How Fuel Subsidy Removal Can Have Meaning


Let us start with the premise that, the primary purpose of government is the security and welfare of the people – Section 14(2)(b) of the 1999 Constitution of the Federal Republic of Nigeria (as amended) (the Constitution), while it is the duty of government to, inter alia, promote national prosperity, an efficient, dynamic, self reliant economy, and a planned and balanced economic development (Section 16(1)(a) & (2)(a) of the Constitution). It is most definitely time that Government starts to live up to this responsibility, instead of only making policies which are the most obvious lowest hanging fruits, and which inflict untold hardship on Nigerians. I do agree that, at times, Government may find itself between a rock and a hard place, but it seems that in taking some of these hard decisions, Nigerians always end up with the short end of the stick. Government must find a way to get the right balance, that is, to create policies which consider the present suffering of the people and our future benefits. But, be that as it may, can the recent fuel subsidy removal be classified as one of those situations in which Nigerians have been shortchanged yet again by Government, or is it in the best interest of us all this time around?

Nigeria’s Fuel Subsidy
Granted, the fuel subsidy was not introduced to Nigeria by President Buhari’s Government. No, it was introduced decades ago, in the 1970s. But, it has stayed on for so much longer than it should have. As a student of Economics, I was taught that the concept of subsidy does not particularly promote or enhance economic growth; it actually encourages stagnation – one reason being that money that should be spent on building infrastructure and developing the economy, is diverted to fund the subsidy. With that knowledge therefore, the only logical conclusion that one can make from this concept is that, in the event that Government decides to subsidise something, it should be a temporary measure, a sort of stop gap on the way to the achievement of a particular permanent goal, and not a permanent goal or practice in itself – like the way and manner in which fuel subsidy became a permanent fixture in Nigeria,

One definition of subsidy is that, it is a contribution by Government to keep the price of a product low and make it easily affordable for the people. It can be in form of Indirect (tax holidays, low interest loans) or Direct subsidy, as we saw in the case of fuel, where Marketers imported the product at the international market price, the Government fixed the price lower than the international market price, and paid the Marketers the difference between their landing cost and the Nigerian price fixed by the PPPRA – that is, the Government used tax payers’ money and other revenue, to cover the difference/losses.
With regard to the fuel subsidy, it should only have been sustained while the Government put our own refineries in working order within a specified timeframe, and then start to do some type of vertical integration, that is, extract and refine our own oil into petroleum byproducts, including petrol, bitumen etc, create employment while so doing, generate revenue by exporting the byproducts (as well as crude oil), while possibly keeping our own petrol prices down. And within the shortest time possible, not only would the country have positive economic growth from these activities, the trillions wasted on the continued subsidy would be ploughed into healthcare, education and so on. Once this goal had been achieved, in the event that maybe the price of petrol couldn’t be kept as low as Government had been fixing it for decades (since the jury is still out on whether, even if we refined our own oil, the process would be cost efficient enough to keep the prices that low), with a more buoyant economy, people would still have been able to somewhat afford it.

A Money Making Scam
Alas! Sadly, the above was not the case. It turned out to be one of the biggest money making scams in the history of Nigeria, and because of corruption in high places, there was absolutely no incentive to stop the subsidy or get our refineries back on track, despite the billions of Dollars expended and wasted on their so-called turn around maintenance, with no tangible results.

Many have been accused of duping the Federal Government of mind boggling amounts, not just for rehabilitation of the refineries, but in the uncountable subsidies paid to those who failed to import any products, or under-imported or brought in cheap fuel; and it is alleged that, sometimes these scammers went as far as presenting forged documents showing that they imported the right amount of products, when in fact this wasn’t the case; based upon which they were reimbursed by Government. The Federal Government failed to utilise its agencies, to monitor the activities of the Marketers effectively, or at all.

Statistics show that between 2010 and now, Nigeria spent N20 trillion or more on fuel subsidy. In 2011 or so, Importers were said to have been paid for over 55 million litres of petrol, over 20 million litres more than was actually imported – about N2.5 trillion (over $16 billion at the time) equivalent to over half of Nigeria’s budget! In 2019, Government was said to have spent N1.5 trillion on fuel subsidy, about $3.9 billion (at the rate of N380 to $1), and in the first quarter of 2020 alone, over N500 billion (approximately $1 billion). If we estimate that we would have expended N2 trillion on fuel subsidy for the whole 2020 (especially with the decline in the value of the Naira), that is in excess of $4 billion (at the rate of N470 to $1). In practical terms, Nigeria funded the fuel subsidy for the past two years or so, at the expense of building the Lagos-Ibadan and the Ibadan-Kano railway, possibly without taking a loan from China!

The sum and substance of it all is that, under the guise of ‘cheaper’ petrol for the masses, the pockets of corrupt Marketers, Government Officials and their cronies have been handsomely lined. In the simplest terms, the opportunity cost of the fuel subsidy, has been qualitative education, health care, roads, railway, electricity and other social amenities. In fact, some argue that the fuel subsidy was more beneficial to the rich than the poor – as they are the ones who have five cars on the road at the same time, which they fuel cheaply. And, while we don’t know whether the money used for subsidy would have been put to the best use even if it was available (as Government would have us believe), if we choose to give Government the benefit of the doubt or accept laid down economic principles, then Nigeria would be in a better position than it is now.

I will nevertheless, not be too quick to give this administration a bronze medal for this step they have taken, though it may be a step in the right direction, because, though there’s never a good time to take hard decisions and the say, ‘better late than never’, the timing of this subsidy removal is not the best, as already, the negative effects of the Covid-19 pandemic, coupled with the sharp drop in oil prices will be felt by Nigerians for years to come, let alone this added burden.
Why didn’t President Buhari’s Government which came into office in 2015 on the mantra of war against corruption and revamping the economy, remove the subsidy immediately it assumed office, as this was one of the most obvious places to start from? Because, it was probably not politically expedient to do so at the time! And now that it has been implemented, it is at the worst possible time – when there’s already so much suffering and despair in the land.

My Dilemma: The Nigerian People
Herein therefore, lies my dilemma – the effect of the increase in the price of petrol (and electricity tariff, simultaneously) on the already downtrodden people; and the inflationary multiplier effect on us all. Certainly, it will translate into increase in prices of everything; yet, just as jobs are being lost, salaries are being slashed because of the recession/depression; and because of the pandemic, commerce is at one of its lowest ebbs – in short, our purchasing power has already been greatly diminished, now, more so with deregulation. Of course, if the price of oil falls on the international market, this will also be reflected in the price of petrol which should automatically fall. But, the question still remains – having failed to get our refineries up and running due to various factors, including outright theft and corruption, why is it only the masses who had no hand in the failure, the ones that are bearing the brunt of the Governments’ gross dereliction of duty? It seems so unfair. What palliatives will Government provide for the people, to soften this blow of hardship?

Purported Illegality of Deregulation
For those who cite provisions like Sections 6(1) of the Petroleum Act and 4(1) of the Price Control Act which empower the Minister of Petroleum and the Price Control Board to fix the price of petroleum products, including fuel, I wonder whether these provisions can stand vis-a-vis the provisions of Sections 14 and 16 of the Constitution, seeing as the fuel subsidy does nothing to promote a self-reliant, productive, dynamic economy, nor is it in the long term interest and welfare of the people. On the contrary, the non-stop importation of an essential commodity like fuel makes us dependent on the countries from which we import from, puts more pressure on the demand for foreign currency to fund the importation, has adverse effects on our balance of payments in the long run, while it in no way enhances our incentive or capacity to refine our own crude oil, or promote economic growth and development. I submit therefore that, to the extent that the afore-mentioned Petroleum Act and Price Control Act allow for the fixing of fuel prices accommodating the subsidy, they are possibly inconsistent with Sections 14 and 16 of the Constitution, and null and void to the extent of their inconsistency, as in this particular circumstance, price fixing cum fuel subsidy, fail the test of the constitutionally provided economic objectives of the State.

Going Forward
Deregulation/Subsidy removal will be a farce, if there are no bona fide gestures by Government, to confirm that they too, are tightening their belts as Nigerians have been made to do. What is the essence of saving money hitherto wasted on subsidy, only to use it to pay NASS members and selected Government officials exorbitant salaries, or to give NDDC more money for their officials and contractors to steal, or to fund useless recurrent expenditure, or the unnecessary high cost of governance generally? None. Everybody must sacrifice. And, for those who argue that things like expenditure on cars for Government officials is negligible in the scheme of things – I beg to differ – it all adds up; if it didn’t, we wouldn’t be spending in excess of 50% of our budget on recurrent expenditure.

This new measure, must also be accompanied with good policies and accountability. Take for example these loans that we are taking recklessly from China, why can’t we instead, form some sort of partnership with China, whereby they harness the gas which we are flaring and wasting, we share the profits until they realise the money they have borrowed us with whatever interest accrued thereon, and then they hand over our asset to us? It would be a win-win situation for all; we will build our railways etc, harness our hitherto untapped gas resources, have a cleaner Niger Delta environment, while China gets its money back.

Loans don’t always have to be about cash payback – there’s trade by barter too. There is an oil glut in the world presently; OPEC is restricting production and the world seems to be trying to move away from oil – why then, should we be wasting scarce resources prospecting for more oil in the Chad basin because of tribalism and sectional interests, when another low hanging fruit – gas, can be harnessed for profit immediately?
My point? If the savings from the removal of subsidy are not applied properly to infrastructural development and other ventures which are beneficial to Nigerians and the nation as a whole, and we do not start to see some dividends therefrom as soon as possible, but, instead, the savings are looted and wasted, the suffering and sacrifices of the people will be in vain, and there will be no progress in the country. But, in the meantime, Government must take urgent steps to implement measures that will assist Nigerians through this extremely difficult time.