WEDNESDAY COLUMN BY USSIJU MEDANER
It was all a matter of when as it had become obvious to Nigerians in the last months that the era of subsidy on petroleum products was gradually coming to an end in the country. Unlike at some other times, we had all leading contestants for the position of the president of the country reiterated their unflinching support for the termination of the age-long subsidy regime and readiness to effect the same as soon as they become the president and commander-in-chief. And now, finally, the time is upon us, in the words of the president, ‘fuel subsidy is gone.’
Having known ahead of time, should Nigerians have made preparations to help themselves navigate the tough terrains that would definitely be created by the removal? Unfortunately, there is nothing the citizens could do to help themselves; it is not in their place or hands to in any way make preparations. The government owes the people that much; preparation to alleviate the challenges that would be thrown at the system and the people by the subsidy removal.
While I have been an unrepentant advocate of subsidy removal, I have also without mincing words expressed the need for the government to recognise the effects the outright removal would have on the masses, the ordinary citizens of Nigeria; that is, taking off the subsidy without well-spelled out and effected actions to ease the effects on the citizens. And we are already dealing with the immediate consequences, for instance, for an average civil servant or businessman in Abuja who is living in the suburbs and working in the city centre, the cost of transportation alone has automatically increased by 100 percent at the minimum. A to and fro trip to work from Suleja now cost a minimum of three thousand naira as against about one thousand five hundred naira previously. That is sixty thousand (#60,000) monthly on a minimum wage of thirty thousand (#30,000) naira. That is irreconcilable and absolutely unworkable. That is even exclusive of the spread effects on the prices and cost of staples and common goods, which are already beginning to respond to the subsidy removal. The Kwara state government just a few days ago announced a reduction in weekly work days to three days from five days to cushion the effect on the civil servants in the state. While that appears as a palliative, it is detrimental to the state economic growth as it would eventually constitute a decline in productivity.
Today, I am at a crossroad; speaking simultaneously for the policy I have for ever want to see coming to an end in order for the economy to grow without or at least with minimal artificiality, and the people, who have committed no crime to suffer the consequences of errors of the ruling class who have over the decades bastardised the genuine policy of subsidising petroleum products for the country. Would it be possible for the government to create a probable middle ground between removing the subsidy and the suffering of the common man as a result of the removal? I still wish the government would have strategically put in place palliatives and cushions to ameliorate the expected sufferings that would come with the PMS subsidy removal.
We need a full understanding of what petroleum subsidy is in Nigeria. We need to understand the reasons we got to the point whereby we had to subsidise the products for Nigerians and eventually, what made the subsidy program no longer feasible for the country’s continued survival. This education is needed for Nigerians to recognise and understand why we are where we are today, and perhaps, know why they have to go through whatever suffering they are going through.
Subsidy is a global phenomena; the USA, for instance, currently subsidises its domestic agricultural sector, housing, automakers, oil and energy producers and to some extent, healthcare through its popular Medicare. Till now, the United States government, according to the Environmental and Energy Study Institute, spends $20 billion every year on direct fossil fuel subsidies, and of that figure, about $16 billion goes to oil and gas while the rest goes to the coal industry. The same goes with most developed economies of the world. Take it or leave it, the subsidy regime is never the problem; our challenge and the reason why it is no longer admirable in our clime is the institutionalised corruption that we have and could not do anything to arrest until it becomes a norm within our system and national life. So, the subsidy must go if corruption cannot go.
So, what is a subsidy? It is a direct or an indirect payment to individuals or firms, in the form of direct cash payment from the government or a targeted tax cut to affect a reduced direct consumer price of a subsidised product. The objective is to cushion the effect of high prices on common goods without discouraging the producers.
Why subsidy in Nigerian petroleum industry? However, we are not supposed to be discussing subsidy in that sector of our economy. All top crude oil producing countries in the world are also top crude oil refining nations of the world. Nigeria regrettably is not in that category. Nigeria is the only OPEC member that imports 95 percent of refined petroleum for domestic use; no other member of the group imports above 20 percent for domestic usage. Automatically, paying subsidies becomes mandatory to fill the gap between the landing cost of imported fuel and the pump price of fuel in the country.
When we lost the nation’s capacity to locally refine crude oil for our local consumption requirements, by some designs unexplainable, and beginning with the OPEC crisis of the 1970s that led to significant changes in the global oil market, resulting in the skyrocketing of price per barrel of crude oil from $3 to $12 as at 1974, we literally became banded to the OPEC price control and stabilisation drive globally. We were hooked to flow with the production programming policies of the organisation; and unfortunately, the citizens lost the opportunity to pay the best price, the lowest possible, having done away with components that drive up cost purchase and importation of finished products from some countries outside our shores.
When we sell crude oil to import finished products, we come under the business operational decision of the producing countries or refineries. From the producing refineries, the cost of acquisition of the crude at the international market, logistic cost of moving the crude to their facilities, the cost of refining and setting profit margin would determine the cost we are buying directly from the organisation. On our part, the importing country, the cost per unit of refined products and the very unfavourable dollar exchange rate are the two most important factors that make the products nearly unaffordable to the ordinary citizens and make the call for subsidy then necessary. The cost of distribution, costs associated with the transportation of the imported refined products to the depots across the country, the cost of maintenance (monitoring and repairs) and operation of pipelines and depots and charter fees for coastal tankers also take their toll on the final cost.
Gone this way, we have subsidised the products since the late 1970s when we literally began to prefer the more money we got from the exportation of our crude oil and finally when we succumb to the corruption that grounded all our refineries from continuous operations and make turnaround maintenance impossible; and until we literally allowed all our refineries to go down to speed up a flourishing subsidy regime in the country.
Now, while it appears the government was subsidising the PMS price for the citizens, what we were actually having were a group of Nigerians hanging in the middle and taking massive advantage of the processes to rob both the country and the citizens.
As at 1980, with a national population of 72.95 million, the daily PMS consumption of Nigeria was pegged at 10.7 million litres. Fast forward to 2023, with a population figure of 221,056,095, a 203 percent increase from 23 years ago, our daily consumption of the product has, on paper, increased to 80 million litres, a 647 percentage increase. This is absolutely impossible by all mathematical and logical interpolations, which would put our current date daily consumption at around 34 million litres a day, yet we uphold it for decades because those who were behind the inflated numbers and by extension the corruption in it are powerful and in high places. Literally, while Nigerians thought the government was subsidising the product for them, what was happening in reality was the hidden cabal presenting the double inflated figures of imported product on a daily basis and collecting subsidies on all, including the more than half we did not import or needed.
The reality of the figure was that on a monthly basis, while the Nigerian government pays approximately eight hundred million dollars ($800,000,000), nearly more than half of the sum is for products that were never imported into the country and which ended up in private pockets.
Yet, we keep having product shortages and irregular prices across the country as a result of supply deficits from time to time. Why? Because of the actual imported quantity, nearly a quarter, after receiving subsidies on them, were diverted away from the country into our neighbouring nations and sold at higher prices again to make double gains. Benin Republic citizens would then prefer smuggled PMS from Nigeria because it is much less expensive compared to the official pump price at approved filling stations. No wonder there is more panic in those countries over the subsidy removal in Nigeria.
Consequently as a nation, our capacity to develop economically and to develop our infrastructure has become an uphill task; a country that spent #4.4 trillion, that is, above a quarter of its total annual budgets of #16,391,023,917,692 on petroleum subsidy in the year 2022. A subsidy payment in a calendar year that was about 300 percent of total budgetary allocations to the health sector, far above allocation to education and even works and housing; how can that country progress literally.
Now that subsidy is gone, what next? We must ask how Nigerians would survive the sudden increases in cost of unavoidable services and commodities. Would the current national minimum wage still be realistic? It would be appropriate that the Federal government with immediate effect raise the national minimum wage by as much as 400 percent to #150,000. We should see a promising tax relief package for employers of labour across the country to enable them to raise workers salaries.
It is also about time that we take investment in Compressed Natural Gas (CNG) as an alternative to PMS to power automobiles in the country seriously, while we also make conscious effort to bring up at least two of our refineries back to production and to promote a number of modular refineries in the country also to commence production. It is obvious that the only benefit the country would get from Dangote refinery would be readily availability of the products and not price drop; in reality, Dangote, just like his other businesses would be profit oriented and would enjoy monopolistic power for as long as he remains the only player in that field.
There is a long day of darkness ahead of us before we get to the light. We should not deceive ourselves, the decision to stop the subsidy regime, as good as it maybe, has hit Nigerians badly and would remain a major impediment to the survival of the common Nigerians until the government at all levels proactively provide worthy and consistent palliatives to cushion the effects of the hardship.
GOD BLESS THE FEDERAL REPUBLIC OF NIGERIA!