Forget It! No Government Can Remove Fuel Subsidy in Nigeria
Well, some people may argue that because Nigeria is a crude oil-producing nation then it is good to expect the citizens not to pay what other people pay for refined petrol and other products, but crude oil is not as novel as it was when we used to think that way.
Many more African nations have since discovered some crude – Niger Republic, Chad, Cameroun, Ghana, Uganda, Kenya, and a lot more. And then, crude oil and its derivatives are essentially on the way out, if the campaigns of environment enthusiasts, especially in the global West are anything to go by.
So, should we not be saving as much as possible from a wasting, disappearing asset, that is fast falling out of reckoning? Or is that too a mirage? Even if crude oil and petroleum will remain relevant to the global economy (after all the price is back to $91 today), I’m not sure we should position to squander the resource.
What exactly is subsidy?
Two broad questions emanate here. The first surrounds the importation of refined products, especially premium motor spirit (PMS), otherwise known as petrol. The other issue concerns the volume of local consumption. The issues are also intertwined. So, in layman’s lingua, we talk of subsidy because the price at which we import the goods is less than the price we sell for.
At present, the Nigeria National Petroleum Company (NNPC) – or whatever new name the petroleum industry act says we must now call it – is the sole importer. The last writeup I saw in this regard, says the landing cost of petroleum is now N283. The people buy at the pumps for N162. Therefore, on landing cost alone, and without adding other costs of distribution and a fair margin for marketers, each litre of PMS we buy at the pumps, enjoys a direct subsidy of at least N121.
As of 2012, Nigeria was said to need a minimum of 42 million litres a day domestically. If this remains so, then per day, we incur a subsidy of N5 billion a day or N1.8 trillion per annum.
But there has been a lot of confusion around the statistics of our daily consumption. Ibe Kachikwu (smart guy), while coming in as the group managing director of NNPC in 2015, had disputed the numbers that were being bandied then (60 million litres per day), and promised to be fully transparent about such matters if confirmed.
He kept to his words a couple of times, until the de facto minister for petroleum (one Mr. Muhammadu Buhari), thought he was too much of a gadfly. The publishing of NNPC accounts stopped and Ibe was redeployed as a toothless minister of state. The puzzle of the volume of imports was never resolved.
The petroleum minister, Buhari, had also objected to the idea – at least once in 2014 – that there was any subsidy on petroleum. He said as a former player in that sector, he was sure that anyone who claimed they were paying subsidy on petroleum import was a fraudster.
In truth, Citizen Muhammadu had a point. But as president and minister, he was soon to capitulate and toe the party line. His government has since been paying subsidy – now rechristened as ‘under-recovery’.
Buhari had a point because the matter of subsidy is a moving target. Subsidy depends on the international price of crude oil. When international prices climb, but local prices of refined products remain static, subsidy occurs.
Therefore, as at September 2020, and earlier in 2016 when the Buhari government had increased prices to N162 and N145 respectively, they claimed that they had fully deregulated because the higher prices that they reviewed to in spite of the then low crude oil prices, reflected the landing costs on those occasions. Almost.
Now, the price of crude oil has moved from $25 or $30 to $90 and the government is getting very antsy trying to increase fuel price at least by a factor of two to at least N302 as proposed by the national economic council meeting chaired by Vice President Osinbajo on January 19, 2022.
It needs to be understood, that the N302 per litre being recommended is just a halfway house just like the N145 and N162 price increases earlier. The ultimate destination is a price that matches the highest perhaps in Africa. Call that about N700 per litre. Are we ready?
The players in the petroleum sector are some of the sleaziest and most callous of people. There are no saints in the industry. The characters are typical of Daniel Day Lewis’ character in the 2006 award-winning movie ‘There will be Blood’, Daniel Plainview; shrewd, heartless, cold-blooded, eternally calculating. How does the average citizen confirm the veracity of the N283 current landing price or the basis upon which it was arrived at?
In order to benchmark those guys and the prices they sell eventually, you would have to know what prices refineries sell products, what kind of deals that importers can obtain, and then the logistics costs including the cost of borrowing, etc.
Operations in the upstream, midstream, and downstream markets are dominated by a tight confederacy and companies which have been involved in some major scandals in the past – Trafigura, Vitol, and the rest.
Back home here, the sector is dominated by the same folks who ripped Nigeria off N2.3 trillion in 2011. Those who remember the drama that played out then will recall that it was impossible to agree on how much taxpayer money was spent that year. The CBN had N1.7 trillion, the accountant general had N1.9 trillion, while the minister of finance had N1.8 trillion and the NNPC had N1.9 trillion.
It wasn’t until she wrote her memoirs that the then coordinating minister, Ngozi Okonjo-Iweala, gave us the full and final figure – N2.35 trillion. So, these are the kinds of guys we are subjecting our fate to. There is 105% chance that these guys – including their government counterparts – will take Nigerians to the cleaners and back.
If we haven’t got wise with what happened in 2011/12, it will be their pleasure to rip us all open this time.
Do take note, dear readers, that the second part of the subsidy is the opportunity cost that NNPC suffers from importing and selling only to Nigerians at 162 rather than to Cameroonians at N452. Should NNPC not sell to any country where it could max out profits? Is the opportunity cost a real cost in this instance? And how high are we ready to go?
Given that the same excuse of smuggling can be whipped up even if higher prices are found in our neighbors twice removed (say DR Congo, or Sudan, or Mauritania). Also, are higher prices in Nigeria likely to drive higher prices in our neighboring nations such that this attempt to play catch up on petroleum prices becomes a moving target?
To complicate the entire thing, there is much opacity around how much is our daily local consumption. In May 2021, BusinessDay newspaper reported that NNPC put our daily consumption at 93 million litres. It used to be 42 million not long ago. Today it hovers around 67.5 million.
No one is sure how those figures are arrived at. It has also been said that the entire daily consumption of our neighboring nations is nowhere near the amount that has been said by regulators to be escaping via smuggling into those countries. All these hanky-panky further damages whatever is left of the public trust.
What is deregulation?
The Nigerian government and people have also not agreed on what exactly constitutes deregulation. Are the people ready for different prices within a local government? Are people from Taraba state or Niger state ready to pay prices that may be significantly higher than what others pay in Bayelsa, Rivers, or Lagos states?
Is this government able to build that consensus? For the moment we go into price equalisation, we have destroyed full deregulation and introduced elements of potential fraud and manipulation. Deregulation is therefore the proper regulation of a private-sector driven market to ensure that the same private sector does not take undue advantage of the people.
Deregulation is better and stronger regulation; something that we aren’t famous for in Nigeria because here, anyone can be easily pocketed with some dollars. Or do we have any assurances that there will be a change this time?
The scams surrounding Dan Etete, Andrew Yakubu, and Diezani Madueke are still ongoing and these are the ones that have been discovered. Thousands more exist in an industry of buccaneers.
Deregulation is the protection of the people from monopolies and oligopolies. At best, it is the assurance of multiple players on both sides of the divide to balance the market atmosphere and ensure that sellers make a tight margin while buyers are not daily ripped off.
It is the management of rules and regulations surrounding new market entrants, ensuring that those who profit from the industry pay the right taxes, standardised products are sold to the consumers and that no price gouging or collusion occurs to tip the scale in favour of a few.
As desirable as full deregulation in the petroleum downstream sector is, it is important to consider what has happened to other deregulated products in Nigeria. I did a cursory check of kerosene, which has since been deregulated in Nigeria, and the price per litre stands at N457 today, on average.
As of 2018, I found that the prices hovered around N300. As of 2015, the price was less than N200. I checked cement. As of 2014, the price moved to N2,000 per bag but receded to N1,500 in 2015. Since then, it has been a steady climb and as I type, the price of a bag of cement is close to N5,000, despite there being a number of cement producers in Nigeria today. This is another touchy area for us.
As for cartelization, I saw a news item in the July 12, 2021, edition of Premium Times with the caption; ‘More hardship for Nigerians as BUA joins Dangote to increase cement price’. And this captures one of the fears of Nigerians with this deregulation business; it is so easy for us to be caught in the headlights of powerful oligopolists.
But that is not all. I know for a fact that I did not pay more than N20,000 monthly for electricity in my modest 4-bedroom house in Abuja as of 2014. Today, I pay N120,000. Six-fold. With daily threats that the power distribution companies (DisCos) are about to review their rates upwards some more. The power deregulation has brought untold hardship on many Nigerians and we have seen how many of those entities are running into crises – Yola, Ibadan, Benin.
Many of these power generating companies were established by smart alec friends of the Jonathan government and we understand that most of them have not invested much into expanding infrastructure. They were just interested in milking the system.
The only outlier in our deregulation/privatization business in Nigeria is the telecoms sector which has been referenced to death as evidence that the private sector is the way forward for everything. Yes, the private sector is efficient when they want to be and could indeed be the way forward but the private sector could take big advantage of the people in a loose system such as ours. In the telecoms sector, I was privy to the reason for the crash in tariffs in 2001/2.
It was not an altruistic decision. And the shenanigans of that sector still is massive. A close friend who worked at one of such companies basically ran out of the company because he couldn’t stomach the kind of unscrupulous things that went on in there – cheating of poor customers and what have you.
By and large, we could say that Nigeria has not had a very good experience with deregulation and so there may be a need for some caution as we try to tackle this very flammable product; petrol.
Trust and goodwill
I believe that the Buhari administration in 2015 came with unprecedented goodwill and unmatched public trust, which promptly frittered away in a succession of miscues, arrogance, and an unfortunate reciprocation of the citizens’ trust with disdain. Everything went downhill from there; the economy got worse, people set on each other, and the government became totally ostracized from the minds of our people.
In contrast to the serious riots that greeted the increase of fuel prices from N65 to N140 in January 2012 by the Jonathan administration, the summary increase of fuel prices from N87 to N145 in 2016 did not elicit as much as a whimper from Nigerians. The government said then that they had fully deregulated. A month later, the same Buhari government devalued the naira from N199 officially to N360. But crude prices will soon rise and the government will change rhetoric. Devaluation had compounded our problem because the importation of PMS is made in dollars and Nigerians were still mostly earning what they had always earned, so the devaluation caused incredible levels of inflation which made our lives a lot more difficult.
The gains of watering down the currency so that the proceeds from crude oil sales, when converted to naira, could look large and meet the government’s local obligations did not compare with the losses that the public faced when their static salaries and earnings get damaged from higher petroleum prices and attendant reverberating hyperinflation (an average of 250% on staple items since 2015).
What Nigerians wished they had seen was more sincerity from the government. I made an example that Nigerians wanted to hear and see the kind of thing that Governor Soludo of Anambra has been saying – I will show an example, I will buy local, I will stay low-profile. But instead, we saw year-on-year a government that maxed out on its own enjoyment and fortification from the elements.
The taciturn president did not even let things slide; he found occasion to tongue-lash poor Nigerians who complained too much. I must say the last seven odd years have been a nightmare to millions of Nigerians.
This is why I say that no government will be able to remove this subsidy (whether the direct one which is the shortfall of landing cost and price at the pumps, or the forgone alternative of not selling in neighboring countries).
The trust and goodwill will have to be rebuilt, and painstakingly too. It will require time, no matter how good the governments to come are. There are no assurances that we shall have better governments anyway but for our own good, we had better. The governments to come must be wise to embark on something that is critical to our survival as a nation; something I had been hammering on – mass mobilization.
For we shall need the cooperation and patience of citizens to get rid of this conundrum, alongside our many other issues.
The two sides of the divide on the petroleum deregulation argument are not realistic, in my humble opinion. One side asks for the sell-off or refurbishment of refineries. I believe that those same refineries had been sold off in the past but the buyers of them simply refused to move until their licenses were revoked. Perhaps they were planning to strip whatever assets they could. Under current arrangements, it does not make sense to refurbish them too.
We have heard how those moribund refineries still end up incurring hundreds of billions of naira in expenses every year. Those who work there – who get promoted yearly for doing nothing – have been earning their full salaries. We understand that the equipment may be compromised already. Also, the original equipment manufacturers (OEMs) no longer service those refineries.
Whereas there are 100-years old refineries in the USA and elsewhere, the difference here is that when we should have ramped up local technical and technological capacities to be able to service these refineries on our own, we did not. This problem, therefore, exposes the uselessness of our education and a need to recalibrate it. We, therefore, have to embark on another long journey – that our education curriculum must change and we must be able to stand on our own and depart from this sickening dependence on other peoples. The world is sick of Nigeria.
The other side of the divide says that the government should give handouts to the suffering masses to stave them over the hardships. The arguments have never changed. Not even the dangerous rhetoric that the Jonathan government used in 2011//12 which pitched domestic workers like drivers and cleaners against their employers and may have ended up in the epidemic of kidnapping and other malaises we later saw in society (that talk about how the people who enjoy subsidies are those with many cars) could be more intelligently managed so as not to drive angst, envy, and anxiety in society.
The sitting minister of finance suggested that the government will pay cash to the poorest folks as they attempted to finally, fully deregulate. The yearly payout would have been N2.4 trillion yearly. People cried out that that was higher than the yearly subsidy and everyone went quiet. Now, we hear that the NNPC is demanding N3 trillion as subsidy for the year 2022! The subsidy racket is as bad as the conditional transfer racket.
Both are unaccounted and unaccountable. And they are untenable. We are only being released to the fangs of the same people who have always sucked our lifeblood as a nation. Recall the 2011 incident. The entire payout was N2.3 trillion. The jump could however be due to the devaluation of the naira. Hard times ahead. I hope proponents of endless devaluation/currency floating and mindless deregulation (who are one and the same) can see their ideas in technicolor?
So, my conclusion is that we need a multidisciplinary, multisectoral approach to tackle this problem. We need to just start. Start fixing our education to be able to stand on our own. Start fixing the minds of our people by delivering real governance. Start cutting down on unnecessary government expenditure and all this recklessness for which we are known.
Anyone who sees how our civil servants (especially those ones in the ‘juicy’ parastatals) spend, will feel like taking a flamethrower to them all. We are immersed in indiscipline. We have to start. Start fabricating things that will help our future. Start to empower our younger ones who have the passion and the enthusiasm to change their own world.
Start fixing our public service in getting toxic people who have sat on the destiny of this country out of those places. Start being simply honest, and simple. Start to serve and to think about posterity. Start to really reorganize public spending to impact the people. Start to really punish corrupt folks who are hellbent on seeing mass suffering in this country.
Taken together, this looks tough. But if we have some sincerity of purpose from a leader right at the top, we can get there. The people will complain, of course, as their lives are altered because much of the slackness that we are used to as a people does not make for nation-building. But such a leader must be determined to stay the course.
The subsidy problem is telling us only one thing in the end – it is time to truly change our ways as a people. But are we ready?