Oil Subsidy Must Go, But…

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Subsidy Must Go, But…

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Of late the clamour for subsidy removal has been vociferous. What with the abysmal fall in the price of crude oil at the international market. The cry to “kill this demon” called fuel subsidy, I believe, is well founded because it has become a complete albatross draining huge government resources into private pockets.

While major oil marketers (including briefcase importers) savour the illegal earning in the name of fuel subsidy, the masses have continued to grapple with artificial fuel scarcity which invariably has pushed up the price at the black market while endless queues have become the common sight at filling stations.

For most Nigerians, the black market has become their only source for fuel to travel or power their generating sets. The plan to remove subsidy has been on the lips of successive governments for too long. Yet, they let it be for obvious reasons. They failed to tackle the underlying factors that led to the adoption and perennial sustenance of subsidy payments in the first place. What are these factors? As far as I can conjecture, they include but are not limited to lack of adequate and effective security at our oil installations and pipelines transporting the products across the country, deliberate sabotage, oil theft, corruption and outright mismanagement of oil proceeds. It is not a secret that the crude stolen from Nigeria today sustain some economies abroad where large scale refineries have been built for the purpose. It is also not a secret that cargoes of fuel subsidised with taxpayers’ money have been sold at black market rate while others are diverted to neighbouring countries through our porous borders by unscrupulous and fraudulent marketers.

We all know that subsidy is only a symptom of a deeply entrenched economic cancer. To remove subsidy without first removing the cancer would be counterproductive at this time. I have not seen anywhere in our laws where provision was made to subsidise importation of petroleum products on an annual basis. The expenditure apparently crept into the national budget when past governments initiated it to reduce the burden of buying refined imported products which often come into the country at very high cost.

However, the arrangement, which has seen fuel subsidy expenditure quadruple in the last couple of years, is rather benefiting only a tiny minority rather than the masses it was meant to serve. If you ask me, this is enough reason for the subsidy to be removed. But doing so without first clearing the Augean Stable is capable of worsening an already bad situation. For instance, while the debate on whether subsidy should go or remain rages, nobody has as much as addressed the challenge of low capacity in the nation’s refineries.

Another problem is large scale crude theft. Reports have it that oil bunkering or theft takes place at various points in the production and transportation of crude in the country. The theft is so massive that nobody actually seems to know what is being stolen. Yes, because we still lack verifiable statistics of daily crude production. Experts have admitted that the figures we have as daily crude production are mere guesstimates or conjectures. While experts project that Nigeria, as Africa’s largest oil producer, has a maximum production capacity of about 2.5 million barrels per day (mbpd), the Organisation of the Petroleum Exporting Countries (OPEC) in its 2015 report, put the actual output at around 1.8( (mbpd).

However, the 2016, 2017 and 2018 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) recently approved by both chambers of the National Assembly put the expected daily crude oil production at 2.2mbpd. Notwithstanding, experts have not ceased to warn that the production figures cannot be relied upon because of the astronomical incidence of attacks on oil platforms, pipeline vandalism and crude theft which negatively affect actual production. Experts have also argued that what is taken as daily crude production in the country is the quantity that arrives at the terminal and not the output from the wellheads.

According to an environmental activist, Nnimmo Bassey, “The oil fields are not sufficiently metered in a way that permits independent verification.” He faulted a situation where the calculation is based on what arrives at the terminal and not what is gotten at the wellhead as nobody actually knows what comes out of the ground and what is diverted or stolen enroute. “This state of affairs makes it impossible to have a good guesstimate of the nation’s crude reserves also,” he said.

Just like there is still no reliable data as to what is being produced, we also don’t have accurate information as to the quantity of crude stolen daily. President Muhammadu Buhari recently said that “the amount involved is mind-boggling.” According to him, “some former ministers were selling about one million barrels per day.” However, reports later quoted the Senior Special Assistant to the President on Media and Publicity, Garba Shehu, to have clarified that “the official position on the quantity of crude oil stolen per day in Nigeria is 250,000 barrels.” This is still a colossal waste going by the $38pb benchmark approved by both chambers of the National Assembly for the 2016 budget.

The clamour for immediate termination of fuel subsidy in response to the dwindling oil prices at the international market have been on the ascendancy both from Nigerians and international organisations. To the World Bank, cutting cost is critical for the country to be able to save against the rainy day like the present slump in oil prices. “There is a strong tendency for the cost of the fuel subsidy to increase over time as increasing domestic demand for petrol outpaces growth in oil output or revenues. “The $35 billion cost of the fuel subsidy during 2010 – 2014 was one of the reasons why Nigeria was unable to accumulate a fiscal reserve n the Excess Crude Account that could have protected the country from the recent oil price shock,” the World Bank’s representative said. Much as this is a sound advice in view of our current economic realities, I dare say that it would be too arbitrary were it to be adopted by the Federal Government. This is because the buffers that will prevent us from returning to the same road in future have not been erected.

I am for fuel subsidy removal. But I am not for arbitrary removal of subsidy. The wholesale removal of fuel subsidy at this time without implementing necessary policies to prevent crude theft, boost local refining capacity and eliminate corruption in the management of our oil exploration and production would be counterproductive. If we want to say goodbye to fuel subsidy for good, we must be patient to reset the process that has led us down this ignoble alley. The fuel subsidy headache is killing, but we cannot cut off the head to cure a headache.

Already, the organised labour has hinted that it has commenced the mobilisation of its members to oppose possible removal of subsidy. I believe we cannot afford to overheat the polity with labour strikes and protests. The nationwide uproar that greeted the January 2012 sudden removal of subsidy must be our guide. I agree with the president when he said that subsidy removal would not be done in a knee-jerk approach as it portends far reaching implication for the ordinary Nigerian. “I have received many literature on the need to remove subsidies, but much of it has no depth,” he said. “When you touch the price of petroleum products, that has the effect of triggering price increases on transportation, food and rents. That is for those who earn salaries, but there are many who are jobless and will be affected by it.” It is better we look before we leap otherwise, the same institutions and individuals pushing for its outright stoppage today would tomorrow turn around to blame unforeseen and deeper economic crisis that may arise from the removal of subsidy on the All Progressives Congress (APC) administration just to earn undue political mileage.

As for me, when I see our refineries producing at 100 percent installed capacity, when I see new refineries built and functional, when I see measures in place to accurately determine daily crude production and protect output from falling into the hands of official and unofficial thieves, when I see the poor and needy in our society being subsidised through affordable public transportation, mass housing, free medicare, free education, free feeding for school pupils, great decline in unemployment statistics, when I see that every drop of crude produced is available for export and local refining, then I will know that it is time to finally crush the “demon” of subsidy. But for now, it is look before you leap.