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Fuel Subsidy: The Government Is Right

January 12, 2012

A lot has been said and is still being written about the recent removal of oil subsidy by the Nigerian government – and rightly so. But I think, when considered dispassionately, the government is right on this one.

A lot has been said and is still being written about the recent removal of oil subsidy by the Nigerian government – and rightly so. But I think, when considered dispassionately, the government is right on this one.

I’ll give a simplified view.

As an outsider, I do not know when the subsidy began but my own understanding of the issue takes off from the Babangida/Abacha’s regimes. But I think things took a decidedly murkier turn during Abacha’s upside-down rule when, the refineries – by omission and by commission – fell into a state of severe neglect and under-performance. Abacha, and his co-travelers, saw this as an opportunity to make money. They got into the fuel importing business. Abacha, Babangida, Lukman, and their various fronts in particular were up front and centre in this.

In bringing their fuel into the country, these big men then decided quite naturally to cover their cost of import, transportation, etc. They tagged this on top as subsidy at the point of import as the government had to hold the pump price of fuel at a reasonably low affordable price in a relatively poor economy. So, while it is true that when the real barrel cost, the refining cost and the distribution costs are all factored-in, the pump price of petrol in Nigeria is between N33.36 to N35.00 per litre, the main bulk of our fuel is imported and that total cost far exceeds the bit that is being refined locally in the country.

So, Abacha and his mates would bring in their fuel and invoice the government at, say, N110 per litre. The government who is selling locally refined fuel at, say, N50 at the pumps would then have to pay these fuel marketers the extra N60 per litre so that the imported fuel is also sold at the pumps at N50 per litre.

That, essentially, was the subsidy.

Naturally, this being Nigeria, the cost of subsidising the imported fuel has been increasing enormously. Don’t forget; our rulers, their cronies and bigmen were paying themselves from the national coffers of which they sit directly in charge of anyway, so there was no restraining them. In a short time, and predictably, corruption also became part of the imported fuel subsidy as some of the consignments of imports were invoiced several times over. This is one of the reasons why every incoming government gets their man into the Central Bank chair. It is also part reason why a few of the bigmen wanted Diezani Allison-Muedeke out as Petroleum Minister as they see her as wanting to pour sand in their garri.

To give credit to late Yar’Adua, he figured out this terrible system and began to want to redress the unsustainable state of affairs in 2009 but he ran out of time. Now enter Jonathan who had found some courage somewhere to rightly

take this on. My understanding is that his government is intending to hands off and get itself out of the oil importing/marketeering chain and let importers sell directly to fuel suppliers. It is hoped that the market economy would, at some point, sort itself out through demand and supply. Meantime, locally refined fuel would still sell at government controlled price.

So, in reality, this is a good thing. If seen through properly, it should work and save the country a lot in the end.

The problem the government has – to my mind - is two fold: One, its communication on this was very poor. The whole matter was raised like Chinese whispers and they held the usual we-we, fait accompli consultation with mainly the National Assembly leadership. The issue, its merit and demerit were never properly explained to Nigerians. There was no real consultation with the people and, worst of all, the time between Chinese whispers and full implementation was incredibly short.

Secondly, I think that while the government is right in removing this subsidy as it currently exits, it ought to have first ensured that our refineries’ total output capacity have been much more improved, and there is available in the whole country more locally refined fuel before implementing its current subsidy removal. Concomitantly, it should also have ensured that there is improved power (electricity) supply in the country. Because now, in the short term, the majority of Nigerians are going to feel the negative effect of this policy and they would naturally hold the government responsible. Small and medium enterprises would particularly feel its impact.

The role of government must include ensuring that there is some interphase between law and man. Consequently, the laws of the land, government policies, actions, etc should not be seen as working against the majority of its citizens. Really, this sensible policy should have been introduced perhaps later when other ameliorating and corrective measures could be brought-in in parallel.

But it is never too late for this to be considered.

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