Negative Effects Of Fuel Subsidy Removal

Please permit me a space in your widely read newspaper to add my voice to the on-going debate on fuel subsidy removal. The essence is to draw the attention of the government and indeed all Nigerians to the negative effects of fuel subsidy removal so that in the long run no one would claim he or she was misled about taking the wrong decision.

Fuel subsidy removal would have the following unintended effects and there is hardly very little anybody could do about that: -

Increase in cost of production – Removing fuel subsidy while at the same time devaluing the naira would result in increase in the cost of production for the few companies that are still existing. This would lead to more job losses (as the companies would be forced to down-size in order to survive) in addition to the unavoidable increase in the cost of the companies’ products.

Increase in the cost of providing services – Removal of fuel subsidy would make nonsense of the proposed 2012 budget estimates because the astronomical inflation arising from subsidy removal would not have been factored into the budget. It will certainly cost much more to construct a kilometer of road or a borehole for example when subsidy is removed. In actual fact, simple photocopying paper would cost much more post subsidy removal than is the case now. So how can anyone convince us to expect more dividends of democracy when fuel subsidy is removed?

Increase in the cost of transportation – Everybody appreciates the fact that when motorists pay more for fuel, the transport fare increases. This has been the case even when the increase is only marginal. In the particular case where the cost of fuel is expected to double, the increase in transport fare will be astronomical.

This will in turn affect everything else – school fees, house rent, just name it.

Increase in cost of living – In addition to school fees, house rent, etc. the cost of every item of food will astronomically increase with removal of fuel subsidy and, for all sane people, this is where the trouble is. When poor people are unable to eat because they cannot buy roasted corn or yam (which they usually eat as meal) as is bound to happen when fuel subsidy is removed, there will be no peace in this country. This is a fact we must accept and it is one reason why the implications of all policies must be rigorously scrutinized before decision is taken. For any responsible government this is enough reason to jettison the idea of fuel subsidy removal.

Increase in corruption – Removal of fuel subsidy and devaluation of the naira would render the salaries received by civil/public servants at all levels inadequate.

The tendency is that corruption, which the government has proved incapable of fighting, would increase. This has always been the case and there is no reason why this will not happen now.

I make bold to say that removal of fuel subsidy would not guarantee the construction of refineries by private companies for two reasons. First, if marketers (and this includes the companies that have been licensed to build refineries) import fuel and sell on the basis of the bogus PPPRA template when subsidy is removed, nothing will encourage them to build refineries. This is because they will make much more money through importation than they would by refining crude oil. Secondly, constructing new refineries would cost much more when fuel subsidy is removed and the naira devalued. That will also be a disincentive to building new refineries.

The way forward for the government in this matter is as follows: -

Government should retain fuel subsidy while expediting the construction of the three proposed refineries. Fuel subsidy should be removed as soon as these new refineries are commissioned. It is a pity that the government which has made so much noise about transforming Nigeria has not and is still taking the construction of the three refineries, for which it signed agreement with the Chinese government, seriously.

The proposed rehabilitation of the existing refineries should be expedited. There has been so much noise about rehabilitating the existing refineries (using the original Contractors) within 18 months, as far back as June 2011. It is, however, sad to note that 6 months after the pledge was made, contract is yet to be signed with any of the 3 Contractors.

Government should vigorously pursue the revitalization of the railways. If only Nigerians had alternative to road transport, all this noise about fuel subsidy removal would not have been there.

Private companies should be encouraged to start building refineries now with the assurance that subsidy would be removed before they start production. As I have said earlier, subsidy should be removed as soon as the 3 refineries proposed by the government are commissioned. That means the government must pursue the construction of these refineries with vigour such that they are completed in the shortest possible time but most importantly before any private investor finishes the construction of their refinery. If the government of Niger republic can construct a refinery in spite of their limited resources, why on earth can Nigeria not construct these 3 on fast track?

Finally, I always keep wondering how our leaders keep telling us that very few individuals, and not the generality of the Nigerian masses, are benefitting from fuel subsidy. Yet we are daily told that fuel will sell for N140 per liter (instead of the N65 per liter) when the subsidy is removed. Are our leaders saying that the generality of Nigerian masses do not use okada, taxis, buses, etc. or they now saying that these modes of transport are no longer for the poor? Which in effect is what will happen when (God forbid!) fuel subsidy is removed!           

—Kalilan wrote in from Kaduna