In debating the merits of fuel subsidy it is important to understand who benefits the most from the program. Contrary to popular belief, it is the rich not the poor who disproportionally benefit from fuel subsidy. With the government subsidizing the market to keep domestic fuel prices artificially low, it is those who consume the most that have a greater benefit from the subsidy. Poor Nigerians rely primarily on public transportation as such their per capita fuel consumption is significantly less than the country’s elite, who travel in siren-blazing convoys and generally fly private jets.
With an estimated 37.2 billion barrels of proven oil reserves, Nigeria is one of the world’s largest oil producers. Subsidy or no subsidy, Nigerians are prepared to pay the true cost of petroleum products when the country refines the products it needs. The new N145 price regime is inconsequential, given that fuel scarcity had already created price hikes, resulting in Nigerians paying averages of N150–N300 per liter because of hoarding, smuggling and diversion of products. As an idea, deregulation in itself is not bad, but the timing fails any test of reason or wisdom and the motive is suspect, not least because the fuel subsidy regime is the index of Corruption Incorporated that Nigeria has become. Following a policy of obfuscation on petroleum matters, Nigerians are at a loss on what to believe. In view of the fact that the board of the Petroleum Products Pricing Regulatory Agency (PPPRA), which is statutorily responsible for fixing the prices of petroleum products, has not been reconstituted, the new price regime is an illegal imposition on the citizens by the government.
With the end of all subsidies, Nigerians must now pay the landing cost and other ancillary charges of petroleum products. The PPPRA’s pricing template cost elements include: cost/freight, (N109.01); lightering expenses, (N4.56); Nigerian Ports Authority (NPA) charges, (N0.84); NIMASA charges, (N0.22); financing, (N2.51); jetty thru’ put charges, (N0.60) and storage charge, (N2.00), bringing total landing cost to N119.74. The landing cost, added to distribution margins, which are retailers, (N6.00); transporters allowance, (N3.36); dealers, (N2.36); bridging fund, (N6.20); marine transport average, (N0.15); and admin charges, (N18.37), brings the total distribution charges to N18.37. According to the PPPRA, the landing cost (N119.74) plus total distribution margins (N18.37) gives a total cost of N138.11 per liter, putting the price at between N135 and N145. All these smack of a solid framework for corruption, which is what the government should have dismantled.
Few would dispute the fact that Nigerian public officials routinely engage in corruption. But they probably never contended with the scale of the fraud in which payments of petroleum subsidy by the NNPC was shrouded, as revealed in the KPMG audit and House of Representatives investigation. About $7 billion is calculated to have been lost to assorted fuel subsidy scams, in the last four years. The exposure of these scams on the floor of the House in the course of an inquiry by the Ad-Hoc Committee on Petroleum Subsidy, confirmed the worst fears of Nigerians that the huge amount the government claims it expended on fuel subsidy, was bogus. In effect, government has been subsidizing corruption, and not Nigerians as a large chunk of the huge amount was simply stolen by unscrupulous individuals through spurious financial dealings, over-invoicing, excess importation, smuggling, round tripping, payment for fuel not supplied and other sharp practices.
In 2014 alone, 24 million liters of subsidized petrol was said to have been smuggled daily to other countries, amounting to 8.8 billion liters annually; and this is in excess of the country’s annual consumption projection of about 12.7 billion liters. When multiplied by the official subsidy figure of N76.38 per litre, it amounts to a whopping N672.14 billion lost by government to corruption yearly. The country is said to consume about 35 million liters of petrol daily. But marketers receive subsidy based on 58.9 million liters, giving an excess of 24 million liters daily. In a year, that amounts to 8.7 billion liters of excess petrol imported with subsidy paid but not consumed by Nigerians. As if this was not shocking enough, the NNPC paid itself at source in contravention of statutory financial regulations.
According to the audit report by KPMG, SS Afemikhe and Co, the NNPC ripped off the nation to the tune of N11.8 billion as subsidy on lost petroleum products not consumed by anybody. The report further revealed that the NNPC collected subsidy on locally produced petrol against the regulations. Faced with this blatant short-changing of Nigerians, the agencies and departments handling the oil industry cannot give proper account of what is happening. The NNPC has no records of what is produced. Nigerians need to know the actual quantity of petrol consumed in the country given the huge importation that warrants outrageous subsidy payments. Unfortunately, nobody; neither the PPPRA nor the NNPC, can give proper accounts of the transactions. Instead, Nigerians are presented with conflicting figures for the same transactions. This is what the Buhari government should be investigating, not punishing the people.
While the PPPRA claimed that it paid N630 billion subsidy in 2008, the Nigeria Extractive Industries Transparency Initiative (NEITI) put the figure at N350 billion. Similarly, the PPPRA put the subsidy claims at N463.5 billion for 2009; N673 billion for 2010 and N1.34 trillion in 2011! No official has so far bothered to explain how the figure jumped drastically over and above what was paid in the preceding years. Sadly enough, fuel subsidy fraud has been happening right under the nose of government for years without any effort made to stop it. Former President Olusegun Obasanjo increased the price of fuel five times during his tenure, all predicated on the removal of fuel subsidy. But the subsidy regime never came down. It instead increased.
President Jonathan in one of his first acts after winning the 2011 election was to try to end the subsidy but mass protests forced him to seek compromise. It is indeed unfortunate that despite the Buhari administration’s much touted war on corruption, nobody has been indicted, punished or made to pay for the fraudulent practices which remained guarded secrets until the unprecedented mass protests against the removal of fuel subsidy by the Jonathan Administration. Even now, with the APC in power, no one is sure that the theft has abated, or that government was still not paying for what Nigerians did not consume. The President has failed to sanitize the murky oil sector, despite cosmetic reforms. Rather than confront this hydra-headed monster crippling the nation’s economy, the Buhari administration has decided to bow to pressure from multilateral financial institutions like the World Bank and IMF whose obsession with deregulation cannot be said to be in the best interest of the Nigerian people.
It is the duty of the government to monitor what is imported and ensure that it reaches the consumers.
There is need for a meticulous monitoring of all the transactions concerning fuel, be they local refining or importation. There is no reason why Nigerians cannot know precisely how much petroleum products they consume. Ultimately, government must ensure that the country has enough refineries to meet local requirement, that the rules of doing the oil business are clear and tightly observed, and that there is zero tolerance for deviant conducts.
Removing the subsidy in the manner in which it was done was pig-headed. Apart from the cost, which is greatly inflated by corruption, the subsidy on imported fuel should have been phased out gradually as domestic refining capacity improves with investments in local refineries. Removing subsidy was always going to be hard since cheap fuel is the one benefit that Nigerians can attribute to the government, and previous attempts to do so have met fierce resistance. Even so, the subsidy withdrawal was imposed clumsily and hastily, at a time the country is on edge, not least because of economic uncertainty over the fate of the naira. Instead of including measures to cushion to blow for the poor, the government merely assured them that the money saved would be well spent. Few Nigerians will believe Kachikwu and the APC government.
President Buhari seems ill-prepared for the challenges at hand. He needs to be proactive. He must go back to the drawing board and come up with a strategy that will rid the subsidy regime of corruption and waste. From all indications, the only path of dignity left for this government is to reconsider the fuel subsidy removal. This should be done in the overall interest of Nigeria’s national and international image, which has now suffered a more excruciating damage than ever before. All over the world, it is being stated that there is no excuse for poverty in Nigeria. What is required, therefore, is the political will to act and do what is right for the country. There is no shame in subsidy as every country subsidizes something it considers of strategic interest!
