Subsidy Removal, Fuel Scarcity And Buhari's Grand Failure

By Dan Amor

Over the years, Nigeria's four decrepit refineries which were built to refine crude oil into petroleum products for local consumption and possibly for exports were left to rot just to make room for the importation of petroleum products by the governing elite and their contractors. This makes it pretty difficult for the importers or oil marketers to bring the products to the reach of the final consumers without incurring additional costs. The effect of this excess tax on the consumers in the name of landing and other costs of carriage from the ports to depots across the country is what government tries to cushion so that the products would be affordable for the common man. This extra payment government makes to the oil marketers in order to maintain an affordable price regime for the products is what is generally referred to as oil subsidy.

*Buhari 

Subsidy is therefore a government policy that would act as a palliative due to fluctuations in the international market. But what makes this policy so controversial in Nigeria is that everything about the oil & gas sector is shrouded in secrecy. Ever since the military administration of General Ibrahim Badamasi Babangida introduced the Structural Adjustment Programme (SAP) in 1988, whose major intention was to vend juicy national assets to willing buyers, those companies not sold to government officials or their cronies, were allowed to rot in other to attract the sympathy of Nigerians for their privatization. The refineries, two in Port Harcourt, one in Onne near Warri and one in Kaduna, are part of those assets. Since the Babangida era, Nigerians have been living with this menace. It triggered a lot of civil unrests during which several Nigerians including university students were killed.

The Military junta under the late General Sani Abacha which inherited the crisis set up the Petroleum (Special) Trust Fund (PTF) headed by the current President, Muhamadu Buhari, to manage the excess charges from the pump prices of petroleum products. The fund was meant for the provision of infrastructure across the country. In 1999, when Chief Olusegun Obasanjo assumed leadership of the country as a democratically elected president, he disbanded the PTF and insisted on the deregulation of the downstream sector of the petroleum industry. But the move was resisted by Nigerians who thought that they had long been shortchanged by government in the oil and gas industry.

Obasanjo increased fuel prices seven times without setting up an ad hoc intervention agency like Abacha did to ameliorate the pains of the price hike. Upon assumption of office as an elected President, former President Goodluck Jonathan, having discovered the massive fraud inherent in the subsidy business, sought to remove it without much public enlightenment and education to sensitize the Nigerian people. And because the removal was ill-timed, too, as most Nigerians were yet to return from the Chritmas break in January 2012, Jonathan's attempt to remove the subsidy was met with brick wall. Many Nigerians thought that the move was insensitive. The opposition politicians, who are now in power, led the civil society to occupy Nigeria, grounded it and made the country ungovernable for Jonathan. There was pandemonium everywhere , and that signaled the beginning of public hatred for Jonathan.

Many analysts believed that government had good intention with subsidy for the benefit of all Nigerians but it was hijacked by a cabal who found themselves in advantaged positions and capitalized on loopholes in the system to sabotage the economy. They instigated the masses by emphasizing the pains that would result if the subsidy was removed. Some analysts also believed that there were issues of fuel shortages from fall in supply, resulting in long queues before the then President Obasanjo decided to issue allocations to individuals to import refined products and then subsidize it. Obasanjo offered to subsidize fuel importation without asking the importers to bring in the products and sell them the way they wanted.

By this, the government of Chief Obasanjo had introduced middlemen and agencies with the intention of ensuring effectiveness , but then those agencies became the albatross having constituted part of the cartel. In a normal subsidy regime, the price of a product is determined by what is called a plat based on the prevailing international price of crude. Depending on the price, there could be an over recovery or an under recovery. When prices are high in the international market, it becomes an over recovery and the marketer pays to the government because the prices of products are low. But when there is an under-recovery, the international price of crude is low leading to high landing cost for marketers and government paying subsidy to them.

In Nigeria, no marketer has ever paid on over-recovery even though it happens. In every consignment of product brought into the country, the marketer makes profit no matter how small. The maximum volume that PPMC issues out per transaction is fifteen thousand metric tones. But because of the efforts put in per transaction, the marketers see the profit they make as low. Consequently, they cut corners to make more profit per fifteen metric tones transaction. This is how round tripping and over-invoicing came about. Unfortunately, most of these marketers get their supply from Lome/Cotonou but get subsidy payments from government with forged documents claiming that they were imported from abroad.

They use what they call daughter vessels to bring in consignment from mother vessels from our neighboring countries and truck them to filling stations as imported products. Yet, available records suggest that energy or petroleum subsidy is a measure that keeps prices for consumers below market levels or for producers above market price or reduce costs for consumers and producers. Subsidy may be direct cash transfers to producers, consumers or related bodies, as well as indirect support mechanisms such as tax exemptions and rebates, price controls, trade restrictions, and limits on market assets.

Still, from informed sources, fuel subsidy reached $500bn globally in 2011. Renewable energy subsidies reached $88bn in 2011. According to Fatih Birol, Chief Economist at the International Energy Agency, without the phasing out of fuel subsidy, we will not reach our climate targets. The IMF estimates that for 2015, the economic cost of energy subsidies worldwide would amount to US$5.3trillion or US$10million every minute.

Nigeria may have to grapple with the controversial issue of subsidy on petroleum products, which has caused fuel scarcity that nearly grounded the nation for almost one month in 2015 before Buhari assumed power as democratically elected president. The petroleum crisis, which has just been resuscitated by the current Buhari government due to insincerity and double dealing on the part of government and the NNPC, put on hold all sectors of the economy, including the aviation sector which during this time witnessed flight delays and cancellations, cost of transportation jacked up, impacting negatively on prices of foodstuff, among other challenges too numerous to mention. It is disturbingly breathtaking. Yet, currently, the Buhari government lacks the capacity to manage the crisis as a liter of fuel now costs almost N500 in Abuja and many states across the country.

The most worrisome was the alleged debt of about $800million owed marketers of petroleum products, who feared that the new administration under President Muhamadu Buhari may not be disposed to settling the accumulated debt. Fortunately or otherwise, Buhari who claimed not to have known what subsidy meant when he assumed office, has been paying it secretly to oil marketers until recently when his cartel in the Presidency advised NNPC to solely import and supply to the marketers. Marketers in early 2015, had resorted to hoarding fuel due to fear that they might not be paid their outstanding subsidy claims, and, as a result, created the subsidy crisis as a way of forcing the government of former President Goodluck Jonathan to effect payment of the subsidy. Most Nigerians who aired their views on this burning issue said removal of subsidy on petroleum products by the new government could be its greatest undoing.

They see the subsidy as the only succor for the impoverished masses of the country. According to Eniola Kabir, a Lagos driver, like some others, removal of the subsidy would be equal to sounding the death knell of the poor masses, who can barely afford the current pump price of N145 per liter. "These petrol marketers would hike their pump prices out of the reach of ordinary Nigerians; you can judge from the last product scarcity", he said However, in government quarters, it is held that the removal of of the subsidy would free some funds for the government to invest in other areas and also open up the market and create a healthy competition among Nigerians who would want to trade in the downstream sub-sector of the oil and gas industry. The government also considers the escalating nature of the subsidy in the face of falling crude prices, a development which has eroded its income from the international market, being a mono-product economy nation.

Human rights lawyer, Mr. Femi Falana (SAN), had called on the Federal Government not to remove fuel subsidy as being clamoured for in some quarters, noting that doing so would make poor Nigerians poorer and life and living even more difficult. Instead of removing the subsidy, Falana suggested that the government should embark on building modular refineries across the country to make fuel cheaper and available at all times. He made the appeal while speaking at the June 12,1993 Presidential election anniversary in Lagos in 2015. He urged President Buhari to go after all those that mismanaged and embezzled Nigeria's commonwealth and ensure they refund whatever they had stolen, noting that there was higher level of diversion of state funds across the country.

Speaking further on how to end the 2015 fuel crisis and produce cheaper fuel, Falana urged the Federal Government to borrow a leaf from neighboring Francophone countries like Chad, Niger, and Cameroon, saying: "they have been building modular refineries that cost a maximum of $15m each." But the Buhari administration which does not listen to advice has failed to build modular refineries almost three years into office. Now that those who attacked Jonathan for attempting to remove the subsidy are in power, the question on the lips of Nigerians is: will the subsidy be allowed to be or not to be? The President had however said that removal of subsidy should be a gradual process. Meanwhile, as fuel queues have resurfaced in all parts of the country, the blame game and the pains continue. The Buhari administration lacks the managerial capacity to provide succor for millions of suffering Nigerians. It is easier said than done.

*Dan Amor, a public affairs analyst, writes from Abuja (danamor641@gmail.com)