries. We were never told about fuel prices in Saudi Arabia, United Arab Emirates and Iran. We were also told that to avoid queuing for fuel, government needed to remove subsidy. Yet in the last ten years, fuel scarcity has been caused only by non-subsidy issues such as breakdowns at Atlas Cove Jetty, rumours of price hikes and strikes by tanker drivers.
The most annoying argument, to me, is that the poor do not feel the impact of fuel subsidy. This is, as far as I'm concerned, standing logic on its head. At least 80 per cent of public transport system in Nigeria today runs on petrol. Any slight increase in the price of petrol, therefore, is immediately reflected in transport fares, usually unfairly disproportionately. Either in rural or urban areas, transportation constitutes a significant component of the cost of living. If fuel price is increased from N65 to N70, for instance, transport fares can shoot up from N100 to N150. Either for the market woman taking her wares to the next village or the worker going to work a few kilometres away, there is an increase in the cost of living. I don't think we can dispute this fact: any increase in pump price causes inflation, even in food prices. Therefore, fuel subsidy gets to the poor. Fuel prices affect the welfare of the poor. Let's be honest with that. This debate can only progress if we don't lace it with half-truths just to make our point.
Now that the government of President Umaru Musa Yar'Adua seems determined to fully deregulate the downstream sector of the petroleum industry, it would be good for them to make arguments that are not tied to the past. I cannot stand, for instance, what is called the "GSM logic". It is argued that just as it was very expensive to acquire mobile phones when the telecoms sector was deregulated in 2001, so would fuel prices initially go up after deregulation. And just like competition has now led to cheap access to phones, so will competition lead to cheap fuel prices. Whoever invented this argument, which we started hearing about five years ago, must be a reverse genius. We know fuel prices are determined by the price of a major input called crude oil. If crude sells for $150 per barrel, how on earth will fuel prices fall as a result of "competition"?
Telephone costs are in no way related to any commodity or any major input whose price is determined on the volatile international market like crude oil. In reality, no fuel marketer has control over crude oil price, so no marketer can reduce petrol prices as a result of competition. Dr Mike Adenuga (Jnr) could just wake up one day and decide to sell a Globacom SIM card for N1, as he actually did in 2004, but how come he did not ask Conoil to sell petrol at N1 per litre? To compare GSM to oil is completely disingenuous. I'm still scratching my head to understand how this "GSM logic" came about. I first heard it under Obasanjo. This government should not give us the same story. At best, what may happen is while Marketer A may sell petrol for N120.50 per litre, Marketer B may "compete" by selling for N120.45. Cheap indeed!
A much finer argument is that the amount being expended on fuel subsidy could be used on building roads and equipping hospitals and improving education. But, again, it never works. The Minister of State for Petroleum, Odein Ajumogobia, toed the old line on Friday by announcing, yet again, that the Federal Government would utilise funds accruing from the removal of subsidy to provide good roads, drinkable water, modern railways, improve healthcare delivery services and improve funding for education. Incredible! If this were true, Nigeria would be overflowing with hospitals, schools, roads and drinkable water since we started removing fuel subsidy dozens of years ago. How come billions of naira given to the Ministry of Works didn't fix our roads over the years? What about the billions and billions and billions released to the education sector in the last 10 years? Is it the "fuel subsidy virus" that consumed the money too? This government should tell us another story.
Having said this, however, I am willing to concede that some of us who have been arguing for the retention of fuel subsidy are gradually losing out. The evidence before us shows that we are finally losing the argument - and it is not funny at all. I will give two reasons for my conclusion. One, apart from Lagos, Abuja and Port Harcourt, petrol is hardly sold at the official price. Nigerians are already paying N120 in the far North and near East. The criminal content of this is that the marketer still gets subsidy to sell at N65 per litre and also collects reimbursement for bridging costs (for inland transportation) through the Petroleum Equalisation Fund. Therefore he is ripping us off at least twice on every litre of petrol! This is not only criminal and wicked, it was punishable by death in the Buhari/Idiagbon years because this is pure economic sabotage.
My second reason is the amount being bandied around as subsidy. According to official figures, we have spent N1.8 trillion on subsidy in the last four years. I can bet my head that most of the claims for subsidy are fraudulent. Some people are making a kill in this country in the name of the poor. The more we argue against removal of subsidy, the more we empower these guys who have no conscience at all. I am most disheartened by the recent revelations by THISDAY on the loot-sharing cartel in charge of fuel importation and subsidy claims in the oil industry. Unscrupulous people have been milking this nation dry for years. What a shame. These people should be rotting in jail.
The current fraudulent structure allows NNPC to keep hold of four refineries that are not working and on which it still "spends" nearly $100 million for turn around maintenance every year. NNPC still keeps 5,000 refinery workers who produce just 5 per cent of the products we consume in Nigeria. These refineries never work. The more I think of this, the more agitated I am and the more I am less interested in opposing the removal of subsidy and the full deregulation of the sector. The fact that people commit all these crimes and go unpunished shows how weak and compromised the Nigerian state is. We are dealing with an intricate web of fraudsters and buccaneers who have been holding our development hostage forever.
Therefore, if deregulation will finally pull the rug from under the feet of these fraudsters, why not deregulate? If deregulation will allow for massive investment in the downstream sector, such that millions of jobs will be created directly and indirectly through establishment of more refineries and petrochemical factories, why not deregulate? If deregulation will be one painful pill that will free the oil industry from the crassly inefficient and parasitic government control, why not deregulate? Personally, I'm tired of hearing these threats on "subsidy" every year since 1986. It's irritating. It's just like the annual ASUU strike - I am completely fed up with it. It has become an annual festival. I, like many other Nigerians, have grown tired arguing against removal of subsidy.
However, I want to be on record for highlighting at least three points. One, the removal of fuel subsidy will not lead to the construction of more roads and more hospitals. If we have more roads, it will be because the budget for roads is spent on roads and not embezzled by party leaders. It will have nothing to do with the removal or retention of fuel subsidy. History is my witness. Two, with fuel price increases, the cost of living will go up, poverty will worsen and crimes will be on the rise. I don't know what the government has in place to tackle these side effects effectively. Three, it will be easier for fuel prices to go up than come down under "deregulation". If crude oil price is high, government will tell you it can't do anything because it is the work of market forces. However, if crude oil falls to as low as $40 per barrel, don't automatically expect lower fuel prices. Because government revenue will drop sharply, it will now employ the tax instrument to keep the pump price high so that it can generate more money to finance its budget. That is how it works. Quote me.
The major gain of deregulation then, if you ask me, is that those who feed on the N1 trillion subsidy will lose their loot. And perhaps we will have bigger investments in the downstream sector if it goes according to plan. Nevertheless, there will be pains to be borne mostly by the low-income earners who constitute the majority of our population. The government must work out how to deal with this. I would love to see the promised better roads, better healthcare, better school and more potable water - as pledged by government - but I think we have been promised these a million times in the past and we can't say for sure if those promises were ever fulfilled or even if fuel subsidy had anything to do with it. Nevertheless, I am not saying don't deregulate - I think we are losing that argument already. All I am saying is: there is a heavy price to be paid by poverty-stricken Nigerians. We only ignore or deny that fact at our own peril.
Be the first to Write a Comment!
Copyright © 2009 This Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
