MICHAEL EBOH
A of years now the Federal Government has mused over the removal
of subsidy on some petroleum products, notably, premium motor spirit, PMS or
petrol and household kerosene, HHK, simply called kerosene. Datelines have been
pushed yearly, and now pegged at 2015.
However, attempts to remove the fuel subsidy, supported through
the Petroleum Support Fund, PSF, managed by the Petroleum Products Pricing
Regulatory Agency, PPPRA, have been met with stiff oppositions by various
groups based on varied interests.
Fuel subsidy is a system through which the government cushions
the effects of high oil prices at the international market, whereby the
government bears the burden of the difference between the landing cost of the
refined products and the pump prices in the local market.
The fuel subsidy regime in Nigeria has since 2012, been fraught
with controversy, such that many believe is capable of crippling the Nigerian
economy if not properly handled. The issue took a worrisome dimension, when it
was realised that between 2006 and 2013, Nigeria had spent over N5.42 trillion
subsidising petrol. This does not include the huge amount expended on kerosene
subsidy.
Breaking down subsidy costs
To bring home the truth, the amount spent on petrol subsidy
alone in eight years is 15.57 per cent higher than the N4.69 trillion 2014
National Budget, and also 10.61 per cent more than the 2013 budget of N4.93
trillion.
For 2014, the Federal Government budgeted N971.1 billion for
payments of subsidy, keeping it at the same level in 2013. At the current rate,
subsidy payments over the last three years, including payments made in the last
eight years, would have amounted to about N10 trillion.
The amount the country is spending on subsidy is almost twice
the amount (196.07 per cent) allocated for education in the 2014 budget, which
is N495.28 billion; more than three times (369.6 per cent) the N262.74 billion
budgeted for health; and 148 per cent more than the N655.47 billion allocated
for the Universal Basic Education Commission, UBEC and the Tertiary Education
Trust Fund, TETFUND.
In terms of welfare, subsidy provisions in 2014 can pay the
salaries and wages of about half the workforce of Ministries, Departments and
Agencies, MDAs, of the federal level given the N1.723 trillion provided for
personnel cost in the budget.
Based on the foregoing, the colossal cost of subsidy if
redeployed in other key sectors of the economy could have boosted the
development of these sectors to the benefit of the ordinary Nigerians. This is
opposed to the current regime where a new class of few billionaires has emerged
at the expense of the larger populace.
Removal impact assessment
Investigation by Sweetcrude revealed that the Federal Government
is considering abolishing fuel subsidy in 2015, and is already meeting with key
stakeholders over the issue.
A director in the Federal Ministry of Finance, who spoke in
confidence with Sweetcrude on the sideline of a forum in Lagos, said the
Federal Government, through the Ministry of Finance has begun a test run and is
trying to envisage the impact of the removal on the economy.
The director said the meeting with stakeholders, including
labour unions, oil companies and oil marketing companies, is to prevent a
recurrence of the nationwide protests that greeted the hike in fuel prices in
2012.
The director further noted that the Federal Government is
optimistic that the removal next year will not spur any protests, as it expects
that Nigerians would have come to terms with the reasons for the subsidy
removal.
Despite Federal Government’s silence, debates have continued to
ensue in the last couple of months on whether subsidy should be removed or not.
Even the members of the ongoing National Conference, have seen the wisdom for
its removal.
Subsidy breeds corruption
Nigerians are however divided on whether the subsidy regime
should stay or not. For most of the academia, subsidy breeds corruption and
should be done away with.
For Dr. Fatima Waziri-Azi, Head of Department of Public Law, at
the Nigerian Institute of Advanced Legal Studies, NIALS, in a presentation
titled; “Institutional and Legal Arrangements for Fuel Subsidy Regime,” the
subsidy programme has revealed a new trend of corruption in Nigeria.
According to her, it has witnessed situations whereby people
collect subsidy payments for not supplying petrol, whilst they collect foreign
exchange for the purpose.
Waziri-Azi said corruption in fuel subsidy ensures that the
society loses in two ways, “First, some of the subsidies do not reach the
intended beneficiaries, and second, the misused subsidy feeds the black
economy.
Also, the trio of Fatih Birol, Rabia Ferroukhi, and Aleagha, in
their paper titled, “The Economic Impact of Subsidy Phase Out in Oil Exporting
Developing Countries: A Case Study of Algeria, Iran, and Nigeria,” maintained
that subsidy, irrespective of whether it is given to the consumer (at the pump)
or to the producer (refineries) adversely affects the economy.
According to them, the subsidised energy markets ultimately work
against the goal of promoting economic development, adding that subsidies given
to consumers result in excessive domestic demand, which reduces the amount of
crude oil for export, thereby decreasing the foreign exchange revenue needed to
invest in the economy.
“Subsidies given to the producers (refineries) results in
excessive supply and depletion of resources (crude oil, which is often the main
revenue earner for the country).
“Subsidies give rise to debt accumulation which results from a
depletion on government resources because of lower export earnings and revenue
spent on subsidies which lead to fiscal deficits.”
Also speaking, Comrade Babatunde Ogun, President, Petroleum and
Natural Gas Senior Staff Association of Nigeria, PENGASSAN, argued that the
payment of subsidy on petroleum products, especially petrol, is not to the
advantage of the Nigerian masses, but only favours few individuals who have
constituted themselves into a cabal.
He advised other trade unions in Nigeria to change their
positions and stop supporting payment of subsidy on petroleum products.
He said, “It is high time labour unions stopped saying no to the
removal of subsidy, and look beyond ordinary reasoning to support the
government against a policy and process that has been bleeding the country dry
as well as stunting the growth of the nation’s downstream sector of the oil and
gas industry.
“The money being used in payment of subsidy to these few
individuals who are enriching themselves at the expense of Nigeria can be
channelled towards other developmental projects, especially the nation’s ailing
and dilapidated infrastructures,” he said.
Furthermore, in an analysis of the fuel subsidy situation in
Nigeria, Mr. Eniwoareke Egbeme, Analyst, Nextier Capital Limited, told
Sweetcrude that successive governments in Nigeria starting from 1978 have
gradually removed the subsidy on petroleum products. This resulted in an
increase in the price of a litre of petrol from eight kobo in 1978 to the
current price of N97 which came into effect into 2012.
According to him, the arguments for removing subsidy on
petroleum products in Nigeria have remained largely the same irrespective of
the government in power; yet, the expected improvement in the welfare of
Nigerians has not been realised.
He further stated that national poverty rate increased from 28
per cent in 1980 to 67 per cent in 2013, adding that, unemployment rate, in the
same vein, increased from 6.4 per cent in 1980 to 27.4 per cent in 2012.
“However, the fact is that the Nigerian economy cannot continue
to sustain the subsidy on petroleum products. For instance, in 2013, Nigeria
spent N832 billion on petroleum subsidy, which is 16.7 percent of the 2013
budget.
“According to the Central Bank of Nigeria, about US$8.46 billion
(or N1.35 trillion) was spent on kerosene subsidy between January 2012 and July
2013; amounting to about 153 per cent of the combined allocation to education,
health, and agriculture in the 2013 budget,” he said.
“In spite of the partial removal of subsidies in 2012, Nigeria
still battles with fuel scarcity and fuel pump price stability. Data from NOI
Polls, an independent polling company, indicate that over 78 percent of
Nigerians purchased PMS at above the official pump price of N97 per litre
between January and March 2014. Some filling stations retailed their products
between N110 and N160 per litre of PMS. Black market prices were as high as
N200 per litre in some parts of the country.”
Also, the Lagos Chamber of Commerce and Industry, LCCI, declared
that given the magnitude of resources committed to funding fuel subsidy, it is
clear the subsidy regime is not sustainable.
At its quarterly briefing on the economy, President of LCCI,
Alhaji Remi Bello, said the Chamber appreciated the enormity and dimensions of
the potential short term impacts of subsidy removal on the economy and the
citizens.
Bello said a review of the subsidy regime would result in
increased private investment in the downstream oil sector with a corresponding
impact on the creation of quality jobs, reduction in the pressures on foreign
reserves, a huge chunk of which is currently being used to fund fuel
importation, and better fiscal space to ensure macroeconomic stability with a
resultant positive effect on the economy.
Similarly, finance commissioners from the 36 states of the
federation rose from one of their monthly Federation Accounts Allocation
Committee, FAAC, meeting in Abuja, with a resolution asking President Goodluck
Jonathan to withdraw fuel subsidy.
The Ebonyi State Commissioner for Finance, and Chairman of the
Finance Commissioners Forum, Mr. Timothy Odaah, who spoke on behalf of the
group, stated that fuel subsidy had failed to achieve its objectives and had
become a source of massive fraud which must be discontinued in the interest of
the Nigerian public.
He said, “We looked at subsidy on oil and see that it is more or
less a solution worse than the problem you intend to solve. Looking at it, you
discover that it is not solving the problem it is meant to solve.
“But you discover now that it is the average poor man that
suffers. For example, stand by the street, most of the transporters are not
applying any benefit from subsidy in what they charge. We know of course that
the Federal Government had a good intention to subsidise transportation so that
it will be to the absolute benefit of the poor man and every Nigerian.”
Benefits of subsidy removal
As gloomy as the removal of subsidy appears to be, experts have
argued that in view of the current situation the system is not sustainable and
should be done away with in order to move the economy forward.
Egbeme for instance advocated total removal of subsidy on
petroleum products, saying it does not benefit the masses who are the intended
beneficiaries; rather, the funds are lost through elite capture.
He said, “Complete removal of subsidy on petroleum products has
numerous other benefits including encouraging competition, reduction of
inefficiencies in the petroleum product value chain. Others are discouragement
of wasteful consumption, elimination of cross-border smuggling, reduction of
shortages, and reduction of adulterating of lower subsidised fuels with higher
subsidised fuels.
“Subsidies deter investments in petroleum product refineries and
this situation perpetuates the dependence on imported petroleum products.
Subsidy removal opens the petroleum sector to local and foreign investments
that will in turn create more direct and indirect jobs for Nigerians.
“In fact, the partial removal of fuel subsidy has resulted in
increased interest in the development of refineries in Nigeria. For instance,
in September 2013, Dangote Group signed a N9.05 billion deal with a consortium
of local banks and international investors for the establishment of a refinery
and petrochemicals complex in Nigeria.
“Notwithstanding these obvious benefits, opponents of the
removal of fuel subsidy may argue that it is the only direct and generalised
benefit that Nigerians obtain from the country’s crude oil endowment.”
Managing subsidy proceeds
Apart from instituting palliatives, part of the mistrust for
subsidy removal is how government intends to invest the proceeds realised from
the exercise.
Some experts argued that subsidy removal without appropriate
investment of the savings will result in further hike in prices of the fuels
enjoying subsidy with direct impact on the cost of production, which in turn
will lead to higher inflation and national poverty levels.
As it is, the Subsidy Reinvestment and Empowerment Programme,
SURE-P, introduced for the partial removal in 2012 has not lived up to
expectations.
Again, Egbeme argued that as government contemplates a removal
of the remaining subsidy, it is important that it proves to Nigerians that it
has effectively and efficiently managed the proceeds of the last subsidy
removal.
He maintained that the SURE-P should do a better job of
communicating how its programmes and projects will palliate the effects of the
rise in fuel prices, alleviate poverty, stimulate economic growth, and catalyse
job creation across the country.
He said, “There is the need for full transparency and to win the
buy-in and support of Nigerians that SURE-P is a better outcome than when the
subsidy proceeds ended up in few bank accounts. Nigerians will support the
removal of the fuel subsidy if they can verify that tangible results have been
achieved with the recent partial removal of subsidy on petroleum products.”
Good or bad, subsidy should stay
However, the Academic Staff Union of Universities, ASUU, kicked
against the removal, saying that Nigerians would never embrace any attempt by
the Federal Government to remove fuel subsidy. The union gave pre-conditions
for removal.
Dr Ademola Aremu, National Treasurer, ASUU, said the Federal
Government would not curry the favour of the union until knotty issues
surrounding the petroleum industry were resolved.
According to him, subsidy should not be removed from fuel
without tackling other policies and socio-economic issues to re-ignite the
faith of Nigerians in their leaders.
He said, “The starting point of this would be the removal of
corruption, which has become second nature to oil business in Nigeria, albeit a
general characteristic of the business the world over. This could only be
achieved through government accountability to its citizens.
“Is it possible for government to give a near estimate of the
crude oil being explored in Nigeria on daily, weekly or other such periodic
basis? Can Nigerians be made aware of the amount of money invested in refining
the crude oil produce? Can the memoranda of understanding between the
international oil companies and the Nigerian government be made public with the
rules of engagement stated in black and white?”
Where we are
Nigeria’s fuel subsidy programme attained controversial heights
in 2012, after the announcement the petrol price hike sparked off country-wide
protests. When the protests subsided, Nigerians demanded accountability on the
monies expended on subsidy over the years, a situation which led to a number of
committees being set up, both by the Federal Government and the National
Assembly.
The various committees came up with different reports, which
revealed massive fraud and abuse in the subsidy programme. Too many figures
were bandied about by different agencies such that even the committees and the
rest of Nigerians got more confused as to the purpose of the subsidy regime,
even as some committee members got caught up in the corruption they tried to
expose.
Specifically, an Ad-Hoc Committee of the House of Representatives
was set up to verify and determine the actual subsidy requirements and monitor
the implementation of the programme. The Committee’s report alluded to a
deliberate understanding among the agencies in the petroleum sector not to keep
reliable information data base.
Accordingly, this lack of record keeping contributed in no small
measure to the decadence and rots in the administration of the Petroleum
Support Fund.
It stated, “This is evident also in the budget preparatory
process by the MDAs where adequate data is not made available to the National
Assembly. The Committee had to resort to forensic analysis and examination of
varied and external sources (including the Lloyds List Intelligence) to verify
simple transactions.
“In this regard, the PPPRA is strongly urged to publish
henceforth, the PSF accounts on quarterly basis to ensure transparency and
openness of the subsidy Scheme.”
Continuing, the committee said, “We found out that the subsidy
regime, as operated between the period under review (2009 and 2011), were
fraught with endemic corruption and entrenched inefficiency. Much of the amount
claimed to have been paid as subsidy was actually not for consumed PMS.
“Government officials made nonsense of the PSF Guidelines due
mainly to sleaze and, in some other cases, incompetence. It is therefore
apparent that the insistence by top Government officials that the subsidy
figures was for products consumed was a clear attempt to mislead the Nigerian
people.
“Thus, contrary to the earlier official figure of subsidy
payment of N1.3 trillion, the Accountant-General of the Federation put forward
a figure of N1.6 trillion, the CBN N1.7 trillion, while the Committee
established subsidy payment of N2.587 trillion as at 31st December, 2011,
amounting to more than 900 per cent over the appropriated sum of N245 Billion.
“This figure of N2.587 trillion is based on the CBN figure of
N844.944 billion paid to NNPC, in addition to another figure of N847.942billion
reflected as withdrawals by NNPC from the excess crude naira account, as well
as the sum of N894.201billion paid as subsidy to the marketers.”
Civil Societies’ alternative
To correct the wrongs done, Civil Society Organisations, CSOs,
piqued by the huge infractions in the subsidy programme called on the Federal
Government to set up a special financial crimes unit for the oil and gas sector
to deal with corruption in the sector, especially in the area of fuel subsidy.
The CSOs made the call in a communiqué issued at the end of a
two-day workshop on monitoring and reporting of oil subsidy fraud/corruption
cases in Nigeria. Tagged; ‘Advocacy against impunity in oil subsidy regime in
Nigeria,’ the workshop was organised by the Africa Network for Environment and
Economic Justice (ANEEJ), with support from Justice for All (J4A) and the
Department for International Development, DfID.
The group urged Government to create a Special Oil and Gas
Sector Financial Crimes Unit, as recommended by the Nuhu Ribadu-led Committee,
as the existing anti-corruption agencies are not sufficiently equipped to deal
with these specialised crimes.
The communiqué was signed by Mr. Leo Atakpu, Deputy Executive
Director, Africa Network for Environment and Economic Justice, ANEEJ; Mr. Kunle
Idowu, Nigeria Network of Non-Governmental Organisations (NNNGOs); Mrs.
Oyindamola Musa-Oseni, Socio- Economic Rights and Accountability Project
(SERAP); and Comrade Lawal Ibrahim Adebayo, Labour, Health and Human Rights
Development Centre, Lagos.
The group called on the Presidency to demonstrate the political
will to prosecute all companies and individuals indicted for subsidy fraud and
corruption by the Lawan Farouk and Nuhu Ribadu committees, adding that there
should be no shielding of sacred cows.
The group equally expressed concern over the management of funds
running into billions of dollars under the SURE-P saved from fuel subsidy since
January 2012 till date.
They also lamented the nonchalant attitude of the Nigerian
National Petroleum Corporation (NNPC) and its subsidiaries in the release of
information to the general public, even when sought under the Freedom of
Information Act, especially as it relates to oil subsidy.
Furthermore the group urged, “The Judiciary should expeditiously
adjudicate all pending criminal matters relating to oil subsidy
fraud/corruption and bring all erring persons to justice as justice delayed is
justice denied.
“The Anti-Corruption Agencies (ACAs) should release and make
public information on all cases currently going on relating to oil subsidy
fraud and corruption.
“The National Assembly should revisit the issue of oil subsidy
fraud/corruption and demand accountability from the executive and judicial arms
of government as part of its oversight functions.
“The Economic and Financial Crimes Commission, EFCC, and the
Special Fraud Unit, SFU, should be properly financed and resourced to execute
their mandates of thoroughly investigating and prosecution of suspects.”
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