An ongoing nationwide fuel scarcity, coinciding with reports that the National Assembly passed the 2015 Appropriation Act without providing for fuel subsidies, has revived the long-running debate on subsidies in Nigeria. The ensuing clarification that N143 billion was later included in the N4.49 trillion budget has not doused the raging discourse about whether subsidies should be retained or removed. The two perspectives to the debate have their own merits and demerits, but it is only a well-thought-out plan of action that will resolve the dilemma.
The government and its agencies, arguing that subsidies are not sustainable, and do not reach the poor, who are the target, want them scrapped. Their case is compounded by oil prices that have fallen sharply over the past year, averaging half of the $100 per barrel price of 2014. They add that the savings from subsidy removal will be deployed in improving social services, education, health and infrastructure. This argument is as old as fuel importation regime, which started in the 1980s.
Tim Okon, the Group Coordinator, Corporate Strategy and Planning at the state-owned Nigerian National Petroleum Corporation, said, “Since the government does not control crude oil price, its fluctuation often creates fiscal instability in the country, which negatively impacts on Nigeria’s revenues … it (subsidy) is something that should go….” The position of the NNPC tallies with that of global organisations like the International Monetary Fund, the World Bank and the International Energy Agency.
While these are tenable arguments, they, however, grossly downplay the economic and social implications for the Nigerian nation. The concomitant effects of fuel subsidy removal will lead to inflation, closure of factories and widespread loss of jobs. Indeed, the poor will end up totally marginalised economically from the expected increment that will follow the removal.
As we have repeatedly argued, subsidies are a product of the large-scale inefficiency and corruption in our oil industry. These factors have made Nigeria, one of the global leaders in oil-production, to be dependent on imported refined petroleum products. And though we produce 2.3 million barrels of oil per day, the nation’s four refineries have been comatose for decades, leading to importation to augment a daily need for petrol that is estimated by NNPC at 33 million litres. This is the crux of the matter: refine petroleum domestically and government subsidies, attended by massive corruption, will fizzle out.
Also, the argument for removal is not cast in stone. No responsible government will totally surrender its economy to the vicissitudes of the market. According to the IEA, many governments around the world are subsidising energy costs. It estimated the global oil subsidy in 2013 at over $274 billion. The IEA lists the United States – the global beacon of capitalism – as the biggest energy subsidiser in the developed world after Luxembourg, as it supports gas and diesel at two per cent. Yet, America refines what it needs domestically and is even now Nigeria’s largest supplier of kerosene. Venezuela subsidises petroleum prices (eight per cent), Iraq (14 per cent), Egypt (9 per cent of GDP) and Uzbekistan, natural gas, at 26 per cent of GDP.
Nigeria is experiencing the pangs of scarcity, reduced oil income and the jobs that would have lowered our 23.9 per cent unemployment rate from the oil sector simply because our government has been bereft of initiatives. Several administrations have allowed corruption to obviate progress in the downstream oil industry. The opportunities that came our way were misused due to government’s incapacity. But the sudden removal of subsidies will cause more harm than good to the economy.
Arguing for the refurbishment of our four refineries, Diezani Alison-Madueke, the Petroleum Resources Minister, forcefully persuaded the National Assembly in 2012 to approve a $1.6 billion loan for the exercise.
Three years on, the refineries, located in Warri, Port Harcourt and Kaduna are worse off. Instead of the 90 per cent capacity utilisation the minister promised the repair would achieve, the latest NNPC report put their effectiveness at only 10.4 per cent. The loan has not been fully serviced. This is double tragedy.
In an unprecedented case of looting, in which nobody has been successfully prosecuted, several probes conducted after the subsidy riots of January 2012 agreed that the Goodluck Jonathan Administration fraudulently shelled out N2.53 trillion to petrol marketers in 2011, who did not import the petrol they were paid for. The National Assembly approved only N245 billion as subsidy for 2011.
Yet, inexplicably, the government seems to be content with this state of affairs, preferring instead to remove fuel subsidies when it has not taken any concrete steps to build the three Greenfield refineries it promised after the 2012 riots. To eradicate fuel importation and the need for subsidies, the incoming Muhammadu Buhari government has to carry out a comprehensive reform of the NNPC. The country will undoubtedly save money from this.
However, the most critical factor in ending the debacle is the immediate privatisation of the four refineries. Two of them were once sold to the Bluestar Consortium in 2007, but the sale was reversed by the Umaru Yar’Adua Administration the same year. The present government, through Alison-Madueke, said the refineries would be sold in the first quarter of 2014, but the will to do so was lacking as she was immediately countermanded by the Presidency. A serious government can privatise them within three months.
Also, the Federal Government has to implement a new plan that will encourage investors to build refineries, just as the Dangote Group is doing with the 650,000 barrels per day facility it is constructing in Lagos.
