The federal government appears to have made up its mind to remove payment of subsidy from petroleum products. Assistant Editor, MIKE ODIAKOSE, writes that the APC will have a herculean task convincing Nigerians to buy into the subsidy removal policy after they led stiff opposition against the same policy during the administration of former President Goodluck Jonathan
Debate about the propriety or otherwise of the removal or withdrawal of subsidy on petroleum products by the federal government has again taken the front burner following the persistent shortage of petroleum products across the country despite the falling price of the product in the international market. In spite of the dwindling income, the federal has given approval for payment of N413 billion to oil marketers as outstanding payments for subsidy claims though this amount is yet to be paid to the oil marketers.
The debate was further fuelled by the Minister of State for Petroleum, Dr. Ibe Kachiku when he appeared before the Joint National Assembly Committee on Finance, Appropriation and National Planning on the consideration of Medium Term Expenditure Framework, MTEF. Dr Kachiku was reported to have told the federal lawmakers that the federal government will from 2016 begin a gradual withdrawal of oil subsidy because subsidy can no longer be sustained because of shortage of funds.
According to him, “the total subsidy figure for 2015 when taken along with the NNPC will be in excess of N1 trillion, adding that the gradual removal of oil subsidy would be to return to the pump price of N97 as against the current N87 per litre, explaining that there is no money to sustain the current price.
He disclosed that if this was not effective, government would go extra length of total withdrawal of the subsidy.
“The government doesn’t need to fund subsidy. There is energy around the removal of subsidy. Most Nigerians we talk to today would say, that’s where to go.
“I have since left the dictionary of subsidy by going to price modulation, which is a bit more technical. Price of refined products today is N87. It was N97 before it was removed and we really have to go back to that because we don’t really have the finance to remove it. There are lots of safety barometer between the N87 and N97 per litre regime between which government does not have to fund subsidy.
“Yet the prices would be fairly close to what it used to be today. That is the first mechanism we are going to work on. It is when that mechanism fails that we will begin to look at a total subsidy exit. We believe we could achieve that.”
The idea of subsidy removal has already received the blessing of the World Bank which last week advised the federal government to remove the controversial petroleum subsidy with the persistent fuel crisis in the country.
World Bank’s Lead Economist, John Litwack, who spoke during the launch of the new edition of Nigeria Economic Report, said the best time to address the issue of petroleum subsidy is now that the global crude oil price is very low.
He argued that removing the oil subsidy would not push retail pump price beyond an average of N100 per litre or create more scarcity as Nigerians were already facing.
Litwack added, “The fuel subsidy appears to have vast modest benefits for the majority of citizens, but the costs are quite high. There is a strong tendency for the cost of fuel subsidy to increase over time as increasing domestic demand for petrol outpaces growth in oil output or revenues.
“The $35 billion cost of fuel subsidy during 2010 – 2014 was one of the reasons Nigeria was unable to accumulate a fiscal reserve in the Excess Crude Account that could have protected the country from the recent oil price shock.”
Also in favour of subsidy removal is the Emir of Kano, HRH Mohammed Sanusi II. Emir of Kano, who spoke in Lagos after receiving a Life Time Achievement Award at the All Africa Business Leaders Award, West Africa, said the Federal Government should completely remove fuel subsidy now that crude oil prices are down.
According to him, “Does it make sense at this time for the government to continue paying petroleum subsidies? It does not! When you are not earning because oil prices are down, you have to shut down those expense lines that had been known historically to be the site of rent-seeking.
“Fuel subsidy has to go, our tax base has to expand, value added tax (VAT) has to go up. We can’t continue having an economy in which we collect tax from oil, collect tax from telecoms companies, and then 60-70 per cent of the Gross Domestic Product (GDP) does not pay taxes. This is something that has to be looked at”.
Some industry experts are also of the opinion that subsidy removal remains the best option for the government if it wants to end the perennial fuel scarcity that has bedevilled the sector.
The Director, Centre for Petroleum, Energy Economics and Law, University of Ibadan, Professor Adeola Adenikinju, said that the government should use the opportunity to remove the subsidy on premium motor spirits (petrol).
Adenikinju noted that if Nigeria refineries were producing, consumers would be paying less than the regulated N87 per litre.
According to him, “Now we have the opportunity to actually take away subsidy. This country in my view has spent so much on subsidy. The price oil has gone down and this is the time we need to encourage domestic investors to invest in that sector and the best way to do that is we take away subsidy now and allow market forces to allocate resources in that sector.
“That is one way to attract investments into the oil and gas sector. From the studies we have done, if Nigerian refineries were to be working, at the crude oil price of about $50per barrel, we may not be paying subsidy at all especially given the exchange rate issue on imported products.
“If you do the mathematics, now the refineries are working, we export crude and import refined products. In import you pay for freight, there is financing and port charges and all other sundry charges. But if you have refined locally then all those charges will be out of the way”.
Adenikinju held that if charges are eliminated “at the current price of crude that we may not actually be talking about paying anything on subsidy. I think before the oil price start rising again, we have the opportunity now to actually rethink the subsidy programme by taking a look at the policy on PMS”.
However, opposition is already mounting against the removal of subsidy by the government. The Trade Union Congress of Nigeria, TUC, through its President, Comrade Boboi Kaigama, said labour would not accept any further devaluation of the Naira or subsidy removal on petroleum products.
He described Sanusi’s views as personal and not the position of the current administration.
“We see them as his personal views and we want to make it clear to him and anybody who wants to listen to his advice that it is not palatable to labour. We will never accept any further devaluation of the naira and we will not be part of the removal of oil subsidy.
“The government should wait for the consequence of listening to this call because by removing oil subsidy, you are further impoverishing Nigerians. We want a situation where those behind the subsidy scam are punished, then put our refineries in place, come back and discuss with organised labour and let us see whether it is feasible.
“Otherwise, without putting the refineries in place and putting palliatives in place to check increase in prices of goods and transportation and you are calling for the removal of oil subsidy, I think you are very naive when it comes to looking at the consequence of the issue of removal of oil subsidy”.
On his part, Nigeria Labour Congress (NLC) President Ayuba Wabba opined that the call for the subsidy removal is anti-masses which will further impoverish Nigerians. Wabba said the former CBN chief has lost touch with realities, and stressed that labour would continue to fight any policy or calls that will bring hardship to the masses.
“We believe the Emir was expressing his private opinion and not speaking for the traditional institution or his emirate where industries have totally collapsed, leaving the emirate with one of the highest population of victims of anti-people policies powered by neo liberal interests.
“The eminence of his position as an emir should not be rubbished with constant proclamations or campaigns for policies that have proven over the years as not only damaging to our national economy but targeted against majority of our people who flounder in abject poverty.
“The traditional institutions should speak for and protect the poor and must not be turned to outposts of neo liberal institutions such as the IMF, the World Bank and their cohorts who imposed policies such as the Structural Adjustment Programme under which the Naira was devastatingly devalued while production halted with the near total collapse of industries.
“As an import driven country, the effect of devaluing our national currency is more on the quality of life of ordinary Nigerians who bear the brunt of high cost of goods and services given the fact that the exchange rate of the Naira to the dollar has gone record high from N154 to a dollar to over N225 to one dollar. Indeed, the purchasing abilities of both industries and individuals have incredibly dwindled and this may affect jobs in the long run”.
He said Sanusi’s statement clearly spoke only for international finance capitalists who are the direct beneficiaries of the pains of the poor in countries that have been unleashed with policies rammed down the throats of visionless and unpatriotic leaders blinded by the overbearing strengths and blackmails of the Breton Woods institutions.
“These institutions have added no value to our national economy as they have used previous Nigerian governments to decimate the lives of our people as they gaggled our national economy to doldrums. In several countries, including Europe, citizens have reacted against the pains of these policies through mass protests while in some other countries these anti-people policies ignited changes in government.
“We strongly advise the Federal Government to ignore in its entirety, the reckless anti-people outbursts of Emir Sanusi who we must also advise should concentrate all his energy on policies and programmes that can reduce or eliminate poverty in his emirate by generating efforts to reindustrialise Kano.
“The issue of subsidy removal has been subject of public discourse for more than two decades and our position has not changed. We are not only opposed to it; we have provided written details of how the petroleum industry can be managed to the benefit of our collective interests.
“The success of our strikes and mass protests against previous attempts to remove subsidy on petroleum products indicates mass rejection of the policy and we believe the Buhari government will not yield to pressure from those who insist on privatising our collective wealth by removing subsidy on petroleum products.”
Wabba noted that President Buhari has publicly said his government will not remove subsidy on petroleum products and the labour unions fully support the government on the clear commitment of the regime to serving the interests of the majority of Nigerian people rather than submit to the pressure of the unpatriotic few who have continuously diverted public funds to their private interests with so much latitude.
He said: “We are however ready to mobilise Nigerian people against any attempt to remove the subsidy should the government decide to yield to the pressure of people like Emir Sanusi who prefer to serve the interests of foreign institutions against the Nigerian people. We recall that the last national strike and mass actions against partial removal of petroleum subsidy in January 2012 did not only expose the rot in the petroleum industry, it also uncovered the high level of corruption in the industry where government officials and their cronies made the entire industry their private preserve.”
“We expect government to revisit the reports of all the panels and committees that probed the industry following the 2012 mass protests, especially the reports that indicted individuals and firms that diverted subsidy funds to private interests. All the stolen funds must be recovered while those indicted must be prosecuted and appropriately punished”, he added.
Their position was backed by Senator Shehu Sani (Kaduna Central) who posted his opposition to subsidy removal on his Facebook page.
He said: “I stand opposed to the devaluation of our national currency; and I stand opposed to removal of subsidy. Devaluing the naira and removing subsidy will worsen inflation, aggravate poverty and ignite a national uprising. Decades of adoption of such capitalist economic strategies by many countries in the developing world especially Africa led those nations to economic quagmire and paralyses. The poor must not continue to pay the price for the corruption and mismanagement perpetrated by past governments”.
From the body language of President Muhammadu Buhari, it is apparent that the government is positively disposed toward removal of subsidy but his party, the All Progressives Congress, APC, has kept studied silence over the raging debate on subsidy removal. While the APC leaders might be in support of the move to remove subsidy because of dwindling revenue and entrenched fraud associated with subsidy payments, they have shied away from going public on where they stand on the issue. It is believed in several quarters that APC’s silence may not be unconnected to their stiff opposition to subsidy removal in 2011 when former President Goodluck Jonathan muted the idea of subsidy removal. APC leaders who were then in the defunct Action Congress of Nigeria and Congress for Progressives Change were known to have sponsored nationwide protests that almost consumed the Jonathan administration against subsidy removal.
Members of the PDP are set to take their pound of flesh from the APC as they have thrown their weight behind those calling for the removal of subsidy. When the issue was brought to the floor of the House of Representatives there was sharp division between the ruling All Progressives Congress, APC and the opposition Peoples Democratic Party, PDP over a motion calling on the government to exercise restraint in the removal of fuel subsidy.
The motion sponsored by Rep Albert Adeogun representing Ife Federal Constituency of Osun State on the platform of the PDP titled, ‘alleged plan to remove fuel subsidy’ had urged the government to be cautious in the removal of subsidy and also introduce a less restrictive and stringent conditions for the setting up of refineries in the country.
He also called on the Federal Government to fast track the repairs of the refineries to enhance local production of petroleum products as this will eliminate the need for subsidy or reduce it to the barest minimum.
But before he could finished presenting the motion and the prayers, his colleagues from the APC started booing him and shouting on top of their voices, ‘no’ and ‘kill it’.
But not deterred with the opposition from the APC, Rep Adeogun insisted that the removal of subsidy would lead to the scarcity of petroleum products, trigger a rise in transportation costs and and cause untold hardship to Nigerians.
According to him, “Subsidy on petroleum products was introduced in Nigeria as a palliative measure to ease the sufferings of Nigerians whose livelihood are largely dependent on the use of petroleum products.
Political observers are of the view that the popularity of APC is at stake if the federal government goes ahead to remove subsidy despite the huge advantages inherent in subsidy removal. The party will find itself on the opposite side of the divide with the activists and labour unions they sponsored to protest against PDP when the Jonathan administration tried to remove subsidy some years ago. However, if the APC administration intends to go ahead with the policy it is imperative that they embark on intensive public enlightenment and lobby of critical stakeholders to convince them of the merits of subsidy removal. However, it is left to APC leaders to fashion out the strategy they are going to employ to convince Nigerians that the same policy they spent resources to stoutly oppose less than five years ago is now the only and best option left for the country to ensure hitch-free supply of petroleum products.