Nigeria: The Fuel Subsidy Debate

Daily Trust (Abuja)

Ibrahim Auduson

2 January 2012


The government spent millions of naira in advertisements to smooth the pill it knew is bitter, to make it easier for Nigerians to swallow. And the pushback from Nigerians, civil society organizations and even the National Assembly, or at least some elements of it, was equally determined.

At issue has been the contentious, some may say emotive, one of subsidy on petroleum products and government’s policy of removing it from the downstream sector of the oil industry in Nigeria.

The contention arose out of the polarized positions held by both sides in the subsidy debate. On one side is the view that that crude oil is Nigerians’ God-given natural resource and citizens should cheaply get access to products refined from it. Those who canvass this point of view compare Nigeria to other countries that produce oil and have subsidies in place for the domestic consumption of refined petrol and other petroleum products.

They also note that subsidy had been in place since crude was discovered in Nigeria, replacing agriculture as the nation’s biggest revenue earner. With the subsidy, huge capital developments were undertaken, they further point out, and wages were reasonably good and labour unrest low as a result.

On the other side of the debate is the government, which claimed that the huge 1.2 trillion naira subsidy regime is so riddled with corruption that it no longer benefited the sections of society it was meant for. Government officials in the last few months launched a massive publicity blitz to put up its side of the argument across to a sceptical public. They said that the savings from the removal of the subsidy would be spent on more productive areas of the economy, like schools, health care, transport sector and power supply.

The problem with the government’s line is that such arguments flow from similar trajectories flown by previous administrations.

The cost of premium motor spirit has moved from a modest few kobo per litre in the late 1980’s to hefty 65 naira per litre at the end of last year. With the subsidy removal, petrol could cost as high as 145 naira, although the government argues that market forces could in fact force prices to dip.

Savings on subsidy reduction over the years were not felt as much as it was when the modest gains in the Sani Abacha regime were channelled to building infrastructure through the setting up of the Petroleum Trust Fund (PTF), which intervened in critical areas of need.

Since the return of civil rule in 1999, efforts at removing fuel subsidy through increase in the prices of petroleum products have not made any meaningful impression. Indeed, the subsidy regime became a veritable source of corruption among those involved in it.

No new refineries have been built for over a decade now. Because current refining capacity is low, imports to meet local demand became inevitable. Contracts for such imports are lucrative, so much so that there have been active efforts to sabotage local refining in order to force the authorities to increase imports of refined products.

The corruption is also so pervasive that there are reports, some documented in court records, showing that Nigeria’s sweet crude taken out of the country for refining is switched, cheap and poorer grade refined fuel that legally cannot be sold in Europe or the United States, is sent back to Nigeria, at the same cost as high grade fuel, with serious environmental consequences and health hazards to people.

Those who oppose subsidy removal said that dealing with the corruption and tightening controls over such transaction would save it the money it wants to impose on Nigerians in the form of subsidy removal.

Yesterday, the government brushed aside such arguments and many others, and announced it had ended the subsidy regime, effective from yesterday, January 1. The fact that it is the PPPRA that made the announcement is significant, because it would remove the immediate popular anger and resentment that this would certainly generate from being directed at the presidency. The government is keenly aware, and appears to have chosen to ignore the fact, that the policy is very unpopular in the country, and that most people believe that it is not home-grown, as Finance Minister Ngozi Okonjo-Iweala tried to project it, but an imposition of the International Monetary Fund and other financial institutions in the control of the West.

Not surprisingly, PPPRA’s announcement has elicited widespread reaction, most of it negative. Minority leader of the House of Representatives Suleiman Kawu said, “We will use the law to stop this inhuman act. It’s another form of terrorism against Nigerians that are already impoverished.”

The NLC and the TUC described the decision as “callous, insensitive”, warning of a mass protest. “This promises to be a long drawn battle; we know its beginning, but we do not know its end or when it will end. But we are confident that the Nigerian people will triumph over the cabal in Aso Rock,” the unions said in a statement.

Questions will be raised about the timing, given the security situation in the country and clear evidence of discontent and impoverishment among the population. It would appear that the government had set the date of its policy implementation, and would not be persuaded by any other consideration to change course or delay taking action.

The possibility of revolt, or even civil unrest as a result of the move did not deter the government either.

Down the road, perhaps not too far from now, it will become clear whether the government’s position is a triumph of policy commitment over popular will and god for the economy and polity, or another experiment on the efficacy of yet another brand monetary instrument for the assessment of external creditors.

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