Fuel Subsidy: Experts’ view on its desirability

Recent plans by the Federal Government to completely withdraw petroleum products subsidies has attracted serious discourse as regards the socio-economic implications the move would have on Nigerians. However, Nigerians say that certain conditions must be met before executing the plan, writes Alexander Chiejina

 

In Nigeria today, the most contentious issue is the removal of subsidy on petroleum products which has generated wide debate by citizens from all walks of life, including the civil society groups, particularly the Nigerian Labour Congress, owing to its implications on the nation’s socio-economic landscape.

Over the years, the Federal Government has operated a fuel subsidy with the purpose of making petroleum products available and cushion the effect of the true market prices of the products on the populace. According to reports by the Petroleum Pricing Regulatory Agency (PPPRA), the country consumes an average of 35 million litres of fuel daily.

As of August 15, 2011, the pricing template of the PPPRA showed that the landing cost of a litre of petrol is N129.21. It showed the margin for transporters and marketers as N15.49, bringing the expected pump price of petrol to N144.70. But the official pump price for petrol is N65 per litre, a difference of N79.70, which the government subsidises.

While it is believed that the Federal Government spent over N2trillions on fuel subsidy in the past five years, it also pays heavily to subsidise kerosene which is imported into the country through the Nigerian National Petroleum Corporation (NNPC), although the actual amount is not known.

Following the disclosure during the unveiling of the nation’s economic blueprint by Ngozi Okonjo-Iweala, coordinating minister for the economy and minister of Finance, that the Federal Government had concluded plans to completely withdraw petroleum products subsidies, this announcement has been greeted with varied reactions even as there is no fixed date for its implementation.

As analysts believe that government would have spent the money budgeted for fuel subsidy on addressing the country’s huge infrastructural deficit, thereby saving the nation of huge financial waste, some schools of thought have opposed the removal of the subsidy as the people will be at the receiving end of the petroleum subsidy, many of whom live below the poverty line of $1 a day.

Support for fuel subsidy

Fielding questions from journalists after the Monetary Policy Committee meeting in Abuja last week, Lamido Sanusi, governor, Central Bank of Nigeria, disclosed that the apex bank had been in the fore front of advocating that government removes the subsidy.

Sanusi stated that the position of the apex financial regulatory authority stemmed from what the country stood to gain if the subsidy were removed.

According to him, “We at CBN have always insisted that government should do away with the oil subsidy, because it is not good for the economy. It may be harsh at the beginning but in the long run, it would be beneficial for the country and it will help the economy.”

The CBN governor noted that it was unwise for the government to be subsidising petroleum products to keep refineries in other countries going, while the ones in the country would not be producing at its full capacity thereby running the nation’s economy down. He however, refused to state when government would eventually remove the subsidy.

“When it is going to be removed is not for CBN to say, it is rather for those in the authority to do so, but it is unavoidably going to be removed,” he said.

Lending her view during the opening of the 35th edition of the Society of Petroleum Engineers (SPE) Annual International Conference and Exhibition (NAICE) in Abuja, Minister of Petroleum Resources, Diezani Alison-Madueke, disclosed that the subsidy regime has effectively limited the government’s developmental capacities owing to its continued exhaustion of the nation’s resource base.

“Significant national income has been expended so far on price regulation of refined products in the domestic market. This significant drain in the national resources has limited government’s ability to provide a sustainable basis for private sector downstream investment and development,” Alison-Madueke revealed.

In his opinion, George-Hill Anthony, national chairman, Coalition for Accountability and Transparency in Extractive Industries, Forestry and Fisheries in Nigeria (CATEIFFN), stated that a credible committee must first be set up to monitor the funds that would be freed from fuel subsidy.

While noting that the Federal Government currently pays about N2.6 billion daily as subsidies on the estimated 32 million litres consumed nationwide, Anthony noted that members of the committee should be drawn from the media, civil society groups as well as labour unions for effective monitoring of the use of the funds, which he insisted should be channeled to interventions for the common Nigerian.

Anthony, however, stressed that government could only withdraw fuel subsidy if it has shown more disposition to fighting corruption.

“If the instrument for fighting corruption is weak, where will the money go to, who will monitor it? The first thing government should do is to ensure a strong anti-corruption policy. The funds should be monitored by a committee made up of civil society groups, media and labour unions, it should not be left in the hands of the government alone,” Anthony maintained.

Echoing the sentiments of Anthony, Olufemi Olawore, executive secretary, Major Oil Marketers Association of Nigeria (MOMAN), harped on the need to set up a committee that would monitor what the gains from subsidy would be used for.

“There must be a committee to monitor what the gains from subsidy would be used for, the committee should be made up of the media, civil society groups, labour unions and even some selected members of political parties to monitor government and put them on their toes,” Olawore said.

He advised that government should ensure a logical conclusion of the power sector reform which will usher in steady electricity supply, noting that this would go a long way in cushioning the effect of the withdrawal of fuel subsidy on Nigerians.

“Government should ensure it gets the power sector reform to a logical conclusion so that the price of diesel will drop. When there is stable electricity supply, the consumption of diesel will drop, and when the consumption drops the cost will also drop. This will result in lower cost of transportation for vehicles using diesel. The government should also ensure adequate infrastructure such as good roads and railway services to further cushion the effect of the withdrawal of fuel subsidy,” Olawore concluded.

Against fuel subsidy

Meanwhile, Ifeanyi Ogbuefi, a banker in one of the new generation banks, said that anything that will negatively affect the common man is not good for the country giving the fact that the rate of poverty will increase should the fuel subsidy be withdrawn by the Federal Government.

“It is not fair! Why won’t the government do a survey on issues before taking a decision? The consumers will definitely suffer the removal of fuel subsidy. This is a major oversight. In a country like Nigeria, where more than half of the population live on less than $1 per day, it is important to evaluate policies that may raise poverty levels.

“Moreover, it is critical to evaluate such effects before implementing the policies so that complementary reforms, where necessary, can be put into place to address the burden on the poor,” Ogbuefi noted.

For Chidi Nwankwo, a human resource analyst, the removal of fuel subsidy would limit the country’s ability to attain the first Millennium Development Goal, which is reducing the number of people living in poverty by 2015.

While noting that this was at odds with global concern for the low levels of economic growth and recently reported declining human development index in the country, Nwankwo added that it was also smacked of double standards in the current patterns of state intervention in free markets.

He said: “It is obvious that the pressure to remove subsidy is designed by experts with insufficient understanding of the Nigerian economy or who choose to ignore the inability of the governments to effectively implement anti-poverty programmes planned as a wider element of a fiscal policy agenda.”