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How Not to Remove Fuel Subsidy

08 Jan 2012

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Simon Kolawole Live!: Email: simonkolawole@thisdayonline.com


As I was saying, subsidy is an emotive issue anywhere in the world. You just don’t wake up one morning and announce that the perk is gone and expect the masses to give you a standing ovation. At the root of the London riots last year was the tension over cuts in perks. The unrest in Greece was stirred by austerity measures. No matter the merits of the case, withdrawal of subsidy is not a policy decision to be taken in a hurry, marketed in a rush and implemented in haste. A lot of thinking has to go into it—a lot of what I call “policy impact assessment”: weighing the pros and the cons, analysing the potential winners and losers, devising ways to address each concern, working out how to get the citizens’ buy-in, and providing a cache of safety nets to lessen the pain. You just don’t remove subsidy and say water will soon find its level and everybody will adjust. No way.

Now, let me be clear on one thing: I am pro-subsidy (it may be fuel or something else). In a society where 90 per cent of the citizens live on less than $2 a day—according to the UNDP Human Development Index—you would be courting trouble to declare that every single thing should be left to market forces. Market forces are only interested in profits, not people. Even classical economists will tell you that “market doesn’t deliver everything”. Market, they agree, does not always provide the most optimal outcomes. That is why even extremely capitalist countries provide a bundle of safety nets for the vulnerable in the society—such as payment of social security, child care allowance, subsidised mass transportation, free healthcare, and so on and so forth. Not everything is left to the market forces. When crude oil prices rise, for instance, some governments cut fuel tax to reduce the direct impact on motorists’ pockets. They know quite well how fuel prices hurt disposable income.

In Nigeria, there is virtually nothing for the people. The rich and the powerful gather like vultures and tear into the national treasury at will, leaving the people high and dry. They ride all the cars, own all the houses and eat all the food. At our expense, of course! We fuel their congregation of cars, finance their egos and sponsor their libidos. The people can only watch helplessly as the gap keeps widening. The closest to social security that the people enjoy here is fuel subsidy. Those who said removal of fuel subsidy would not impact on transport costs for the poor must be reviewing their words by now. Transport fares have hit the roof since the fuel price hike of last Sunday. Even buses that run on diesel have hiked their fares. Opportunism, you call it, but it could be market forces too, come on.

I am not unmindful of the fact that fuel subsidy has not been very efficient in Nigeria. In fact, the only reason I can ever support its removal is because of the massive corruption it has been used to perpetrate over the years. The more we campaign for the retention of subsidy, the more we play into the hands of these buccaneers who have now turned private jets into toys. This alone constrains me from campaigning for fuel subsidy. On the one hand, I believe subsidy is not a sin. On the other hand, I remember the infamous cartels. The last time I visited Abuja, I was shocked at the number of private jets on the terminal. I was told most of them are owned by fuel importers. The briskest business in town—where you could become a multi-billionaire in just one transaction—was fuel importation. The removal of subsidy now means nobody goes to Abuja to make claims for it anymore. No more N1.5 trillion dubious payments. No more over-invoicing, or whatever it is called. To that extent, removal of fuel subsidy is desirable.

But, then, we ignore the larger issues. What makes fuel subsidy corruption so easy? Should we deal with the corruption or make the people pay the price instead? Should we visit the sins of economic criminals on the innocent citizens? This is where a lot of us are unable to reach an agreement. Some will argue that the only way to deal with this corruption is to remove the incentive: subsidy. If there is no subsidy, there is no claim. If there is no claim, there is no over-invoicing and round-tripping. Since the sleaze is engineered by government officials in collaboration with their cronies in the endemically corrupt private sector, ending the subsidy regime effectively puts an end to the bizarre bazaar. This is not a bad argument at all. But if we have to follow it through, we may soon privatise our rotten police force. How can you tell me that the only way to cure headache is to cut off the head?

I’ll now make my point. Or points. One, the corruption in the subsidy regime was possible because government endorsed it. In fact, government was responsible for it. To start with, fuel import licences were allocated politically. There was a whole chain of patronage and kick-back mechanism. Two, this corruption, as difficult as it sounds, can be dealt with. I have it on good authority that when Mr. Reginald Stanley became the Executive Secretary of the Petroleum Products Pricing Regulatory Agency (PPPRA), he—within two weeks—substantially cleaned up the place. The volumes of import being claimed by the buccaneers reduced drastically. The real daily petrol consumption went far below the 42 million litres we had been subsidising for ages. It means we can actually confront this monster if the government is sincere about it.

Three, we keep saying nobody will build refineries without deregulation. That is a wrong conclusion. If government issues a deadline to those drilling our crude oil today to build refineries or quit our shores, you will see a difference. It is all about whose interest we are protecting. It’s our oil and I don’t understand why we should be the underdog all the time. The way things are done in this country, I don’t expect anybody to build refineries. And without refineries being built, deregulation will not mean anything at the end of the day. Diesel market was deregulated seven years ago—how come nobody has built refineries for diesel since then? Petrochemicals were never regulated—how come Nigeria is not filled up with petrochemical companies? Deregulating petrol is therefore not a magic wand. It takes a patriotic and activist government to deal with these issues in a way that will produce results.

Four, government cannot be preaching sacrifice to Nigerians while its wasteful spending continues. It is criminal how government officials continue to feather their own nests while preaching sacrifice to us. They never cease to travel first class all over the world with a retinue of aides. It’s crazy. The message of sacrifice will be better received if government officials lead the way. Let us all make this sacrifice! You can’t be drinking champagne and preaching sacrifice to someone drinking “zobo”. There is nothing we would gain from subsidy removal that we cannot gain from reducing recurrent expenditure and other wastes. Five, in removing the subsidy, government obviously did not prepare any “palliatives” (I hate that word) ahead. Amidst public protests, President Goodluck Jonathan summoned an emergency cabinet meeting after which it was announced that government was going to buy 1600 buses. I’m not even interested in the details of whose buses they actually are. If government was really thinking ahead, the buses should have been on the road days or weeks before the removal of subsidy.

Finally—and this is where I’m going—I believe that we can manage the subsidy regime until the conditions are properly designed for deregulation. We were told that the subsidy bill for 2011 was N1.5 trillion. For the life of me, I can bet that the actual figure was at most a third of that. I am basing my assumption on previous spending even when crude oil hit an all-time high $147 per barrel (although with a better exchange rate which still does not account for the huge gap in subsidy payments last year). Governments at all levels must trim their wasteful spending by at least 50 per cent. The twin strategy of tackling the subsidy fraud and cutting wasteful expenditure will free up a lot of funds for development. We can spend the savings on improving infrastructure and preparing the ground for a well-programmed deregulation.

Deregulation is a fantastic policy that can unfurl our oil and gas potentials, create millions of jobs and spark off economic growth and development if properly planned and implemented. We can truly begin to enjoy being an oil-rich nation. But so far, I am not convinced that this government has properly thought it through. A good policy with good intentions that is badly implemented will end up a big disaster.

And Four Other Things...

IBB’s Timing
The fuel subsidy struggle has gained an activist. His name is General Ibrahim Babangida, former military president – who increased fuel prices in his first budget on January 1, 1986. Commenting on the January 1, 2012 increase in petrol price, IBB said: “It is my opinion that it is ill-timed. The issue of subsidy should be seen more as politics and not economics, because the sole purpose of government is for the good of the people and not to create hardship. It is better to seek political solution to the subsidy discourse than invoking the sentiments of economics.” This is one of the most interesting ironies I have ever witnessed in my lifetime. In the days of IBB as president, those who raised issues about political economy when criticising his policies were branded “radicals” and hurled into detention. IBB’s latest statement, carefully released when Nigerians were seething with rage over fuel price hikes, was well-timed. He’s now officially the defender of the masses. Smart guy.
 
‘Fela Don Come Again!’
Since the latest round of fuel subsidy crisis broke out, I have not read or heard a more robust take on it than the one international motivational speaker, Mr. Fela Durotoye, posted on facebook. In case you missed it, here are excerpts: “I have heard some preposterous arguments that the removal of the fuel subsidy will be justified by wise investments that will benefit all… how will a wasteful government suddenly realise the genius of prudence and making the right investment decisions simply because there is more money available from oil subsidy removal? Have we sought to honestly find every way we can plug wastage in our leaking economy before we ask a feeble populace to carry the burden of corruption and gross ineptitude of a few gluttons? Have the Presidency, the state and local governments and the Legislature discovered how to travel without a convoy of 20 cars to the airport? How come our 'leaders' in government earn so much and still spend so much furnishing the same houses and offices they furnished with our money last year? Do you furnish your office every year?” Another Fela is here with us!
 
Petragony (Petrol Agony, that is)
As soon as I learnt that fuel was going to sell for N141 per litre, I started strategising with my driver on how I would psychologically tune my mind to the new realities. I said I would be topping up my tank with N3000 fuel regularly, rather than fork out N13,000 at a go (on an empty tank). Day One: I still had above half tank, so I estimated that I could top up with less than N2000. Guess what? It ended up costing me N5000! I had never been that reluctant to open my wallet all my life! If crude oil prices eventually hit $120 0r $130 this year, I hope my N5000 would be able to buy four litres! Meanwhile, a friend of mine said he branched at a filling station and asked the attendant to sell N2000 worth of fuel to him—that was all he had in his wallet. The attendant filled up the tank, having misunderstood my friend. I won’t tell you how it ended—but it was quite embarrassing.

Those US ‘Experts’
Western countries have all kinds of experts specialising in all kinds of topics. I always find it bemusing reading articles from former US Ambassador to Nigeria, John Campbell, who specialises in churning out dangerous halt-truths and jaundiced analyses on Nigeria. There is now a female version, Prof. Jean Herskovits of New York State University, who did a fantastic job of suggesting that Boko Haram may not be responsible for the growing bomb attacks in the country. It’s curious because the pattern of attacks is the same; the targets are the same; and the channels of passing information to the public to claim responsibility are the same. There may be the odd attack not linked to Boko Haram, but an exception does not become the rule. Boko Haram itself claims responsibility and we are supposed to say: “No, it’s not you”! Reminds me of when MEND claimed responsibility for the October 1 bombings and President Goodluck Jonathan said: “No, It’s not you”…

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  • My eyes have calmed down after reading your article. Over to my legs, they're are ITCHING for tomorrow's showdown with Jonathan & his cohorts. We're not asking for subsidy reversal. We want CHANGE, now or NEVER!

    From: Max

    Posted: 2 years ago

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  • I think that the mistake has been made by the president by not at least providing the so called palliatives before removing the subsidy.it all demonstrates how shallow minded ,uncaring and insensitive our economy managers are.i still insist that the president with his promise of reducing the overhead by 25 percent can still do more,he can suspend action on the 7 billion naira mansion for the vice president reason being that we are broke,he can reduce his budget for food,it is outrageous the 2 mercedes benz cars can wait,let him manage the available ones in the presidential fleet and then sanusi lamido who has been dishing out all the economics should have a second thought on the 1 billion residence for the CBN governor,if he doesn't do do that then he doesn't have any moral ground to be throwing tantrums on other fellow thieves.he that comes before equity must come with cleans hands and maybe the president can begin to make inquiries as to why the 300 million dollars spent on the port harcourt and kaduna refineries could not turn around the refineries,if i pay a man for a job and he fails to do I'll take him to court for breach of contractual agreement.government ain't father christmas.I think Nigeria would not have been broke if we have leaders that are out to fight corruption.At the heart of all this mess is corruption and government is yet to convince us that it's interested in fighting corruption if not why have we buried the Halliburton and siemens cases under the carpet.The failure of government to go after the thieves in the land is like an incentive to others to be corrupt.And to labour going to strike might not be the way out.let them engage government in serious negotion to ensure that the palliatives kick in as soon as possible

    From: oduna austine

    Posted: 2 years ago

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  • Well said! This is the best article I ever read on subsidy saga but i hope you dont turn soon to another Reuben Abati.

    From: Niyi

    Posted: 2 years ago

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  • O Allah! Enable our President to act by what You love and what pleases you, and lead him by his forelock to righteousness and piety. O Allah! Grant him Your guidance, and be pleased with his deeds, and grant him a guiding, righteous inner sense that guides him and helps him to what is good for the good of Nigerians. O Lord of Majesty and Bounty deliver him from the antics of state enemies.

    From: Abdul

    Posted: 2 years ago

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  • You have said it all and most of us knows this bitter truth for long. They can't keep deceiving us. We are wise now and will fight them to stand still. Jonathan should not allow what happened in the Arab world to happen to him. You deceive the people sometime but you can't deceive them all the time. It is now or never. This criminals must be chased out of office. They have wrecked our lives for a long time even those that are later days saints. God will punish them one after the other and their generation will have no peace.

    From: Ikuku

    Posted: 2 years ago

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  • Interesting piece! Unfortunately, the president has not thought through this program causing him to admit that the deregulation (excl. kerosene) is not the actual fix for the economy.
    I believe that..
    (1) The beneficiaries (famously called cabals) are too powerful to be prosecuted by GEJ causing him to take the perceived easy way out.
    (2) IBB and OBJ are probably part of the beneficiaries of the subsidy (directly or indirectly) causing them to speak against it. I don't believe they love the country so bad to be on the side of the people.
    (3) GEJ does not have any serious economic plan causing him to depend solely on Ngozi Iweala.
    (4) Ngozi Iweala and her troops are working to give us an American styled economy that does not fit our culture and educational status. A nation whose economy always defy all known economic theories!
    I am not confused in my belief that the current level of corruption (which will increase with this new policy) will consume the nation in the next 3 to 5 years if not checked. Nigeria is so rotten now that the stench is gone far and wide.
    I weep and pray for my beloved country..

    From: Wale Olaitan

    Posted: 2 years ago

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  • In preparation for the strike, I called my diesel supplier to come dispense some liters for me. To my chagrin, he said a litre of diesel is now N175!!!. Is the deregulated diesel market being further "re-deregulated? That is why the argument in some quarters that in six months time, market forces will bring down cost of pms below N100 is laughable. In Nigeria, anything that goes up never comes down, and the hawks who are deregulation masters will keep the prices above the endurance limit of the masses. God save Nigeria.

    From: Yinka

    Posted: 2 years ago

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  • Nice write-up as usual. I pray you don't follow in the steps of the Abati's and Adeniyi's of this world.The world needs honest journalists. Thank you for speaking the truth.

    From: Peter Adeniyi

    Posted: 2 years ago

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  • Simply demonstrating against fuel price hike is not optimal. The time has come to compel government to do the right thing in all policies. This is the time to let government know that we are completely exhausted about everything.

    From: Philemon Adjekuko

    Posted: 2 years ago

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  • If the badly planned telecom sector turned out to yield some good, then I believe this subsidy removal too and the deregulation policy no matter how badly planned will yield some good too.... Things are so bad with govt regulation that any private sector intervention turns out to bring out the best in nigerians... I remember Nitel and now think of mtn, glo, celtel etc etc and all the good they have done ...... Hmmmmm... Let the heavens fall, but let's stick to the subsidy removal....

    From: Preye

    Posted: 2 years ago

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  • The implementation was an absolute kindergarten thinking and approach , deregulation is fantastic but there are no incentives install to tackle the actual debilitating and poverty stricken conditions that Nigerians live in today...This is an absolutely ridiculous way of implementing an economic plan as demanding as deregulation...i think GEJ should reverse and put prudent strategies in place before implementing the deregulation process....

    From: Bolaji vince

    Posted: 2 years ago

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  • My name is Goodluck ( not Jonathan ). I am finding it difficult to tell people my name in public as i get verbally abused now. I can now see what's in a name but my most famous name sake is making it tough for me. Anway Goodluck i wish you Goodluck

    From: Goodluck I.

    Posted: 2 years ago

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  • Good writing that added little to the discourse and amounts to a masterful stroke of fence-sitting. He's pro-subsidy but would support removing subsidy if... The 'populist' Simon Kolawole restates the banal in painstaking detail. He also asks trite questions about refining to delight the proletariat as though it is possible to refine crude and produce ONLY PMS or ONLY diesel. Refining is an entire ecosystem. As a manufacturer, if I cannot assure myself that I have price freedom with ALL products, why bother to establish a refinery at all? Instead I'll see what service I can give the entrenched rent-seeking round trippers and leave your country's petrochemical industry to rot. Otherwise explain why a business-minded refiner would not kill to enter a captive market of 160 million people? However, one gem from the article that I relish is the term 'bizzare bazzar' which he used to describe the entire infrastructure whose manipulation accounts for 85% of Nigeria's corruption by economic weight. I believe by tackling it head on, the government is giving the participants and beneficiaries very little room to maneuver.

    From: Ebi

    Posted: 2 years ago

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  • On IBB: Can this decayed system of political patronage that continues to haunt us till this day not be traced back to IBB? He it was who corrupted almost everything and everyone with a form of Midas-like malevolence. HE has a nerve to speak about timing! A person who couldn't observe the proper TIMING to leave office after ILLEGALLY barging his way into office via a MILITARY COUP! That he's not behind prison bars today is a testament to the forgiving nature of Nigerians. He should thank his God and SHUT UP PERMANENTLY!

    From: Ebi

    Posted: 2 years ago

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  • I wonder why no body is talking about power supply as part of the negative implication of the fuel subsidy removal or do we now have 24 hours electricity in Nigeria? Infact that was not even mentioned in the subsidy removal debate as part of their agenda. why is everyone focusing on transportation? dont we need to buy fuel/diesel for the generators seeing that we dont have constant electricity.

    From: uzo

    Posted: 2 years ago

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  • I wonder why no body is talking about power supply as part of the negative implication of the fuel subsidy removal or do we now have 24 hours electricity in Nigeria? In fact that was not even mentioned in the subsidy removal debate as part of their agenda. why is everyone focusing on transportation? don't we need to buy fuel/diesel for the generators seeing that we don't have constant electricity.

    From: uzo

    Posted: 2 years ago

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  • It is my considered opinion that the President has brought disaster to himself. I do not know why African leaders never respect the very people that voted them to power. Here are the issues i have and you dealt with one of them: when Diesel was being deregulated, we were told that the savings will be used to build good roads for the trucks etc, where are the roads, almost 4 years after the deregulation. When we were paying the dubious $30Billion loan to Paris club, Mrs Iweala said the savings from yearly debt servicing will go to infrastructure, where are the infrastructures more than 4 years after. What we got for all these was a bloated allowances for our leaders. We are really not demanding that petrol should go back to N65. We are simply saying the GEJ government has lost the moral right to continue to govern us, we will not stop until we sack his government. This will serve has a tererant to future self-serving government that we have woken from our slumber and that we will now begin to fight and demand for our rights.

    From: oloriebi

    Posted: 2 years ago

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  • We are all making noise about the wrong things. We should be asking the govt to CHANGE and end Corruption. Subsidy removed from PMS can and should be use in other areas. We can even start a fuel subsidy voucher system that is directed to the poor and business owner. Please let's be educated about all this. The reason why nigeria is poor and suffering does not only lie with the govt, its with the people too...we are a very very very corrupt people. Why didn't the NLC and all these people go to strike about corruption before all these. Why now? If these so called community leaders had fought the govt last year about corruption and demanded to see action and justice we would not be crying about subsidy. Nigerians open your eyes. This article is well written, but my questions to the author is simple. How can we do the same thing and expect a different result? If this does not work, can't subsidy be put back? Why don't we give it a time frame and then react? Finally is the power better in your area country? If the answer is yes, then stop complaining and find ways to help your country.

    From: stanley

    Posted: 2 years ago

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  • Brilliant essay, dear compatriot. Politicians all over the world are known to be corrupt, but sheer patriotism drives them to take decisions that are in the best interests of their countries. The worst thing that can happen to a country in this era of global competitiveness is to be led by politicians who lack patriotism. This is our lot as a country.

    From: Chima Nwanguma

    Posted: 2 years ago

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  • Enough is Enough!

    From: Oyin

    Posted: 2 years ago

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  • all said by all.why are we crucifying GEJ.Is it not the same GEJ and PDP that some people voted "popularly" due to stupid sectionalism rather than patriotism.Those who voted PDP in April knew deeply in their hearts that things will only get worse with GEJ and PDP and yet they went ahead and voted stupidly.Let them shut up and live with what the bought by themselves with their thumbs.in this country,we know who can fight the cabal,we know who can fight the corrupt people,we know who can fight western economic imperialist,we know who has the interest on the masses,yet we deny our selves the truth.Then we keep suffering.this is just the beginning.MAY GOD SAVE NIGERIANS!

    From: Nigerian

    Posted: 2 years ago

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  • Fantastic Article....truth is Fuel subsidy removal is not what we need now. After listening to GEJ's broadcast on the "palliatives" that government has decided to make available so that the burden of fuel subsidy removal be reduced on the "ordinary Nigerian", I came to the conclusion that GEJ truly has no idea of what he is talking about. How do u explain his logic in saying that building a railway from Maiduguri to Port harcourt would help alleviate the economic burden caused by the fuel subsidy removal, or that the reduction of 25percent of basic salaries of certain govt. officials is going to mean anything when we all know that other allowances would continue to remain, a perfect example is "the famous furniture allowance". I say NO to fuel subsidy removal now!. Let us put our house in order first!

    From: Ruth

    Posted: 2 years ago

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  • SIMON, LET ME QUOTE YOU BEFORE I COMMENT: "The briskest business in town—where you could become a multi-billionaire in just one transaction—was fuel importation. The removal of subsidy now means nobody goes to Abuja to make claims for it anymore. No more N1.5 trillion dubious payments. No more over-invoicing, or whatever it is called. To that extent, removal of fuel subsidy is desirable".

    THIS IS NOT SIMPLY THE CASE. FOR IF IT WERE, MANY WILL NOT PROTEST THE "REMOVAL".
    HITHERTO, EACH TIME A LITRE WAS BOUGHT, THE INDIVIDUAL PAID N65 WHILST GOVT PAID N85 WHICH BROUGHT IT TO THE SUM TOTAL OF N140.00 PER LITRE. GOVT'S OWN N85.00 AMOUNTED TO N1.39 TRILLION PER ANNUM. NOW GOVT SAYS IT WILL NO LONGER PAY ITS OWN N85.00, THE CITIZEN SHOULD BEAR ALL THE N140.00. BY THIS ACT, GOVT IS MERELY "HANDING" US "OVER" TO THE IMPORTERS. THE IMPORTERS ARE STILL IN CHARGE. WE ARE AT THEIR MERCY. WITH THIS "HAND-OVER" THEY ARE GUARANTEED OF OUR CONTINUED SERVITUDE UNDER THEM.

    WORST OF ALL, AS SANUSI SAID IN THE SO-CALLED TOWN HALL MEETING IN LAGOS AND SUPPORTED BY THE PRESIDENT IN HIS DECEMBER 2011 MEDIA CHAT, THE FIGURE, N1.39TRILLION THAT TRANSLATES TO N140.00 A LITRE IS PRODUCT OF FRAUD AND ROUND-TRIPPING, TO USE MR PRESIDENT'S WORD. BUT GOVT HAS BEEN WEAK IN REMOVING THE FRAUD ELEMENT SO THAT WE PAY THE REAL SUBSIDY, WHICH WE ARE NOT AGAINST.

    SIMON, YOU ARE DEAD WRONG THAT THIS TYPE OF "REMOVAL" HAS REMOVED DUBIOUS MARKETERS AND THEIR COLLABORATORS IN NNPC/PPRA IN BUSINESS. INSTEAD THEIR BUSINESS IS NOW GUARANTEED.

    From: Okey

    Posted: 2 years ago

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