The issue of the removal of petrol subsidy is one area that has exposed our government’s characteristic indecision and prevarication. On the one hand, government’s claim to subsidy values of over N600bn per annum is considered outrageous and unsustainable as this expenses subhead alone usually exceeds the consolidated capital votes for health, education and transportation each year. Meanwhile, Nigerians continue to bemoan the huge infrastructural deficits in these critical areas of social welfare, but still rigidly insists on the maintenance of this oppressive expenditure pattern. Indeed, the PDP government has continued to threaten Nigerians with petroleum subsidy withdrawal for over six years, with renewed calls and affirmation by government officials every month or so.
Nonetheless, subsidy has increased from just over N100bn in year 2000 to its current value of over N600bn, while government continues to make feeble noises on the end of subsidy. The truth, of course, is well recognized by government that removal of subsidy will bring untold hardship to all Nigerians (especially those who do not have easy access to government treasury). Meanwhile, there is the real possibility that subsidy could exceed over 70% of our capital budget, if oil prices rise fortuitously to above $100/barrel in the next 12 months. If this happens, any hope that we will make any serious impact on our infrastructural deficit may well be a pipe dream together with the porous Vision 20-2020 strategy.
I have maintained without equivocation in this column in the last six years that it will be impossible for government to cancel subsidy (i.e. dismantle NNPC’s current petrol import monopoly) without first dismantling the monopoly of our Central Bank in the foreign exchange market, where the CBN controls over 80% of all dollars traded in the market while it maintains its constitutional monopoly of all naira issuance concurrently. Needless to say that government’s dilemma on fuel pricing firmly corroborates our abiding observation.
However, we have also explained in this column how the adoption of the instruments of dollar certificates (strictly not cash) for disbursement of dollar derived revenue to constitutional beneficiaries would immediately lead to steady decline in local fuel prices such that ‘subsidy’ will become unnecessary while government will be repositioned to actually derive substantial revenue from a sales tax which can be levied without any opposition from labour.
In other words, the adoption of dollar certificates will make available over N600bn for capital and social welfare enhancement in addition to a sales tax revenue of upto N10/litre on over 30 million litres of fuel consumed daily. If the situation can be turned around so simply and beneficently, why is the government pussyfooting on this vital issue? The only obvious reason for government’s lack of enthusiasm to embrace this reality is that its adoption would quickly reduce the space for corruption and self-enrichment, particularly in the Central Bank, the commercial banks, the executive arms of government and in the bureau de change, who now serve as a collaborative conduit with treasury looters to facilitate money laundering.
Today’s article “CBN & Petroleum Subsidy” is the title of the editorial of 17th June 2010 in the Guardian Newspapers. We invite our readers’ attention to the full text of the editorial, which is reproduced hereafter. It is axiomatic that the same CBN who is primarily the promoter and the villain in the scourge of subsidy is also shouting the loudest for its removal. Some analysts observe that it is a case of propaganda and an attempt to distract attention and divert recognition of the apex bank as the engine of our problem. The Guardian editorial under reference reads as follows:
“Central Bank Governor, Lamido Sanusi recently called for the immediate removal of petroleum subsidy. It may be recalled that two months or so ago, the NNPC assured that there would no longer be fuel shortages. Since then, there have been media reports that the supply of petroleum products has improved nationwide with petrol beginning to flow at the recommended price from the hitherto dry pumps in the north easternmost states which had for years been overrun by fuel black markets.
“This development is noteworthy because the need to end shortages, which had always been officially orchestrated, formed part of the traditional reasons pleaded by government for seeking to dump petroleum subsidy. It is apposite to state at this point that, after several decades of disagreement and intermittent negotiations between government and the labour unions over withdrawal of subsidy, what exists today is petrol subsidy as other refined petroleum products sell at uncontrolled or commercial rates without drawing the ire of Labour.
“The easing of fuel supply notwithstanding, the latest consultations between the federal administration and Labour regarding complete deregulation of the downstream petroleum sector were unfruitful. In the circumstances, the apex bank governor’s public resort to the ingrained official fixation or removal of fuel subsidy very soon after shows arrogant disrespect for the primacy of the preferences of the people in a democracy as expressed through the labour unions.
“The problem of petroleum subsidy has lingered for several decades and it is therefore regrettable that the CBN failed to look inward for alternative options for resolving the matter, a sine qua non – confirmed by the following cursory historical review. Petroleum products have not always been subsidized nor did the onset of subsidy result from lagging petroleum product prices relative to changes in the international price of crude oil. From its stable price of 8.8 kobo per litre in 1966-78 when there was no subsidy, petrol price rocketed by 73,700 per cent to N65 per litre today.
“Also diesel which retailed at 11 kobo per litre in 1985 zoomed 99,900 percent to N110 per litre currently. But crude oil, even at the peak price of US$147 per barrel in 2008, rose by only 880 per cent over the 1978 level of $15 per barrel. Hence nominally, with domestic petrol and diesel prices outpacing crude oil prices by 84 fold and 114-fold respectively during the period, the culprit in the vexed subsidy is the precipitous depreciation of the naira by over 99.6 per cent since 1980 with its attendant high inflation. Doubtless, the monetary and fiscal authorities culpably left their job undone.
“Accordingly, until the CBN begins to correctly infuse federation account dollar proceeds into the system so as to halt the slide of the naira and stem high inflation, removal or reduction in petrol subsidy would leave the masses worse off. Contrarily, when government flushes out (as it should) the oil sector cabal currently cornering a part of the subsidy, the lot of the masses would improve. Poised against the masses, Sanusi further sought to justify his position by claiming falsely that government was borrowing to pay petrol subsidy debts. The truth is that proceeds (local or external) from any volume of crude oil allocated for domestic consumption more than cover whatever shortfall that might arise because of the controlled pump price of petrol.
“However, the CBN governor has explained elsewhere that he is all for petroleum subsidy provided it is well administered. Indeed, energy subsidy possess immense economic advantage particularly in an oil producing country. Take for instance, Venezuela where fuel has gone for three U.S. cents (that is N4.50 today) per litre since 2006. Given appropriate fiscal and monetary measures, such an economy under the free enterprise system could within a short time transform into a low-cost production centre with a supper-vibrant private sector; a highly diversified industrial base and a fully engaged workforce. The economy would become a major exporter and also generate tones of tax revenue.
“Nevertheless, we note the apex bank’s concerns about continuing to subsidize petrol imported from other countries. Clearly, an oil producing country reaps the maximum benefits from refining its total crude output. Fuel importation became necessary owing to the failure of NNPC refineries to operate optimally. But labour and other vested interests have stalled their privatization. To get around labour resistance to deregulation, government should have recourse to the export processing zone scheme (EPZ) initiated over a decade ago. There should be urgent legislation requiring the joint-venture oil companies to refine within a given time frame initially a specified and graduated or rising proportion of, and subsequently, their total crude oil output for export at any Nigerian location of their choice under EPZ rules. Refined petroleum products for domestic consumption could then be imported from the EPZs and subsidized if need be. That will shower the country with the full benefits of a developed petroleum sector.
“For now, as the CBN searches for excuses for its unending failures, Nigerians should be spared the distraction and economic pain that the removal of the remaining petroleum subsidy could cause.”
However, how do Nigerians see governments’ argument and propaganda for rationalizing subsidy removal? To answer this question, we will conclude this week’s piece with excerpts from a rejoinder titled “The Arithmetic of Subsidy, the ‘Isiro’ of Deceit”(isiro in Yoruba translates to addition) by Oyewale Tomori, a Professor of Virology on page 64 in the Guardian edition of June 24, 2010. It reads as follows:
“The campaign, or rather the war to remove subsidy has been going on now for some time; the losers will be the ordinary abandoned, deserted, discarded, forsaken, neglected and done for citizens of Nigeria…. They have employed tactics bordering on deceit, trickery, duplicity, deception and guile. They have inundated us with figures extracted from a blend of crude and partially refined fact and fiction. They have presented, “hankly and pankily”, this hybrid of fact and fiction with subtle manipulations… to deceive us into supporting the removal of the “subsidy”…. “We are bombarded with adverts telling us what we could have done with the 2.3 trillion naira subsidy. The first advertisement I saw said that with the 2.3 trillion naira subsidy, our government could have ‘tarmacadamised’ the road from Ajegunle to Jalingo, etc…. Another one said, if not for the 2.3 trillion naira spent on subsidy, Nigerians would now be enjoying 28 hours of electricity per day, from the 6 million kilowatts generated from the 10 megawatti stations that would have been built…. Two points come clear from these advertisements. It is either somebody is trying to fool us, or the secret of how much we really need to develop this country has been inadvertently released to us. May the Lord protect our subsidy from looters. Say Amen, somebody!”
Save the Naira, Save Nigerians!