Fix the Fuel Supply Problem; Don’t Dump It On Nigerians

By Moses E. Ochonu

Now that one has had time to digest the announcement of a massive increase in petrol price, one should enter a few comments. The astronomical hike has nothing to do with the “cost of production” argument we have become accustomed to hearing. There is some cost involved in refining crude oil abroad and transporting it to Nigeria, but with crude being so cheap, the previous price of 86 naira a litre had already accounted for all the cost, give or take a few naira.

With the price of crude inching up slightly in the last few weeks, it should add no more than a few nairas to the price if indeed we want to let market fluctuations modulate the pump price. This increase has everything to do with government’s last ditch effort to end the scarcity, which is caused by the inability of fuel importers to secure foreign exchange, a problem that was in turn caused by the government’s rigid restrictions on access to foreign exchange.

It was unrealistic to expect fuel importers without access to Forex at the official rate to continue to import fuel with Forex sourced from the parallel market ($1=N320) and then sell the same fuel at N86. They would have lost money. The Forex policy was a disincentive to fuel importation business and many importers simply stopped importing, especially since the government announced that it would no longer pay subsidy; subsidy being the difference between the total cost of importing fuel plus a small profit margin and the pump price. Now, with the deregulated regime, fuel importers can source Forex from the parallel market, import fuel, and sell at a price that would allow them to recoup their cost and make a small margin.

In other words, the government wittingly or unwittingly created a problem, which caused many fuel importers to quit the business, and the same government is now deregulating the sector fully so that it does not have to (1) pay subsidy, and (2) subsidise Forex for fuel importers. The government also desperately wants to end the fuel scarcity, which has eroded its political goodwill. In plain language, the government wants to kill three birds with one stone.

Another appropriate proverbial metaphor is that the government wants to eat its cake and have it too. It wants to subsidise neither Forex nor the difference between the cost of fuel importation and the pump price, but at the same time it wants fuel to become widely available. The government wants to transfer the burden of solving a fuel scarcity problem caused by its Forex restriction policy to Nigerians. The government is throwing Nigerians to the jaws of fuel marketers in the hope that, as long as fuel becomes widely available through improved supply, Nigerians will forgive the insensitivity of the policy, especially since this will also mean the end of the fraudulent subsidy regime that Nigerians universally despise.

It is a risky political calculation. Theoretically, once fuel importation becomes attractive again, the resulting competition should not only make supply abundant but should also eventually drive down the pump price. That is theory though, which hardly conduces to reality in Nigeria. In Nigeria, many things, including the pump price of fuel, often defy the law of gravity. Things that go up hardly come down in Nigeria. Instead they tend to keep climbing up.

*Moses Ochonu

The main problem still remains the absence of significant local refining capacity. Along with the president, the NNPC boss, Ibe Kachikwu, promised to fix the local refineries to enable them meet the domestic fuel demand for petrol. Despite many proclamations of turnaround maintenance and repairs and of purported resumption of domestic refining, it is clear that the bulk of our fuel is till being imported and that this will continue until Dangote’s refinery bails the government (and Nigerians) out.

Yesterday’s announcement is thus a complete surrender on the failed promise of revamping the refineries. Had the government been able to turn the refineries around, the questions of fuel scarcity, pricing, and Forex restrictions would not have arisen in the first place, let alone forcing the government to take this drastic measure.

The president will get a pass on this policy because most Nigerian’s still trust his intentions if not his policies, and because he is still seen as a man of integrity who does not waste or steal public money and is not beholden to a cabal of subsidy fraudsters like his predecessor was. However, if the scarcity does not abate and/or marketers find dubious ways to further mark up the price, this trust will quickly vanish.

Many of those who participated in the 2012 ‪#‎OccupyNigeria movement to protest the hike in fuel price are now on the defensive, spewing both valid and unconvincing alibis for their present indifference. There is no need to be too defensive. I agree that the times are different. Buhari’s personal integrity and the public trust that it engenders have erected a wall of difference between 2016 and 2012. Moreover, in 2012, the massive subsidy fraud had just been exposed, along with other corruption scandals, eroding public trust in the Jonathan administration. In other words, there was an ongoing narrative of waste and corruption that the protests mapped onto and derived oxygen from.

That said, many of those who are only invoking circumstance, time, and leadership as factors that make reaction to this price hike different from that of 2012 are a tad disingenuous and are only being half-honest. If they are completely honest they will cite another important factor that made the protest of 2012 possible but that is absent today. In 2012, the Save Nigeria Group (SNG), a motley crowd of ambitious politicians and activists struck a convenient activist marriage consummated on their common opposition to Jonathan. The activists had a different motive than the politicians but, lacking resources of their own, they welcomed the sponsorship of the politicians, some of them (nasir el-Rufai and Bola Tinubu) neoliberal fanatics and supporters of fuel price increase who are now, in 2016, vehement supporters of the announced deregulation.

#OccupyNigeria was bankrolled mostly by Malam Nasir el-Rufai, Bola Tinubu, and other opposition politicians who provided organisational and logistical leadership to the protests in an opportunistic quest to discredit Jonathan and give themselves political leverage. The movement and its opposition supporters also had the Lagos-Ibadan press, the primary agenda-setting organ of Nigerian politics, behind them. Today, many members of the SNG have been co-opted into the ruling APC government, and the Lagos-Ibadan press is still upholding the Tinubu-led Southwestern elite political consensus that brought Buhari to power.

So, even if Nigerians are as angry today as they were in 2012 over the hike in the price of petrol, they lack the financial, media, and organisational leverage necessary to coalesce into a coherent protest movement in the mould of ‪#‎OccupyNigeria2012. Theoretically, the opposition PDP could organise an SNC-like oppositional movement to capitalise on the popular discontent and suffering that will trail this policy. This is however unlikely to happen because most of the PDP politicians are busy with their EFCC troubles and those who are not would be foolish to draw the EFCC’s attention to themselves by funding an anti-Buhari fuel price hike mass protest.

When you strip away the big grammar and the esoteric explanations, a few important issues remain and can be distilled into fairly straightforward points and questions.

1. Wherever you stand on the fuel price increase, at least we can all agree on one thing: the root of the problem is Nigeria’s embarrassing reliance on imported fuel. No other major oil-producing country to my knowledge has this shameful profile;

2. The Buhari administration has broken a key electoral promise to revamp the refineries and wean Nigeria off this destructive reliance on fuel imports. This deregulation/fuel price increase is effectively a declaration that they’ve given up on restoring our refining capacity;

3. With crude oil being so cheap, Nigerians should be paying dirt cheap prices for petrol, not having to pay almost twice what they had been paying pre-scarcity. Falling crude prices should NOT result in rising petrol prices. This defies the law of the market, and it is because we import petrol. As things stand, the only people benefiting from our cheap crude are foreign buyers, not Nigerians;

4. Subsidy has become a bad word in our neoliberal world, but it is not subsidy per se that is the problem but rather how it is administered, what product is being subsidised, how much the subsidy costs, whether it is sustainable and for how long, and its multiplier effect on the economy. If you can afford it, you can use a temporary, transparent subsidy regime to support the affordable supply of a strategic national product while you work on a permanent solution. If there is any product worth subsidising in Nigeria it is oil.

Oil, pardon the pun, fuels the Nigerian economy and connects to all facets of our national life, so making it affordable and available is a national priority that should be secured even it takes subsidy to do so. Nigerians are not opposed to subsidy per se. Rather, they are opposed to its corruption and abuse. If there is no transparency in the subsidy regime, the answer is not to simply throw up your hands and walk way while stiffing Nigerians with the bill through the backdoor of deregulation. If there is anyone in Nigeria that Nigerians believe has the integrity quotient to tackle the rot in subsidy administration, it is Buhari. Nigerians expect him to sanitise the subsidy regime with a combination of courage and personal moral capital until domestic refining fully recovers and makes importation and subsidy unnecessary;

5. Deregulation is only a short term, knee-jerk half-solution. The real, permanent solution for providing affordable petrol to Nigerians is to revamp our domestic refining capacity so that 100 percent of Nigerian fuel consumption is supplied from domestic refineries, as used to be the case. Unlike in the past, this will now be achieved through a symbiotic mix of state and private refineries. Taking easy shortcuts will not solve the problem at its root. On this score, one thing that may come to the government’s rescue is Dangote’s refinery, which will begin operation in two years;

6. The loss of refining capacity is a twenty-year old problem, so Buhari should not be blamed for it. However, he promised to reverse it and Nigerians voted for him on that premise. Not only that, his junior oil minister, Ibe Kachikwu, has been running upandan (I like that Nigerian word!) excitedly telling the country that domestic refining was being restored only to basically throw in the towel;

7. The government has essentially fobbed off the subsidy to Nigerians. It is a pattern. If the government can’t fix a problem, it dumps it on Nigerians.

Moses E. Ochonu, a US-based professor of history, can be reached at meochonu@gmail.com