BREAKING NEWS, Featured, Oil & Gas
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The controversy over the removal of fuel subsidy is resonating in Nigeria with different schools of thought supporting or opposing what some economists and the international community consider the most viable option out of the current biting fuel scarcity in the country
| By Anayo Ezugwu | Dec 21, 2015 @ 01:00 GMT |
WITH the unending queues at the petrol stations due to scarcity of petroleum products in Nigeria, the debate on fuel subsidy removal is resurfacing again in the country. Both experts in the oil and gas sector and the international community are calling on the federal government to remove fuel subsidy with immediate effect while the conservatives are against it.
The advocates of subsidy removal opined that, in view of the dwindling fortunes of the Nigerian economy, the attendant fiscal challenges and steady decline in government revenues, the removal of the current oil subsidy regime is necessary. They argued that the subsidy regime only succeeded in corruptly enriching a few Nigerians to the detriment of the economy. This school of thought believed that if fuel subsidy is removed, it will immediately plug all the loopholes and avoidable wastages in government finances in the form of colossal subsidy payments currently estimated in the region of between N800 billion and N1 trillion yearly.
This, according to them, will thereby free the much needed resources for investment in pressing areas of critical national infrastructural renewal and development, including vital security architecture. According to this school of thought, the fraudulent oil subsidy regime has been mainly beneficial to the privilege elite in the country against majority of the masses.
Championing the call is the World Bank, which on Tuesday, December 8, advised President Muhammadu Buhari to remove fuel subsidy forthwith, saying now is the best time to do so. The bank noted that global crude oil price is at its lowest level and that the federal government should therefore act now.
The World Bank Group said by 2018, the total spending on fuel subsidy will consume about 30 percent of the entire oil earnings for Nigeria if the current regulated prices are maintained. It said 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 by expending about $35 billion (N7 trillion) from 2010 to 2014 in the subsidy scheme.
Presenting the 2015 Economic Outlook report in Abuja, John Panzer, senior director, Macroeconomics and Fiscal Management, World Bank, said should Nigeria remove fuel subsidy now, the price of petrol would not cost more than a N100 per litre. He said despite the fuel subsidy reports from the National Bureau of Statistics stated that Nigerians were buying petrol above N100 per litre for the major part of this year.
Ngozi Okonjo-Iweala, former minister of finance, said in her article published by the Financial Times, that the fuel subsidy policy was not only a huge drain on the economy but the cost of these subsidies far outweighs the benefits and burdens facing the middle classes. “Globally, government support for fossil-fuel subsidies will amount to almost $650 billion this year…Reforming the system can make energy infrastructure more efficient, shore up public finances and allow more targeted spending on public services.”
“In 2012, in Nigeria we reformed petrol subsidies. Conscious that the public might be concerned, we ran an information campaign to explain how the savings would be used to help everyone. Political pressure, however, led to the policy being introduced earlier than planned and, as a result, the changes came as a shock to many. This led to protests and the reform had to be partially rolled back. Despite this, we were right to act. Even phasing out half of the subsidies was a substantial achievement. Some $13bn worth of petrol subsidies, including many fraudulent claims, had burdened the national budget, and we were able to redirect some of those funds. Within a year, our programme to reinvest the savings meant we could finish the renovation of a north-south national railway, as well as introduce improved maternal and childcare services in 500 primary healthcare centres.”
Charles Soludo, former governor, Central Bank of Nigeria, CBN, stated in his lecture at the third anniversary lecture of Realnews Magazine in Lagos, that the retention of fuel subsidy regime would not allow the economy to diversify. He said President Buhari has the moral authority and legitimacy to quickly remove fuel subsidy and privatise the country’s refineries.
He said the fundamental case against subsidy removal was not economic, arguing that a lot of the citizens do not trust government to optimise the use of the proceeds for their welfare. “If Buhari does not deal with these issues now, I wonder when, if ever. Now that private refineries are coming up, it is time to privatise public ones. It should have been done years ago. The huge benefits are not only economic, but also an anti-corruption move. Let government produce a credible agenda of reforms for the sector and let us have another focused public debate on this subject,” Soludo said.
It was equally reported that the Ahmed Joda-led APC Transition committee advised President Buhari to remove the fuel subsidy. They argued that with the deregulation of the downstream sector, through the removal of oil subsidies, as well as the privatisation of the nation’s refineries, private sector operators will be encouraged and fascinated to invest in the sector by setting up refineries which will enhance local production and supply of petroleum products for domestic consumption and possibly for export.
But these suggestions are bond to face stiff restrictions from Nigerians. Those against subsidy removal argued that before a final decision is taken on subsidy, the government should, first ensure the immediate rehabilitation and reactivation of the nation’s four refineries. This, they said would enable them operate at full, optimal capacities, in order to enhance local production and supply of fuel for domestic consumption.
They described the proposition for fuel subsidy removal as being insensitive and punitive at this point in time when the masses are confronted with crippling socio-economic challenges. The Nigeria Labour Congress, NLC, had reinstated its resolve to oppose any attempt by the federal government to remove subsidy on petroleum products, tasking the government to ensure that fuel stations across the country dispense petrol at the approved pump price.
A statement by the union said the President Buhari administration must take charge of the situation and declare a state of emergency in the oil and gas sector. The congress lamented that in a nation that produces crude oil, scarcity of the petroleum products has been allowed to linger for months, while those accused of mismanaging subsidy on petroleum products are still walking the streets free without facing prosecution.
The statement reads: “The current scarcity of petroleum products has entered the fourth month and a credible solution is yet to be provided other than media reports of promises to end the crisis. A crisis that had already further slowed down our national economy and caused hardships to many families and homes, with workers, both in the formal and informal sectors being the most hit.”
Supporting the NLC, the Non Academic Staff Union of Educational and Associated Institutions, NASU, cautioned the federal government against the removal on grounds that it would trigger inflation, increase fuel prices and cause untold hardship for Nigerians. In a communique signed by Ladi Iliya, national president, and Peters Adeyemi, general secretary, NASU lamented that the successive governments have failed to demonstrate the political will in addressing the issue of building new refineries, and adequately maintaining the existing ones for optimal productions for local consumption and exports. The union expressed concerned that the subsidy policy has unfortunately generated a lot of controversy in view of the alleged corrupt practices surrounding the whole issue of subsidy.
Nonetheless, it appears that Nigerians are beginning to come to terms with the reality of the irrationality in the current subsidy regime. Most Nigerians equally believed maintaining the regime is not sustainable considering the incessant fuel scarcity across the country. But the issue of concern regarding subsidy removal is whether the present APC-led government truly have the moral conscience and justification to remove the subsidy. This is because APC, when in opposition, was in the forefront of protests and agitation against subsidy removal by the President Goodluck Jonathan administration.
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