Fuel subsidy removal: To be or not to be?

As the calls to end subsidy on the petroleum sector get louder, will the government take the bull by the horn and end the fuel subsidy debate? BENJAMIN UMUTEME asks.

The fuel subsidy policy was introduced in Nigeria as a means of stabilising the price of fuel until the local industries pass the rehabilitation process. When it was introduced several decades ago, it was meant to last for six months, but has lasted for over two decades.

It is appreciated by citizens who see it as one of the few things they could benefit from the government.

With an economy that is highly dependent on oil, and refineries that were comatose, the federal government was left with no choice than to subsidy petroleum products as it resorted to importing fuel to make up for the shortfall due to non-functional refineries.

Unending TAM

The Turn Around Maintenance (TAM) of the nation’s four refineries started in the 1980s and it has not ceased as every administration tries to outdo the other in turning around the refineries.

 A former Minister of State for Petroleum Resources, Ibe Kachikwu, had told members of the National Assembly that the country required $500 million, that is about N100 billion, to fix the four refineries. This was irrespective of the fact that almost similar amount was spent on fixing the refineries at the twilight of the President Goodluck Jonathan’s administration.

Rewind to 2012, the acting director of Warri Refining and Petrochemicals Company (WRPC), Engr. Samuel Babatunde, disclosed that the federal government had budgeted N94.2 billion for the Turn Around Maintenance (TAM), of the Warri refinery, while almost similar amount ($463 million) was budgeted for TAM of the Port Harcourt refinery.

In 2013, the story was not much different as $1.6 billion was budgeted for TAM for the four refineries, with the former Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, stating that over 75 per cent of the spare parts maintenance on the Port Harcourt Refinery had already arrived the country, while the original builder of the refinery had been paid $32 million for the TAM. She had stated that the TAM for the Port Harcourt refinery would cost $147 million while modernisation of the refinery would cost $406 million.

In the early days of 2015, NNPC contracted local engineers to fix the four refineries for N99 billion. The refineries only functioned for less than two months before it shut down again.

Between 2015, after President Muhammadu Buhari was sworn into office, the country had undertaken two repairs of each of the refineries, as well as several repairs of the country’s pipeline network.

So, it was viewed as irritating in some quarters, when Kachikwu told members of the National Assembly that the country requires $500 million to fix the refineries.

The subsidy debate

Many believe that as an oil-producing nation, Nigerians should be entitled to subsidy on the product, but others believe subsidy removal of petroleum product has become overdue.

When on January 2012, President Jonathan announced the government was removing subsidy from petroleum products all hell was let loose in the country. There was mass opposition to the announcement resulting in mass protests across the country. And after a week-long protest, the government was left with no choice than to reverse itself.

Importance of strategy

While President Jonathan might have had the best of intentions for the country’s economic future, observers argue, his government lacked an effective implementation and communication strategy. Subsidy removal may have been the right move, but it was done in the wrong way, and at the wrong time.

According to Senator Shehu Sani, removing the subsidy in stages would have been the way to go, while at the same time refurbishing the country’s four dilapidated oil refineries. It is estimated that since the government has spent $1.78 billion on maintaining the four refineries, with very little to show for it. They operate at less than a quarter of capacity, and are 30 years behind modern standards. Some maintain that the money used on the fuel subsidy could have been better put to building new refineries and thus ending the need to import refined petroleum.

“If they can simultaneously fight [corruption] as well as increase refinery capacity and withdraw the subsidy gradually. The country would have then set up a solid foundation for a permanent removal of the subsidy, a permanent capability of domestic production and a more stable economy,” he said.

For environmental economist, Thomas Sterner, the corruption in the subsidy payment has made it difficult for its removal as urban elites and other powerful interest group benefit from the process.

The next time the government contemplates removing the subsidy, it must be “more careful,” argues Mr. Sterner. “You need to have a strategy, and say, ‘We are moving the money immediately. We will use it on health or education or something else’.” That, he said, would make it harder for the beneficiaries of the status quo to say that removing the subsidy hurts the poor.

Speaking at the ValueChain magazine annual lecture and award ceremony on Wednesday in Abuja, a director at Eternal oil, Ibrahim Boyi insisted that continued payment of subsidy was doing damage to the economy. According to him, it also comes at a huge cost to the government.

He said, “I can also assure you that operating in the industry is extremely difficult not just to the government but to the economy. A lot of companies that have made huge investments in the sector today are facing difficult times. The way subsidy works is not business oriented because a lot of companies are almost going out of business.

“Subsidy is not commercially viable, it’s not sustainable and it does not help the development of infrastructure. It is faulty and the sooner the government accepts it the better. NNPC, I don’t know how they are doing it, I am almost sure they are operating at a loss.”

The former eternal oil Managing Director, stressed that the “government continues to huge behind subsidy to create a whole lot of inefficiencies.”

This, he said, has “resulted to lack of investment in the sector because the environment does not allow people to invest and make profit.”

‘FG not keen on removal’

Despite the call by industry experts and international agencies, the federal government is still not keen on doing away with subsidising fuel. Even with the monumental corruption that trailed and continues to trail the process government remains unfazed.

And immediate past minister of finance, Zainab Ahmed, reiterated that in her response to the call by the International Monetary Fund to the federal government to end subsidy in the petroleum sector, when she said that the government’s resolve is not to remove fuel subsidy.

She said, “There is no plan to remove subsidy now because we have not yet found an alternative package to subsidy. We will not remove subsidy without another social safety net package.

 “One of the issues that always come up in the report, especially by the International Monetary Fund (IMF) as a corporate body, is how we handle fuel subsidy. In principle, the IMF is saying fuel subsidies are better removed, so that you can use the resources for other important sectors. In principle, that is a fact. But in Nigeria, we don’t have plans to remove fuel subsidy at this time because we have not yet designed buffers that can enable us to remove fuel subsidy and provide cushions for our people. So, there is no plan to remove subsidy. We will be discussing with various groups. If we have to, what are the alternatives? We have not yet found viable alternatives. So, we are not yet at the point of removing fuel subsidy. Therefore, every rumour on plans to remove subsidy should be discarded.”

 Even the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) and the Petroleum and Natural Gas Senior Staff Association (PENGASSAN), many have alleged, are the real beneficiaries of petroleum subsidy, warned that the advice by the IMF to remove subsidy would destabilise the country.

The general secretaries of NUPENG Olawale Afolabi and PENGASSAN Okugbawa Lumumba said the statement was poisonous and wondered why IMF was still advising the government to inflict more hardship on the people.

 “We empathise with them (Nigerian workers) and will not turn blind eyes to any further attempt to increase their pains and impoverish them further. It is quite bewildering and baffling that IMF is not considering the pains and agonies Nigerians went through; even to achieve the acknowledged gains of 2018, with almost two-thirds of the world’s hungriest people among Nigerians.”

Well, except it dawns on the federal government that the country will remove subsidy eventually, it might just be impossible to muster the political will to ‘do the needful.’

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