Thursday, May 19, 2016

The Subsidy Hell Hole

By Lewis Obi 
THE trouble with petroleum subsidy is part­ly that by its nature it is a little complicated trying to put it in everyday language. This difficulty has accounted for the difficulties governments have had trying to get well-meaning citizens to support its removal. Even the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, tried on TV to explain how he and his people arrived at N145 per liter. He ended up confusing ev­eryone who tried to understand his reason­ing. It used to be easier when the issue was simply the cost of crude, plus cost of refin­ing, plus cost of transportation, plus cost of equalization, plus marketer’s margins. Now the calculation has an added complication — the cost of the dollar.
If Dr. Kachikwu is right that N145 is enough to secure for the country a steady supply of petrol, with a possibility that when the new system settles down lower prices would follow, then the government deserves support. The assumption of the government that everyone understands its calculations is wrong. An overwhelming majority of Ni­gerians, including those who have finally discovered that subsidy payments are a huge swindle on ordinary Nigerians, do not understand how the ministry arrived at N145 per liter. The earlier that little de­tail is clarified and publicized the better for the government.
But essentially the second part of the trouble with subsidy is that it is, by its nature, political. It comes in the form of the argument that since Nigeria is Af­rica’s largest and the world’s sixth largest producer of petroleum products, it is only natural that the country should avail its citizens petroleum products at the cheap­est possible rate. Good argument on first reading until the technical inadequacies of our refineries kick in. We had three re­fineries that were calculated to meet our domestic consumption which are now producing only 40 per cent of our needs.
These refineries need billions of dol­lars to repair. That’s where the first fundamental question begins: Why did Nigeria not insist that the company which built the first refinery include technical training and transfer of technology in the agreement which came with the deal? Because that is what other countries do in similar circumstances. That way you are able to repair the refinery if it breaks down. You are able to build another re­finery by yourself if the current one has reached maximum capacity. With tech­nical expertise, you only need to know when to order spare parts in a timely fashion to prevent down time.

I remember that former Minister of Petroleum Resources Prof. Tam David- West once explained that the fourth Ni­gerian refinery was indeed the country’s export refinery. Since the Organiza­tion of Petroleum Exporting Countries (OPEC) does not count refined products in members’ OPEC quota, export of re­fined products constituted another rev­enue stream for Nigeria. In other words, if we had been able to operate our refineries with some degree of efficiency, we would today be earning much more money, per­haps, as much money from refined products as from crude exports. But wishes are not horses and even the fourth refinery, plus the three domestic refineries all became white elephants. We could neither repair them ourselves nor run them efficiently and today we have to depend on imported petrol for more than 60 per cent of our needs.
The average cost of subsidy on petrol for a year is about one trillion Naira. In some years it went beyond that sum. No reason­able Nigerian would support such expense. Worse, the preliminary inquiries into the subsidy system discovered it was riddled with corruption. The reason so many es­caped jail in the subsidy scandal is that the culprits were the fat cats of society who capi­talized on our weak institutions to escape justice. The National Assembly members implicated in a so-called “oversight” inves­tigation who collected a bribe of $600,000 to write a favorable report are still walking free, the bribe takers and the bribe giver, both. It is one of the imponderables of Nige­ria’s public enlightenment that otherwise in­formed people could remotely be campaign­ing for the sustenance of the petrol subsidy. The fallacy is being peddled that N145 per liter is so onerous it would lead to galloping inflation.
That is voodoo economics. If inflation begins to gallop, less than five per cent of it will be traceable to the price of petrol be­cause any realistic computation of a vehicle’s running cost would find that fuel constitutes less than 10 per cent of the costs. But of course Nigeria would know that the vested interests would spin the issue and make a crisis out of one of the most reasonable deci­sions the present administration has made in its one year. President Jonathan intended to pull out of the subsidy trap, he was bullied. He abandoned it. President Buhari is try­ing to slay this dragon and get out of this hell hole. Let’s hope he has the balls to withstand the usual suspects.
I have no doubt that buried in the fat books titled the Laws of the Federal Republic of Nigeria are processes and procedures gov­erning the conditions that must exist before workers can lawfully go on strike. The rea­son is that strikes are serious matters. It is not done for the fun of it. It is not done or it should not be done to massage the ego of trade union leaders or to blackmail political leaders. That’s why in most societies it is not easy to get workers to go on strike. A strike almost always needs a drawn out process requiring a certain number of members of the union to vote ‘aye.’ Before you get to the stage of actually voting, certain procedures like warnings, reminders, ultimatum and fi­nal warning must be fulfilled.
But whichever way the current strike by a faction of the Nigerian Labour Congress (NLC) goes, the Federal Government has not demonstrated that it sufficiently took labor into confidence before it went public with its new policy on petroleum subsidy. The petroleum subsidy ghost has haunted many Nigerian administrations. It was thoughtful of the Attorney-General and Minister of Jus­tice Abubakar Malami (SAN) to run to the National Industrial Court (NIC) to stop the unions from disrupting the economic life of the nation, although it would have been better to explore an agreement with the unions first.
By disobeying the court’s orders and pro­ceeding, the faction of the NLC exposed itself and its members to an almost infinite risk. By disobeying the court they probably could be sacked or jailed for contempt in ad­dition to not being paid for the duration of the strike as the government has instructed. The labor faction that went on strike yesterday did not look good or reasonable or disciplined or deliberative.
*Mr. Obi, a veteran journalist and former editor of the defunct African Concord magazine, is a columnist with The SUN


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