The Endless Fuel Subsidy Debate

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Alison-Madueke

The debate as to whether subsidy on petrol should stay or go is resurrected following the rejection by the Nigerian Senate of the report of its Committee on Finance that subsidy on petroleum products should be totally removed

By Anayo Ezugwu  |  Aug. 11, 2014 @ 01:00 GMT

LIKE a scorched snake, the subsidy debate in Nigeria has refused to die. One week after the Senate unanimously rejected the recommendation of its Committee on Finance that subsidy on petroleum products should be totally removed, the debate is again on the front burner. The Federation Accounts Allocation Committee, FAAC, on Tuesday, July 15, insisted that the subsidy retention as approved by the Senate, was a fraud against the country.

Timothy Odaah, chairman, Forum of Commissioners for Finance of the 36 states of the federation, described the payment of fuel subsidy as a fraud against some states, especially the less industrialised ones, and likened it to a case of “robbing Peter to pay Paul.” He made the position of the committee known while briefing journalists after the July FAAC meeting. Odaah said while the report of the 12-man committee on the review of the subsidy regime was still being awaited, the current position of FAAC was that the subsidy must be removed since the purpose for which it was established had been defeated.

The committee, which was set up three months ago to review the impact of subsidy on the Federation Account, is made up of six members from the commissioners’ forum and six members from the Accountants-General’s Forum. “The issue of subsidy removal re-echoed today and it became an issue of discussion and the report of the committee set up three months ago is being awaited, and we still stand on the removal of subsidy as it will be of much benefit to the states because what we have now is like robbing Peter to pay Paul. The purpose for which the government set up the subsidy is being defeated, and so, it should be based on consumption,” he said.

Odaah
Odaah

But the Senate rejected the report of the Senator Ahmed Makarfi-led committee, which had recommended the removal of subsidy on fuel because of alleged misapplication of the billions of dollars being voted annually for that purpose. “If subsidy has to be removed, there must be public enlightenment and education so that the facts would be made available to the people and then public opinion at the end of the day will count. If we sit here now and say remove subsidy, I think those who are benefitting from subsidy are very powerful and tomorrow they would influence media report and twist it to create an impression that the Senate is anti-people,” the Senate said.

The Nigeria National Petroleum Corporation, NNPC, has thrown its weight behind petroleum subsidy removal. It said the only way to encourage investors to build more refineries in the country, is to create a favourable business environment through deregulation of the downstream sector. Andrew Yakubu, group managing director, NNPC, made the remarks while speaking at a capacity building workshop for energy journalists in Uyo, the Akwa Ibom State capital. He said the current business environment in the sector was not conducive enough to attract investors because there was no guarantee that investors would make returns that were commensurate with their investments.

According to him, the media occupy a very important position in the scheme of things in Nigeria. In fact, globally, the media are part of every nation’s development process; they provide the barometer to monitor and ensure that laid down procedures and processes are adhered to in every sector. “The oil and gas sector therefore is not left out. The challenges are often misconstrued. However, being a major drive of the nation’s economy and contributing to more than 90 percent of the country’s foreign exchange, Nigerians have to contend with issues that daily emanate from us. There are a lot of challenges in the sector that are often misconstrued and which leave room for distortions of information, therefore the workshop is organised to ensure a better understanding of the sector,” he said.

The subsidy debate was also a heated controversy at the recent national conference where delegates broke into opposing camps to argue for and against the proposal to remove the subsidy. However, the controversy was resolved with the recommendations that removal of subsidy on petroleum products within the next three years should be preceded by building of new refineries and the repair of existing ones to bring them up to full capacity.

Yakubu
Yakubu

The conference unanimously resolved that private sector investors granted licenses to build new refineries “shall, within a period of three years, build such refineries or automatically forfeit such licenses to enable other participants who are ready and willing to build such refineries to do so.” It also observed that the issue of total subsidy removal on petroleum products “has been a recurring decimal on the programmes of successive governments over the years; and that there are merits in the arguments of both the protagonists and the antagonists.”

The last time the issue of subsidy removal was mooted was in January 2012, when the federal government announced the total removal of subsidy on petroleum with effect from January 1. That decision raised the price of a litre of the commodity to N141 from N65, a development that sparked off a week-long mass demonstration in the country. Following the mass protest and intervention from the National Assembly, the federal government partially reduced petrol price from N141 to N97 a litre.

According to a Petroleum Product Pricing Regulatory Agency, PPPRA, template, if the government eventually removes fuel subsidy, Nigerians will be paying a minimum of N146.59 per litre of petrol at filling stations. This, it said, would cover the landing cost of a litre of petrol, which is about N131.10 and total distribution margins of N15.49.

Over the years, oil subsidy removal has been on the agenda of previous governments. For instance, during the Yakubu Gowon regime in 1973, government raised the price of fuel from six kobo to 8.45 kobo, which represented a 40.8 percent increase, while the government of the late Murtala Mohammed, in 1976, increased it from 8.45k to nine kobo, representing a 0.59 percent increase.

Olusegun Obasanjo, former head of state, on October 1, 1978, raised the pump price from nine kobo to 15.3 kobo, representing a 70 percent increase while the Shehu Shagari administration, on April 20, 1982, raised it from 15.3 kobo to 20 kobo, which represented a 30.71 percent increase. During his tenure, President Ibrahim Babangida raised the price from 20 kobo to 39.5 kobo on March 31, 1986, representing a 97.5 percent increase. Babangida again, on April 10, 1988, increased it from 39.5 kobo to 42 kobo, representing a 6.33 percent increase. His administration also increased petrol pump price in 1989 from 42 kobo to 60 kobo for private vehicles and later for all vehicles, as well as in 1991, when he raised the price from 60 kobo to 70 kobo.

Mark
Mark

Also, during the Ernest Shonekan Interim National Government, the pump price of petrol was also increased on November 8, 1993, from 70 kobo to N5, representing a 614 percent increase. In a surprising twist, however, Sani Abacha on November 22, 1993, reduced petroleum pump price from N5 to N3.25 kobo representing a 35 percent decrease before raising it N15.36 on October 2, 1994. Abacha again reduced the price to N11 on October 4.

On December, 20, 1998, Abdusalami Abubakar took the price from N11 to N25 before reducing it to N20 on January 6, 1999. During Obasanjo’s second coming as a civilian president between 1999 and 2007, he increased the pump price six times. On June 1, 2000, the fuel pump price was raised from N20 to N30, representing a 50 percent increase but following widespread criticisms, it was on June 8, 2000, reduced to N22. The pump price was again increased on January 1, 2002 from N22 to N26 while it was again jacked up in October, 2003 from N26 to N42.  On May 29, 2004, the pump price was again increased to N50 and later to N65.30 kobo on August 25, 2004. Before leaving office, Obasanjo finally increased petroleum pump price to N75.15kobo on May 27, 2007.

When the late President Umaru Musa Yar’Adua assumed office, he reduced the price from N75 to N65 in June 2007, representing a 15.38 percent reduction, with the latest change in the pump price being the one carried out by Goodluck Jonathan on January 1, 2012. Nevertheless, with the ongoing debate it is yet to be seen if the presidency would succumb to the pressures of the FAAC and the NNPC to remove the subsidy, an action, which political analysts warn could be politically suicidal as the election year is just by the corner.

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