Analysis: Why Nigeria Does Not Need Fuel Subsidy Anymore

Analysis: Why Nigeria Does Not Need Fuel Subsidy Anymore

Reacting to the prolonged crisis in the Nigerian petroleum sector, Legit.ng guest author Ubaka Chukwuka Maximus reviews the destructive effects the fuel subsidy factor has had on our economy.

Nigeria reminds me of a farmer who sells his harvested cassava for another party to process, and buys garri back. The buyer gains the peels and other by-products of the cassava — what a foolish farmer!

Today, the fuel subsidy removal is still a thorny issue in our national politics because we refused to make the necessary sacrifice vital for national development. The ghost of the January 2012 mass protest stayed President Goodluck Jonathan’s hand from removing the scam called subsidy, so it was allowed to remain even as the economy is bleeding.

Over the years, the refineries were neglected deliberately to help supply crude to refineries outside Nigeria. Turnaround maintenance (TAM) was carried out on these refineries without a single thought of building new ones. The common accounting knowledge of depreciation and replacement was totally lost to Nigeria policymakers. In partnership with oil marketers, refineries were abandoned, oil importing became a lucrative business with no one caring about what would become of the economy.

Jonathan, immediately after being sworn in, discovered the economy rape called subsidy. Without much public enlightenment and education to sensitize the masses, he proceeded to remove it. The removal was ill-timed, too, as most Nigerians were yet to return from the Christmas season; thus, the government was termed insensitive.

The cabals in the downstream sector directly or indirectly instigated the people against the government by emphasizing the harsh economic effects of the removal; the long-term benefit was eschewed. The people being ill-informed helped the cabals to keep their bank accounts afloat.

According to a Vanguard's January 6 2015 article, the sum of N10trillion was spent on subsidy between 2006 and December 2013. Much of the shortfall in excess crude account was used to pay oil marketers. This amount is more than Nigeria's two-year budget figure, three times the budget allocation for health, and two times budget allocation for education in the 2014 fiscal year.

I quite agree with Chief Economist for Africa with Standard Chartered Bank's, Razia Khan's words: "If you look at the reasons for fuel subsidy and its economic effects, the subsidy is very regressive because it is a cost on the whole economy. It takes resources away especially from the poor and rewards those who consume more fuel".

A visit to remote Nigerian villages will make it evident that this subsidy scam is not benefiting the poor. This set of Nigerians hardly travel, and they don’t have generators. What they need most is good road networks and agric subsidy. Their only business is kerosene which is still subsidized but sold at unsubsidized rate to them. No one is calling for mass protest or asking the government questions because the rich hardly use kerosene.

It still dumbfounds me why Nigerians would still want subsidy. Is it because they are oblivious of this scam, or is it mere fear of the future without subsidized fuel?

At the climax of the unrest, a committee with Aigboje Aig-Imoukhed as its head was set up to look at the alleged fraud; a parallel panel was set up by the federal house of representatives. All this led to the Farouk-Otedola saga. Nigerians’ expectations were rekindled that something would soon come out of this probe, but it didn’t excite people like me because this is Nigeria. Farouk and Otedola are walking free today like the birds of the air.

The four refineries in Nigeria have a combined production capacity of 445,000 barrels per day while the country’s daily output of crude is put at 2.44m barrels per day as of February 2015, according to the US energy information administration.

This entails that we refine approximately 18% of our output, 82% of raw petroleum is being transported to Western and African countries that do not have petroleum. I always wonder why countries without crude oil resources build refineries: does it mean they anticipate the supply of crude oil from 'unserious' countries like Nigeria? Countries like Kenya have a working refinery with no oil deposit.

In the last five years, oil price had been good, and so subsidy programme was marginally sustainable. But with the crude price hovering around $65, with debt service cost of 21% and deficit of 23.8% in the 2015 fiscal year, there is no way subsidy can be accommodated, except we want to increase the budget deficit balance. Let it not be lost to us that financing a deficit is not usually palatable as the options are very unfriendly. We either devalue the already weak naira, borrow from the IMF (our last outing with them left a sour taste), or sell government investments. Unfortunately, the PDP-led government has sold our national inheritage in the name of privatization. So, we are left with devaluation and borrowing options.

Before we join NLC in protest against subsidy removal, let us reflect on who the partial removal benefited most. Let us X-ray and correlate the economic end of selling crude below $65 a barrel and paying marketers to import the same crude. Subsidy was an issue when global oil price was above $100, it shouldn’t be an issue now with the current trend. NLC should be more concerned about the obnoxious treatment of Nigerian workers by Indian and Lebanese firms, the anti-workplace practices against pregnant women in private companies and, most painfully, the casualisation of workers in banks and other multi-national companies.

Okonjo-Iweala's keen interest in verifying subsidy claims before payment leads to delay in payment, oil marketers use this medium to horde supply with the primary motive of reminding us how much we will suffer if this subsidy is removed.

However, because of civil servants' incompetence, the federal government has decided to stay away from business ventures, so building a new refinery is not attainable. Moreover, private investors cannot build refineries when it is more profitable to import fuel with subsidy than to refine and sell locally. Deregulation of the downstream segment is one of the country’s getaway routes from the looming economic crisis and endemic corruption in the oil sector.

Saying no to subsidy sustenance could reduce fund leakage from the treasury, increase the balance in the federation account, enable states like Osun pay salaries at last. A negative answer will give Buhari zero excuses to fail. Let’s say no to subsidy before Nigeria bleeds to death.

Mr Chukwuka is a graduate of the University of Nigeria, Nsukka.

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Khadijah Thabit (Copyeditor) Khadijah Thabit is an editor with over 3 years of experience editing and managing contents such as articles, blogs, newsletters and social leads. She has a BA in English and Literary Studies from the University of Ibadan, Nigeria. Khadijah joined Legit.ng in September 2020 as a copyeditor and proofreader for the Human Interest, Current Affairs, Business, Sports and PR desks. As a grammar police, she develops her skills by reading novels and dictionaries. Email: khadeeejathabit@gmail.com

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