Fuel subsidy: Nigeria heading in wrong direction –Onyekpere
The Federal Government recently reversed its earlier decision to remove fuel subsidy by the middle of the year and instead extended the policy for 18 months. In this interview, Lead Director, Centre for Social Justice, Eze Onyekpere, examines the issues and tells ONWUKA NZESHI that it’s a wrong step and a booby trap
What are your impressions of the recent pronouncement of the Federal Government on fuel subsidy removal?
Let me start by saying that the challenge of resolving the fuel subsidy imbroglio is very far from being over. What has been done is a loss for both the government and the entire society. It is a loss whether you belong to the organised labour, civil society or even the private sector. This is because we simply continued in the wrong direction.
The opportunity provided itself for a critical thinking through, reconsidering everything afresh, putting everything on the table, dissecting them and deciding the best way to solve this problem. Let me put it on a better nuanced context. Between January and November 2021, the Federal Government had retained revenue of N4.3 trillion.
This is all the money it earned from taxes as well as sales of crude oil and gas. Out of this, it used N4.2 trillion to service debts, which means what was remaining was about N100 billion and within that same period, the Federal Government spent N3.05 trillion to pay salaries of civil servants and political office holders.
In essence, after debt servicing, the total money remaining in the coffers of the Federal Government could not pay one month’s salary. So about 98 to 99 per cent of the money used to pay salaries was borrowed and of course the money they used for capital project was also borrowed.
Now, if Nigeria were a private sector company, it would have gone for bankruptcy and declared insolvent. If it didn’t want to do that voluntarily, its creditors would have assessed its capacity to pay back its loans and if they come to the conclusion that the way business is going, it cannot pay back, they would have asked for the liquidation of the company so that they can see how they can reduce or minimise their losses.
What does this situation mean for Nigerians?
You have a government that is virtually bankrupt and is in dire need of massive cash or monetary injections for it to be able to stay afloat. On the other side of it, you have a pauperised and impoverished citizenry which the government that, through its various policies and mismanagement of the economy, has brought into penury.
The standard of living has gone so down that the GDP that we had in 2015 has virtually reduced and the disposable income of the average worker has been reduced to nothing.
This low purchasing power stems from the fact that the exchange rate of the naira has depreciated and there is heightened inflation. The worst part of it is the food component of the inflation which is making it difficult for people to buy food and other basic necessities. If it were inflation on luxury goods, it would have been understandable In essence, the government is cash trapped and the citizens who are largely on their own are struggling to even eat.
This is also compounded by the security situation. So, you have a battle of two frustrated groups: the government’s frustration is self-inflicted but the citizens are victims of the cluelessness, incompetence of the government and of course total disregard for the humanity of others in the leadership of the country.
What’s the way forward from this situation?
Now, I wear two hats. One of the hats is that of a citizen of conscience who wouldn’t want unnecessary hardship inflicted on the people.
That first hat is somehow a bit contradictory to the other hat that I am wearing, which is the hat of a public finance expert who wants the right things to be done to preserve the economy. In the last couple of years, I have, in my writings and other engagements, advocated for the removal of fuel subsidy and I have no apologies for taking that position.
So when I saw the scenario that I earlier painted, my position was to provide solution and the solution was some form of reengineering, rearticulating and reconsideration of the subsidy we have now.
I was for the removal of subsidy in its current form because there can be various forms of subsidy. What we have is a subsidy on consumption which to an extent, is negative. It is a race to the bottom, not a race to the top because we are consuming a product we are not producing. By the time we import refined fuel, we are creating jobs in refineries in foreign countries.
We are using Nigerian money to pay those companies for them to pay corporate income tax in their own countries. We are neither developing our local technologies nor rehabilitating our refineries. So, I wanted that subsidy on fuel importation and consumption stopped. Then, I wanted us to change it to subsidy on production.
How would that work?
The Federal government has two options if they buy into the idea of subsidy on production. First, they could go on with subsidising petroleum importation until the third quarter of this year (2022) when the Dangote Refinery is expected to come on stream. I do not know what kind of rebates and concessions the government may have granted him already but, in the national interest, they could grant him more concessions by selling crude oil to him not at the market rate of about $80 per barrel but at about forty to fifty percent of the market price. Can we afford to do that?
The answer is yes, because the one we are going to give him will not be part of our OPEC quota which we sell to the international market to earn foreign exchange. Moreover, crude oil is an asset that is going to become useless in the next couple of years. With the advent of climate change, transition to renewable energies and invention of electric cars, most countries in Europe are already fixing deadlines on when they are going to phase out internal combustion engines.
This will mean a reduction in the demand for crude oil. So the earlier we can use it to solve our present day problems, the better for us all. The second option which appears impossible would have been to rehabilitate all the refineries and either run them as government enterprises or privatise them.
You know that previous efforts to privatise those refineries did not go down well with some Nigerians. President Olusegun Obasanjo tried it when he sold the refineries to Dangote and Otedola and there was an uproar that they were sold to friends. The labour people said the sale should be reversed and handed over to them to run.
They claimed that the refineries would work once they did the Turn Around Maintenance (TAM). Of course you know that TAM has been a way of siphoning money into private pockets.
Between the tenure of Obasanjo and the present government, there are reports that over $190 million has been sunk into TAM but not a single refinery was turned around to production. Rather, what was turned around were the pockets of the TAM contractors and their masters on the corridors of power. So it is not an option.
How would selling cheap crude to Dan-gote Refinery, a private concern, benefit Nigerians?
By the time Dangote Refinery gets crude oil at a cheaper rate and refines for local consumption, it removes the cost of freight, insurance and handling charges that would have been incurred if the fuel were imported. In that way, we would maintain the pump price of fuel at its current official rate or a little above it. So it would have been a win-win situation for the citizens because they will continue to buy fuel at the current rate and for the government that will now spend less on subsidy on consumption. If we were spending about N1.2 trillion on subsidy annually, we can target N500 billion which is relatively.
So, I was for the removal of subsidy and reinstatement of subsidy in another form where it will help us increase local refining capacity, create jobs and save foreign exchange.
How do you see the N3 trillion budget which the NNPC has submitted as cost for the extension of fuel subsidy by 18 months?
The subsidy we are actually paying should not be as much as what they are claiming. It is curious that as soon as the Federal Government announced that it will no longer remove the fuel subsidy, the NNPC quickly came up with a bill of N3 trillion for funding the scheme for 18 months.
For the first time, the state governors started shouting and invited labour to a dialogue so that they could speak with one voice. They had earlier budgeted N443 billion for the first six months of this year and I believe that budget was based on some projections and calculations. I assume it was based on empirical evidence.
Assuming the initial figure was N450 billion, if you wanted to extend it to one full year, it should have amounted to N900 billion and if you do another six months which will mean additional N450 billion, we would have been talking about N1.35 trillion. So how did they arrive at N3 trillion? This is fraudulent. This is barefaced stealing based on blackmail. Its like they sat back and said: Since you people don’t want us to remove the subsidy, you have to bear the brunt.
What I’m saying is that what NNPC is claiming as a subsidy is over exaggerated, it’s fraudulent and if it is properly investigated, Nigerians will call for those who are doing it to face a firing squad.
Why do you think the figure is fabricated?
In 2015, we had an economy that was worth about $5.7 million in GDP. Thereafter, the economy suffered two recessions and several factory closures. Manufacturing went down and unemployment soared to 33 per cent, the highest level since the creation of Nigeria.
Among the youths, the unemployment rate got as high as 55 per cent and this has led to more insecurity across the country. During the last days of the Jonathan administration, the fuel subsidy regime put our daily fuel consumption in the range of 35 million litres per day and Nigerians shouted that it was too much.
Six years down the line, the government of the day is claiming that fuel consumption has risen to 65 million litres per day, which means an additional 30 million litres. Which economy is supporting this bogus figure? I say without equivocation that that does not reflect the truth of our fuel consumption because that 65 million litres is enough to power the whole of West Africa and that appears to be what is happening.
The Nigeria National Petroleum Corporation (NNPC), Nigeria Customs Service, Department of State Services, Nigeria Army and other agencies have already agreed that there is massive smuggling of fuel from Nigeria to other countries. So we are paying these organisations and agencies without getting value for our money.
Don’t you think that the decision to sustain the subsidy on fuel was more of a political move?
The government of the day was thinking that the opposition was going to use the removal of subsidy against it because President Muhammadu Buhari had earlier said that subsidy is a fraud. But he has not only continued the fraud but has doubled it. So what I’m saying that government going away from the table without getting to the bottom of the subsidy issues was a massive way to continue the fraud.
The Nigeria Labour Congress (NLC) which has also abandoned the struggle, thinking that it has won the battle was wrong. It was therefore a loss to both labour and civil society. We had an opportunity to dig to the bottom of the issues.
The NLC should have pressed further down and demanded a proper investigation into all the claims of the NNPC and the Federal Ministry of Finance on the management of the fuel subsidy scheme under this administration.
You’ll recall that during the days of Jonathan, the National Assembly set up a panel to probe the management of the subsidy scheme.
At that time, the Peoples Democratic Party was in power both at the executive and legislative arms of government yet, they looked their own officials and their cronies in the face and conducted a probe in which some of them were indicted. Some of them are still being prosecuted while some have gone to jail for it.
Now where is the All Progressives Congress (APC) in all that is happening today? They have simply pushed the problem to whoever takes over from the current administration. This was an opportunity missed by both the government and labour to resolve the subsidy issue once and for all. So, as it is, there is no winner; we are all losers.
Do you think the subsidy scheme can be sustained without injuring the economy further?
I’m not a prophet of doom but, I’m looking at the figures. This year, we may likely need to add to our retained revenue to be able to service the debts we’ve already accumulated. If we get N4.3 trillion as retained revenue as we had the previous year, it may not be able to service our debts.
So we may need to borrow to fulfill our obligations to our creditors.
Debt servicing may rise to as much as N5trillion; so if you got only N4trillion, you’ll need to augment it to service debts before you now face payment of salaries and capital expenditure. So how can you sustain this trend? The implication is clear. It is not sustainable.
The music has changed, the dance steps must change. They cannot continue to tell us stories of how Nigeria was earning so much from crude oil during the Jonathan days and how they are not getting as much money as the previous government.
Can this administration tell us in good conscience that it is not getting money when crude oil has been selling at $80 per barrel? Last year, the benchmark price of crude oil in the budget was $42 while the commodity averaged about $70. Under the Appropriation Act, the difference between the benchmark and the actual price should have gone to the Excess Crude Account. What happened to it? Where are the savings?
Would it be right to describe the decision not to remove subsidy as a booby trap?
Of course the extension is nothing but a booby trap. In the next eighteen months, President Buhari and his government would be out if the scene. So they want yo mess up the whole thing and leave the problem for someone else who will come after them.
Doubling the fuel subsidy and borrowing from all sources are not the right steps to take at this time.
This us why I laugh when I see people jumping around wanting to become the next President of Nigeria. Listen, whoever is going to inherit this presidency will find things very difficult except that most of them don’t even have the interest of the masses at heart.
How do you see the current fuel scarcity in major cities across the country?
I can’t explain it. I think you need to ask the people at the NNPC. However, two things are possible. It is either some private businessmen want to take advantage of the current situation of the bad fuel saga or there is collaboration between them and those in NNPC.
It could also be blackmail. Since you people don’t want us (government) to remove fuel subsidy and increase the pump price, by the time you suffer for the next two or three weeks and there’s no fuel at the filling stations, the black market boys bring it in jerry cans at three times the normal price, Nigerians would prefer the pump price raised as long as they can find fuel to buy at the filling stations.
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