The real problem with fuel subsidy

Imagine, for a moment, this scenario: in a time of economic hardship in a family, the father tells his family that they need to cut down on their luxuries. ‘I will have to reduce your allowances’ he tells his children. ‘We will have to sell one of the cars’. ‘I can’t give you the same kind of money for upkeep’, he tells his wife. ‘Your weekly spa treatments and facials have to go as well’. After going through a raft of cuts, his wife asks: ‘what are you giving up’? He begins to mumble something, then looks away.

This is the way the current subsidy debate seems to be going: A one-sided affair about the necessity of sacrifice from the people, but little about what reductions the government itself will implement. Most of us know by now all the reasons why fuel subsidy can’t remain: an inefficient importation process that benefits only a few and is tying up money that can be used for infrastructure projects, and other things that will help to add value. Segun Adeniyi even likened the current subsidy regime to borrowing from the future.

The interesting thing is, just like the debt relief of 2005 and the single tenure proposition, the removal of subsidy smacks of classic low hanging fruit strategy. It is a quick fix. We were told that debt relief would allow Nigeria be prosperous economically, but this hasn’t happened. The bulk of prosperity has been felt by recurrent expenditure which is now 74% of the budget. Removing subsidy will free up the over N1 trillion used to sustain it, but the wasteful spending at at all levels and lost revenues due to negligence could be twice that amount at least. Minister for Trade and Investment, Olusegun Aganga, revealed that Nigeria loses N750 billion annually to non-metering of oil wells and inaccurate ship-to-shore differences while loading/offloading vessels. he also said several billions of naira had been lost to round-tripping owing to poor measuring equipment used at import jetties to ascertain the quantities of petroleum products imported. What that means is that Nigeria does not know how much crude oil leaves the country on a daily basis, neither do we know if the amount of refined crude paid for by government is actually brought in. In addition, there is no discussion about reducing the huge number of aides taken on by both the federal and state governments, reducing or removing security votes (we don’t even know how much they are), the ghost workers and pensioners at every level of the civil service or the money draining airports. One could really go on and on with the known examples of inefficiency that costs this country billions.

Removal of subsidies is simply an easy way out, a way to put off doing the really hard

Rotimi Amaechi, chairman of the Governors

stuff, like tracking down and prosecuting those responsible for oil bunkering, diverting imported petrol meant for domestic consumption, making the NNPC’s pipeline and depot network operational and making the ports able to accommodate large vessels as they are currently too shallow. Those vessels cannot berth as soon as they come in because of this, and incur demurrage of $28,000 every day they remain at sea.

The push to remove subsidy has only gained momentum since states started paying the N18,000 minimum wage. Wage bills have increased, but instead of giving the states a larger share from the revenue allocation formula, part of the subsidy money will be shared for that purpose. Support for subsidy is also being used as a bargaining chip by the governors to support the Sovereign Wealth Fund, that is to act as a savings when the price of crude oil goes above the benchmark.

Essentially, what Nigerians are paying for is the reckless spending of the state and federal governments over several years. Virtually every governor has a ridiculous number of aides, and less than 10 states can operate on their Internally Generated Revenue alone. The emphasis has always been on running to Abuja to share free money from oil proceeds. It is at the heart of many of our most serious problems as a nation. If all states were to implement 100% resource control, or at least fund recurrent expenditure only from IGR, it is doubtful we would see such waste. Nigeria’s ‘share and spend’ culture has only attracted the very worst individuals to our politics.

Among oil exporting countries, fuel subsidies are the norm. Only Iran has managed to remove it, but that seems as much to do with harsh economic sanctions as anything else. Nevertheless, it seems to have worked out quite well, but that is because the government was able to give $40 a month to every man, woman and child that signed up for the rebate. Over here, a clear plan is yet to be released with regard to cushioning measures for what is sure to be a very difficult few years. There is no guarantee that the savings from subsidy will not be shared among the three tiers of government, or disappear into the black hole that is the Federal Executive Council’s contract awards jamboree.

The issue for this country has never been the lack of money, but merely having enough people in leadership who care enough to do things right. Maybe this has changed, but we are going to have to go beyond words. Reasonable reductions in government spending at all levels must be implemented in order to breed confidence that this time might be different. The Finance Minister’s 1% reduction every year for 4 years doesn’t cut it. Before asking the people to make sacrifices, those that lead must take the bitter medicine first, and be willing to make enemies in order to find lasting solutions.

No amount of water poured into a basket can fill it up, and that is what our government has become. The chasm between what they practice and what they preach is one that cannot be bridged by N1.3 trillion.


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7 thoughts on “The real problem with fuel subsidy”

  1. Aptly said.

    I’m one of those who think the government is interested in protecting their corrupt friends rather than face the tough issue at hand which is corruption and loot recovery.
    We must all rise up against fuel subsidy. I have have two insightful essays on this issue at http://www.ekekeee.com.

    Thanks for this piece.

  2. Aptly said.

    I’m one of those who think the government is interested in protecting their corrupt friends rather than face the tough issue at hand which is corruption and loot recovery.
    We must all rise up against the reomoval fuel subsidy at this time. I have have two insightful essays on this issue at http://www.ekekeee.com.

    Thanks for this piece.

  3. What I still dont understand is how the subsidy removal will also solve the issue of PEF money provided for bridging petroleum products to the north. Does it mean more money will be provided for this purpose or fuel will become much costlier in the north than south? There are many things nobody is saying

  4. I do believe the subsidy won’t be removed as the government will not be able to face the uprising that may follow. On the long run though, it’s time Nigerians agitate for resource control. States need to spend what they have and at most borrow to cover for deficits. The era of monthly allocation must go if we are to attain the economic development we so desire. We may have to abolish “State of Origin” for this to work

  5. The argument here is very true. The fact that Nigeria’ crude volumes are misreported or poorly metered is especially painful. Let us pray Govt learns to cut its coat according to its cloth instead of always looking at the poor masses.

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