How apt that the final images of Goodluck Jonathan’s shambolic presidency, is a nation camped out at petrol stations in desperate search of fuel! For long stretches of his tenure it seemed as though the queues had disappeared for good but the malaise was only being kept at bay by artificial solutions.
In the last few weeks the experience of the average Nigerian trying to purchase petrol for his car or generator has been hellish. Very few bought at the official rate of N87 per liter. The product sold for between N150 and N250 per liter depending on location and intensity of the problem on a given day.
The latest crisis has revived calls for the removal of fuel subsidies which different administrations have struggled with over the last two decades. The very suggestion that the incoming Muhammadu Buhari administration could discontinue a system that guarantees artificially cheap petrol has provoked a predictably hostile response from the Nigeria Labour Congress (NLC).
The union has always been the vanguard for resisting hike in fuel prices over the years. It successfully stared down a succession of presidents – from Olusegun Obasanjo to Jonathan – over the issue.
The almost visceral reaction of labour and other activists revolves around the sense that the bulk of Nigerians who subsist on less than $2 per day would be hurt by the removal of subsidy. They also argue that this is the only benefit that this vulnerable segment of society gets from government and should not be touched.
These arguments might be appealing emotionally and politically but they are becoming increasingly indefensible. Our experiences during these never-ending cycles of fuel scarcity demand that we re-frame the basis for the discussion.
Also, the ongoing prosecution of the offspring of highly-placed members of the ruling Peoples’ Democratic Party (PDP) and their associates over subsidy payment scams raises the question of who really is being subsidised.
On paper the subsidy is supposed to protect the less economically empowered in the society. But every time marketers throw a fit and refuse to import, we all – rich and poor – end up paying outrageous prices for petrol and carry on with our lives. In fact, the most powerful continue to get the products at subsidised rates because of their connections while those in the lowest rungs bear the brunt.
Kerosene is supposedly subsidised for the poor and should sell for N50 per liter. But nowhere in Nigeria is the product retailed for less than N120 – and that is when you can find it. Meanwhile, the marketers keep getting paid billions of naira that doesn’t translate into a subsidy for impoverished citizens.
Nigeria isn’t the only country on the continent that has operated or continues to operate a regime of fuel subsidies. But over time many have come to the conclusion they could no longer continue to do so. The latest to announce it is ending them from September 30 is Angola.
Angola, just like Nigeria, imports virtually all of its fuel despite being Africa’s second largest producer. This is because of its insufficient local refining capacity. The result is she spent four percent of her 2013 budget on subsidies.
Justifying the move, a government statement said: “Gasoline now joins the free price system, ending the burden on the state of the cost of subsidies. The ongoing effort to adopt realistic prices will help strengthen social programmes and reduce inequality, since subsidies benefit the most favoured groups and encourage fuel smuggling to neighbouring countries.”
It is interesting that the Angolans make the point about those who really benefit from the subsidy regime. What an irony that when labour unions oppose attempts to change the existing system, they are actually helping the emergency businessmen feeding fat on it to continue taking us all for a collective ride.
The point at which we find ourselves in Nigeria today the issue isn’t just whether subsidies that ostensibly benefit the ‘poor’ are good and desirable. The equally relevant question is whether they are affordable and sustainable. Can a country that is borrowing to pay workers and contractors continue to pay out trillions of naira in subsidies that don’t subsidise?
The problem is compounded by the changing revenue profile of the country. In the boom years the payments may have been bearable, but with oil prices crashing to unprecedented lows they no longer make sense.
And it isn’t as if the figures have remained static. Between the Obasanjo years and the Jonathan tenure they ballooned from an average of N300 billion that was being spent yearly up to 2007 to N 2.7 trillion by 2013! From a little over N400 billion under President Umaru Yar’Adua there was a quantum leap to over N1.2 trillion in the first year of Jonathan’s presidency.
Even more embarrassing is the fact that between the Federal Government and the marketers there’s no agreement as to what is currently owed to them. While they claim N200 billion as outstanding, the Ministry of Finance says the figure is N131 billion.
Whatever the true figures are it doesn’t make sense paying out N2.7 trillion to subsidise consumption. Petrol might be an important product which price ultimately affects the pricing of other goods and services, but it isn’t the only variable that determines that.
That raises the question of how to move forward. First, we need to accept that the market doesn’t respond well to unnecessary political meddling. We need to review and repeal all legislation regulating the petroleum industry whose construction was not based on purely economic considerations.
One of the pillars of the subsidy regime is the Petroleum Equalisation Fund (PEF) Decree of 1975. It was created to equalise the cost of transporting petroleum products from depots to filling stations and ensure that they are available at uniform prices throughout Nigeria. Elementary economics, however, tells us that distance will impact the price at which a product is ultimately sold in different locations.
Even at the best of times, in spite of the existence of this legislation, petrol always sold at prices higher than the official rate in Nigeria’s extremities. Meanwhile, the marketer who has delivered his cargo, dutifully queues up to collect PEF payment (subsidy) for a product that the poor man in Damaturu buys for N120 per liter or more.
Times have changed and the unions also need a reality check. The NLC has argued in the past that while it isn’t opposed to ending fuel subsidy, it wants certain measures put in place before such an action can be contemplated. Among other things it wants the refineries working, an efficient public transportation system as well as other welfare measures in place first.
While these are not unreasonable demands they are not very practical. Fixing the existing refineries or building new ones could take anything from 24 to 36 months. Those who would like to see new refineries sprout also have to realise that investors are not philanthropists. It is a non-starter to think they would be attracted to a system that expects them to pour billions into a project only for the state to fix the price at which they sell what they produce.
Again, putting in place the sort of mass transit system that could move millions daily at a cheap rate could take up to five years – if not longer.
In the interim as we wait to create the perfect conditions for a painless exit from wasteful subsidies, we are forced to continue with payments that the country cannot afford! It is a vicious cycle and not the right way to go.
Putting palliatives in place must go hand in hand with the necessary reforms. Imagine how many buses or train lines N2.7 trillion can buy. Just think of the number of refineries that can be built for that amount. You can build countless roads, schools and hospitals for what we throw away yearly.
Religion is a touchy subject but the more I think of the subsidy the more I am reminded of India where there’s so much poverty and yet well-fed cows roam free because they are considered sacred. We’ve made the fuel subsidy into an idol that must not be touched. Unfortunately, it is our commonwealth draining away yearly while leaving the mass of the people untouched.
The only way forward is to confront this cancer headlong. Nigerians are already paying outrageous amounts for petrol and I doubt whether deregulated prices can be worse. Indeed, if you were to poll our longsuffering population and offer them regular fuel supply at higher prices or intermittent scarcity at existing rates, they would jump at the former.
Most of these arguments are not new. What has been lacking has been the political will to do what is necessary. Previous administrations were not able to convince people that the subsidies should go because they were sleaze-infested and distrusted by the people. That was why the argument that the subsidies were the only things the poor benefitted used to resonate.
But against the backdrop of the exposure of massive scams dogging the scheme, the incoming administration has an uncommon opportunity to tap into peoples’ frustrations arising from the pains of scarcity to remove the subsidies once and for all.
There is no right time or pain-free way to do so. The trouble with us is we desire to get to heaven but want to be saved the trouble of dying first. We want to have lovely babies but want to be spared the pains of childbirth.
