ASNigeria, Africa’s largest producer of crude oil, continues to reel under the harsh effects of perennial shortages in the supply of refined petroleum products for local consumption, the debate on subsidy, which currently gulps about a quarter of the country’s annual budget, has understandably continued to wax stronger. Perhaps, very few issues have divided opinions so sharply in the country in recent times as the issue of fuel subsidy removal. But, it is a matter that should be laid to rest once and for all if the authorities are desirous of getting Africa’s largest economy out of the woods.
Since Muhammadu Buhari mounted the saddle as President just over a month ago, free movement of goods and services has been persistently hampered by the scarcity of refined petroleum products, undeniably a spillover from the preceding administration of Goodluck Jonathan. This has led to the belief that the country is at last bowing to pressure to do away with subsidy, which has cost an average of more than N1 trillion a year in the past four years. The transition committee set up by Buhari before he was sworn in on May 29 submitted its report recently, calling on the government to do away with subsidy. This has also been the position of eminent world leaders such as Tony Blair, a former Prime Minister of the United Kingdom, who has advised the President to ride on the crest of his current abundant goodwill to get rid of subsidy.
But experience in Nigeria has shown that the removal of subsidy has never solved the crisis of refined product scarcity, which actually became accentuated when the country’s four refineries started failing more than 20 years ago. From that period up till now, the country has removed fuel subsidy more than a dozen times. And, like a vicious circle, each fuel subsidy removal has always inevitably been followed by fresh agitation for further subsidy removal, which, in Nigeria, is a mere euphemism for price increase.
Besides, the effect of subsidy removal on the economy has always been devastating. It does not only fail to achieve the intended purpose, but also has often triggered spiralling inflationary effects on almost every facet of the economy. The immediate impact is usually felt in the high costs of practically everything from foodstuffs to housing and transport. It also invariably leads to the devaluation of the currency, which further sends the cost of production sky-high and increases poverty among the populace. Many companies are consequently forced to lay off workers, thus compounding the already alarming unemployment situation.
Going by the argument of some experts and industry commentators, there is nothing like subsidy at all at the current rates in which the products are being sold. One of such experts is Tam David-West, a retired professor and former minister of petroleum. At the root of fuel scarcity and the crisis that comes with it is the fact that the country has to import refined petroleum products in the first place. This is worsened by rampant corruption and a controversial pricing template foisted on Nigerians by the Petroleum Products Pricing and Regulatory Agency.
For instance, it is difficult to understand why every litre of refined product imported into the country should incur demurrage, the cost of which is passed on to consumers. How come that every litre of imported fuel sells at the same rate, irrespective of the country from where it is imported? More clearly stated, why should refined products imported from Gabon, for instance, sell at the same rate as those imported from the United States, when the cost of transport is certainly not the same? How come the little products that are refined locally, whenever such are available, also have to sell at the same price as the imported ones? Do they incur “demurrage” and “shipping” costs as well? These are some of the posers that the template has not been able to address over the years.
Another reason to doubt the claims of those who blame the scarcity on subsidy is the fact that even diesel, which is not on the subsidy list and is supposed to be imported and sold at rates determined by market forces, is also frequently affected by the scarcity. All the evidence available shows a lack of transparency in the way subsidy is being administered. It goes without saying that if the corruption content in the so-called subsidy is eliminated, there may be no subsidy to be removed or it will be reduced to the barest minimum.
It is not as if the sustenance of subsidy at all cost is being advocated here, it is just that certain things ought to be done by the government first, which will then prepare an objective and rational ground for the elimination of subsidy. First, it is clear to all that the country has found itself in this scarcity mess because of the lack of local refining capacity. This is why the government should focus attention on encouraging local refining instead of worrying about subsidy removal. It is a disgrace to note that Nigeria is just one of the very few in the fold of the Organisation of Petroleum Exporting Countries that still rely substantially on imported products for local consumption.
Second, the government should immediately embark on liberalising the entire downstream sector of the petroleum industry. Rather than be an active participant in the refining and distribution of products, the government should restrict itself to a regulatory role. This should start with the sale of the four government-owned refineries that have not been allowed to function over the years just because of government’s incapability of running business ventures in Nigeria.
The government has spent billions to revive these contraptions to no avail, the last being the $1.6 billion which the immediate past Petroleum Minister, Diezani Alison-Madueke, said would end the capacity under-utilisation of the refineries. At the end of that huge investment, what Nigerians were later told was not different from the previous stories – that the refineries were producing at 10 per cent of installed capacity.
Aside from the sale of the refineries, there should be deliberate efforts to encourage private sector participation in the refining of petroleum products in Nigeria. It should be a deliberate government policy to give out incentives such as waivers and tax holidays to such investors. Nothing should be considered too much to ensure that Nigeria refines its petroleum products locally, not only for local consumption, but also for export
Extract from punch
Post a Comment