Stirring the Hornet’s Nest

Fri, Mar 21, 2014

By publisher

7 MIN READ

–

Diezani Alison-Madueke, minister of petroleum resources, awakes the sleeping lion by canvassing for the removal of subsidy on petrol and kerosene at the ongoing Nigerian Oil and Gas Conference in Abuja

|  By Anayo Ezugwu  |  Mar. 31, 2014 @ 01:00 GMT

THE controversy over whether subsidy on petrol and kerosene stay or not is again as an issue of national discourse. Diezani Alison-Madueke, minister of petroleum resources, resurrected the controversy on Tuesday March 18, at the ongoing Nigerian Oil and Gas Conference in Abuja. She gave hint of the planned subsidy removal when she said that subsidy on petrol and kerosene in the country was unsustainable in view of the increasingly dwindling revenue coming to the coffers of the government.

She said that the subsidies being paid to the marketers by the federal government on imported petrol and kerosene were no longer sustainable, prompting analysts to say the days of the petrol and kerosene subsidy regime might soon be over. Alison-Madueke stated that the reform already being implemented in the power sector should be taken to the downstream oil subsector, stressing that the negative impact of continued regulation of the sector outweighed the positive impact. “The continued regulation of the downstream sector has its positive and negative impacts on the economy. But the negative effect is more than the positive. The subsidy policy cannot be sustained any longer. This is because the subsidy payment is not benefiting the poor it is targeting; rather, it is benefiting the rich. The industry needs to move to the next level by increasing revenue and curbing oil theft and pipeline vandalism.

“Without belabouring the point, we are all aware that the government has to deregulate the downstream sector. Continuing regulation, we all are aware, has negative effects. It is basically unsustainable, it discourages investment, and principally, it benefits the rich, not the masses in the society that we intend to reach in the first place. This means that deregulation is the only way in which capital investment can be encouraged. It can give employment opportunities. At the same time, we are all aware that in a democratic polity, there has to be a balance between different policies and directives of government and the needs and desires of the people of Nigeria at all times,” she said.

The minister’s pronouncement gave credence to the earlier call made on Thursday, March 13, by the Forum of Commissioners of Finance of the 36 states of the federation in Abuja, which passed a resolution calling for the removal of fuel subsidy. Timothy Odaah, chairman of the forum, said after this month’s Federation Account Allocation Committee’s meeting, that the resolution was passed following irregularities observed in the fuel subsidy regime.

Odaah, who is also the commissioner of finance, Ebonyi State, said the resolution on the fuel subsidy regime would be sent to the Nigerian Governors’ Forum for transmission to President Goodluck Jonathan. He described the payment of fuel subsidy as a scam against some states, especially the less industrialised ones, as it had made “the rich to become richer, while the poor are becoming poorer.” He argued that if Nigerians had not protested against the removal of fuel subsidy in January 2012, most states would have experienced significant level of development by now.

“We looked at subsidy on oil as more or less a solution worse than the problem it is meant to solve. Looking at it presently, you will discover that it is not solving the problem, which it is meant to solve. In the first place, the Nigeria Labour Congress and the majority of the Nigerian populace appear to have been deceived into clamouring for subsidy. It is a system that robs Peter to pay Paul by making the rich to grow richer and the poor to grow poorer. There are some states that are fully industrialised and you use this subsidy in that particular place and the people who benefit more are those from the states that are industrialised. The fuel consumption of those industries uses more of the fuel subsidy unlike the states that are under-industrialised. So, what we are advocating is that the subsidy be removed so that every state or any member of the federating unit sharing from FAAC will take his own money, then decide to use it or grant subsidy in a level that it will be able to afford,” he said.

The forum also accused oil marketers of taking advantage of the subsidy regime to engage in sharp practices, noting that the payment of subsidy was exerting immense pressure on the Excess Crude Account. Odaah said if the issue was not urgently addressed, it would get to a point where the states would have nothing to share from the federation account as their allocations would be wiped out by subsidy claims. “If you also look at the oil marketers, they are also not showing the intention of the Federal Government because it has created a very big market for them in certain ways because transparency is not coming up. There are some people who are eating on the subsidy to the disadvantage of others. It is because of that that we passed a resolution at FAAC because many states are crumbling as subsidy payment has eaten so much into the crude reserves.”

But the Nigeria Labour Congress, NLC, had warned that the public outcry of January 2012 would be a child’s play compared to what its protest would be if the federal government removed fuel subsidy. The NLC, in a statement issued in Abuja on Sunday, March 16, by Abdulwaheed Omar, president of the labour union, titled, “Do not increase the prices of petroleum products,” said the reasons adduced by the Federation Account Allocation Committee for the removal of subsidy were “empty, self-serving and contradictory.”

The union, which noted that President Jonathan had more than enough challenges at the moment, said only his enemies, would mislead him into taking such an irrational decision. “Neither the reason nor the time is auspicious! Rather than indulging in this game of deception, government and marketers should put an end to this unholy alliance and make available uninterrupted supply of petroleum products to Nigerians,” he said.

Omar said the reasons laid bare the “greed, laziness, bankruptcy of ideas of the states. “Rather than devise strategies to help build internally-generated revenues, diversify the economy or even help build fiscal buffers by way of enacting a legislation to complement laws such as the Fiscal Responsibility Act and the Procurement Act, the states are only concerned with collecting and sharing money from the federal allocation account to the eternal glory of their governors (and their collaborators) who have gone on a borrowing binge as if there is no tomorrow. It is equally amazing that having identified the culprits milking the nation dry, instead of calling for their prosecution, Odaah would have innocent Nigerians to bear further burden of their criminalities. Only a callous and insensitive cruel soul could call for the suffering of the innocents in place of the guilty. But why would any reasonable person behave like Odaah?”

The NLC also accused the federal government of mismanaging the $1.61bn loan taken for the turn-around maintenance of refineries, which it regretted were worse now than “before the loan was taken.” The union said Nigeria as the world’s 13th largest producer of crude oil had no reason to have shortages of petroleum products but “for nauseating corruption.”

However, if the subsidies on both products are removed, the consumers will be paying a minimum of N144.66 for a litre of petrol against the official regulated price of N97. The N144.66 is the landing cost of the product and the distribution margins as contained in the pricing template prepared by the Petroleum Products Pricing Regulatory Agency for the month of March. For kerosene, consumers will have to pay N154.36 per litre, which comprises the landing cost of N138.87 and distribution margins of N15.49, instead of the official pump price of N50.