On January 1, 2012, president Goodluck Jonathan decided to remove the subsidy on petroleum called gas in the United states. It will be incorrect to say that the president did not anticipate the anger that will ensue from his decision. What surprised him is that he did not envisage the magnitude of the protest, which begs the question, is the president that far out of touch? Does he live in a bubble? Does the president think that Nigerians are laid back people who will accept whatever decisions government makes for them. He may have hoped that the protest will splinter and dissipates after a while. Well, the president is wrong if he underestimated the reaction of Nigerians.
One does not have to be a rocket scientist to know that removal of fuel subsidy will enrage Nigerians from all walks of life. Similar reaction happened in Iran few years ago when their government tried to remove fuel subsidy. Fuel subsidy can be described as permanent tax cut or necessary subsidy which benefits all Nigerians irrespective of their political, social or economic background. The government should have considered the ramification of its action before embarking on such monumental decision like total removal of petroleum subsidy which has led to increase in transportation cost and virtually everything in a country where majority of the people live below poverty line.
Last year 2011, I read one article where Professor David Tam West, former Minister of Petroleum stated that there is nothing like fuel subsidy. I was surprise to hear that from him. Argument advanced by the president for subsidy removal is that it benefits small cabal and that it is not going to the poor who are meant to benefit from it.
Well, the president’s statement is true and false. It is true that fuel subsidy benefits small cabal who are fuel importers and some other oil marketers. Since Nigeria National Petroleum Corporation (NNPC) or their contractors are incapable of refining Nigeria Crude oil in Nigeria, the crude are then shipped or exported overseas where they are refined and sold in International market at prevailing market rate. For example, if refined fuel cost $100 per gallon in international market. The petrol importer called cabal by the president buys the refined oil from the International market for $100 per gallon, add their profit margin and import the oil back to Nigeria. If the fuel price plus the profit charged by the importer adds up to $120, Nigeria government pays all importer say $55 per gallon if the importer will sell the fuel for $65, so $55 becomes the subsidy. The Importer racks in $55 subsidy given to them by the government and their profit margin when selling to retailers. Incidences of fraud in such transaction should be expected. So the president is correct that small cabals (fuel importers) benefits, but he is also incorrect that it benefits only small cabals because all Nigerians who buys fuel or benefit from it at the subsidized rate are not small cabals, but almost entire Nigeria population.
Now that the die has been cast, the oil-rich country is now in the mist of another crises on top of Boko Haram crisis which is the most serious violent unrest since Nigerian civil war. The timing for new price regime is so bad that I question the capability of this administration’s brain trust. Nigerians at the minimum needed at-least six month to one-year notice to adjust or have their say. If after exhaustive discussion by Nigerians and fuel subsidy removal is deemed absolutely necessary, a better way would be to phase it in over three year period so it will be easier for Nigerians to absolve the shock. However, I do not think removal of fuel subsidy should be the priority of this government at this time. The president has told Nigerian that the savings from the subsidy will be well managed, invested, will be used to provide infrastructure and other goods and services.
Surprise surprise, the governors nodded in agreement that fuel subsidy is the bane of Nigerian problem. They nodded in agreement not because they care about the fuel subsidy and the hardship it will inflict on Nigerians rather they care about the extra income to the states which some of them and their minions will pilfer away.
Endemic corruption in Nigeria and bad leadership have been and still the bane of Nigeria. Corruption has torned down the social and moral fabric of Nigeria. The result is poor infrastructure and poor microeconomic management and rampant unemployment. Nigeria cannot get very far with current level of corruption. Mr. Kolade have been appointed the czar who will collect and invest the money from the fuel subsidy savings. Remember Nigeria once had Petroleum Fund, Excess crude oil fund etc. Where have all those money gone.
When much derided former president, Olusegun Obasanjo took power from the military, Nigeria owed World bank, International Monetary fund (IMF) and various banks about $37 billion. The result is that the federal government spent over half of their yearly budget in servicing the debt and the remaining used for salary, infrastructure and the rest is stolen.
Such debt burden was unsustainable for any country wishing to move forward. Jamaica is now in similar situation, they owe International banks $18 billion. 60% of their budget goes to service the debt, 30% goes to salaries and remaining 10% is for everything else. Such debt handicaps any government even in a country like Jamaica which manages their national income fairly well.
In November 2005, President Obasanjo with the help of the present Minister of Finance, Dr. Ngozi Okonjo-Iweala won Paris club approval for a debt relief deal which eliminated $18 billion of debt in exchange for $12 billion in payment resulting in a total package worth $30 billion of Nigeria’s total $37 billion external debt. Obasanjo used part of the excess crude oil reserve of $12 billion to pay off almost all the debt. The debt forgiveness was largely a reward to Nigeria for taking the democratic part and a chance for a new beginning.
Over half of the Nigeria budget then which was used for debt servicing was suppose to be used for infrastructure and other development projects. Can anybody tell Nigerians where those money went. It has been misspent or pilfered away as usual. In 2010, estimated Nigeria GDP was $369.8 billion, placing Nigeria in number 32 position in country comparism to the world. United States being number one, Japan second and China third. China and Japan exchanged places in 2011. Today, the State governors and Federal government have re-accumulated debt which is close or equal to what Obasanjo inherited and almost eliminated completely through debt forgiveness and outright pay off.
So whatever Nigerian government will gain from subsidy removal may go the way of Petroleum Fund, money realized from Paris Club debt forgiveness, IMF debt relief etc. The present government should concentrate on wiping out or at at least reduce corruption to the barest minimum. More oil refineries in Nigeria will provide long term solution to fuel problem. Our president need to emulate the current president of Brazil, Dilma Rousseff. In Brazil today, if you are a minister and you are accused of corruption, you get fired right away and handed over to appropriate authority. Her no nonsense attitude sends clear and loud message to other ministers or government officials who are thinking of soiling their hands.
Keeping oil subsidy will be unsustainable in the long run but Nigerians will feel better if their money has been properly managed. Sadly, that has not been the case in the past or present. Nigerians watch in disgust as their money get misused or pilfered away by elected officials and government functionals. Removal of fuel subsidy at this time will likely help Boko Haram recruitment. To force Nigerians to pay $3.52 for a gallon of fuel which is almost the same price we pay here in United States is ridiculous considering the economic disparity between the two countries, and the fact that most Nigerians live below poverty level, some live on less than $2.00 a day.
The positive outcome of fuel subsidy removal are (1) It will give incentive to private companies to build oil refineries in Nigeria. (2) Reduce or eliminate fuel smuggling across Nigerian borders (3) Reduce fuel usage. (4) Current double fuel prices and in some cases triple prices since subsidy removal regime became effective will come down a little bit due to competition.
However, the above benefits pales in comparism to the hardship the federal government action will inflict on Nigerians in the short and long run.