Why fuel subsidy must go


THIS so-called fuel subsidy must go. Yes, the fuel subsidy is so-called because no other issue except Boko-Haram insurgency has generated so much national discourse. Again it is a so-called matter because not a few Nigerians believe that fuel subsidy is a phantom! And, it will be trite to state that President Buhari would be demonstrating uncommon courage by finally withdrawing this so-called oil subsidy. It is on record that others before him avoided the issue perhaps due to the sensitive nature of oil subsidy. Before the subsidy issue would be finally removed, I urge the President’s men and women to embark on national and international social marketing on this matter. In fact, the Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) should be sensitized on the benefits of fuel subsidy removal and the unsustainability of the extant subsidy regime.

The practice of subsidizing the cost of refined petroleum products in Nigeria is a core element of economic management and policy formulation which successive Nigerian governments have sustained. It is estimated that the country spends an average of N1.5trillion per annum on oil subsidy. As expected, there are divergent views on the oil subsidy removal, with some in support while others are against it.

Those who want government to continue to subsidize fuel base their argument on the economic bandwagon effects of fuel subsidy removal. They argue that the cost of transportation affects almost every consumable product as well as services. And that whatever component of food one eats has transport cost on it because these have to pass through the chains of distributive trades. In other words, oil subsidy removal will fuel inflation. Protagonists of continued oil subsidy also argue that since about 30.5 percent of oil is used to fuel generators to substitute for failed electricity power, subsidy removal will lead to higher cost of living in the country.

On the other hand, those who support the abolition of oil subsidy hinge their argument on a number of factors, ranging from corruption among oil importers to the need to develop the downstream oil industry to generate employment. For instance, Prof. Dimis Mailafia, a former HOD of the Department of Economics and Ag. Dean of Faculty of Social Sciences, UNIJOS is an advocate of fuel subsidy removal. Indeed, Mailafia once produced a pamphlet on fuel subsidy during his stint as the SA (Technical) to the immediate past Hon Minister of Water Resources, Mrs Sarah Reng Ochekpe. An erudite scholar and a consultant to the World Bank and UNDP, Prof Mailafia clarified that, “I have been a protagonist of fuel subsidy removal. Remember, I wrote a pamphlet advising the last administration to remove it once and for all. The continuous retention of fuel subsidy is inimical to domestic production as it is a conduit for corruption and a wastage of funds that would have been used for revamping and building new refineries. Domestic refineries should be facilitated to meet not only the domestic demand but for export which would eventually strengthen the naira”.

Prof Mailafia further clarified that, “In a paper I presented some six years ago to a student body, which was finally printed, I pointed out that there are three major obstacles to socio-economic progress in Nigeria. The first is corruption, the second is corruption and the third is corruption. So, our major problem is corruption”.

Last year, after some research, he changed his mind when he discovered that the major problem in this country was not corruption but impunity. Corruption, according to Prof Mailafia, is fueled by impunity, and this finding now made him raise his cap for President Buhari on what is going on now. He is very happy that, at last, someone knows that he/she cannot get away with looting public treasury again.

I agree with Prof Mailafia that corruption and impunity are the twin problems of Nigeria, and the oil sector is not exempted from them. There is, indeed, a cabal that is benefiting from the oil subsidy that is retarding the development of Nigeria’s downstream oil sub-sector. Illuminating these corrupt practices during the Seventh Session House of Reps’ live debate on oil subsidy removal on January 8, 2012, Hon. Godwin Elumelu said that “some of the oil importers faked import documents and claimed subsidy from government without importing any fuel”. Also, a former staff of NNPC, who worked for the corporation for 30 years, added his voice to the debate when he told viewers during a live TV interview that some members of the cabal would recycle imported fuel after getting clearance and payment from government for the same oil! He further clarified that oil marketers would also divert such fuels to neighbouring countries.

As an economist, I was persuaded by the argument that the whole idea behind the movement in favour of the withdrawal of the oil subsidy was based on the need for sustainable growth of a vi- able oil production industry. I believe removal of the subsidy will eventually lead to the establishment of more refineries in the country, creation of jobs, product availability and reduction in the pump price of petrol due to competition. Oil subsidy removal will make it unattractive to smugglers to take our fuel to neighbouring countries. Removal of oil subsidy will end the unpalatable situation in which Nigeria has been subsidizing the fuel consumed in our neighbouring countries. If oil subsidy is removed, Nigeria would have laid a solid foundation and avoided future economic collapse. And with a whopping N1.5trillion being freed from oil subsidy payment, all the tiers of government are better placed financially to deliver democracy dividends.

Granted that the immediate effect of the oil subsidy removal is hike in transport costs and prices of goods and services, but with the palliative measures being put in place by the federal government, the effects will be mitigated with time. Mr. President has announced palliative measures and plan of action in the private sector, specifically transport sector and reduction in the cost of governance. And to put into action these policy responses, President Buhari should provide some buses for mass transit. Already, all the refineries are working with a combined output of 6.76 million litres per day which would soon reach 10 million litres per day. President Buhari should re- move petrol subsidy and increase domestic refining while NNPC should be granted monopoly to import fuels until local refined petroleum products meet national demand. Who knows, we may start exporting refined petrol in no distant time. It is possible.Finally, even though the NLC and TUC have urged the government to suspend oil subsidy removal for wider consultation, my take is that if we do not do it now, tomorrow may be too late to avoid the collapse of our economy. Oil subsidy as practised in Nigeria was a cesspit of corruption. It is unsustainable. The earlier Nigerians realise this, the better.

source: http://sunnewsonline.com/new/why-fuel-subsidy-must-go/