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Subsidy Removal As Buhari’s Litmus Test



As he takes over the mantle of the Nigeria’s leadership today, one delicate issue which President Muhammadu Buhari must now decide on, is whether to remove or not to remove fuel subsidy.  JULIET ALOHAN in the special report, assesses the possible resultant implications that whatever decision he chooses to make will have on Nigerians, the economy and his government

The debate of whether or not to sustain fuel subsidy is one that has been in the front burner of national discuss especially since the uncovering of mega corruption with the scheme in 2012. Interestingly, the debate is divided along the lines of a government desperate for subsidy removal, and greater number of citizens wanting the scheme sustained.

2012 was for the petroleum industry a turbulent one for many reasons including the monumental fraud and governance inefficiencies uncovered by the various committees setup by government following the January 1, anti-subsidy removal protest.

With the removal of fuel subsidy resulting then in an increase in fuel price from N65 to N141 a litre, the year was set on a stormy start with a nationwide protest organized by the Nigeria Labour Congress (NLC), civil society organisations, stalwarts of the then opposition, now ruling party and other Nigerians.

Not only did the protest, popularly known as the ‘occupy Nigeria protest’, force outgoing president Goodluck Jonathan to reverse the subsidy removal decision, it also led to calls for increased transparency and probity in the petroleum sector.

Subsequently, various committees which includes the Special Task Force on Governance and Controls within the Nigeria National Petroleum Corporation (NNPC), headed by Dotun Sulaiman and charged with the responsibilities of reviewing all management controls within the Corporation and its subsidiaries; the Kalu Idika Kalu-led National Refineries Special Task Force, charged to conduct high assessment of the refineries and review past reports, were set up.

Others were the Nuhu Ribadu-led Petroleum Revenue Special Task Force which was mandated to determine and verify all petroleum revenues due and payable to the federal government, as well as the House of Representative Ad-hoc Fuel Subsidy Committee headed by Farouk Lawan, all set up to probe various aspects of the petroleum industry. The results was the uncovering of cans of stinky worms, massive corruption and gross inefficiency in the handling of subsidy regime and operations of the petroleum industry at large.

The debate over subsidy removal has even been more heightened in recent times following the persistent fuel scarcity suffered in all parts of the country, a development that degenerated to the extent of almost shutting down the entire country and crippling the economy.

The near shutdown of the economy was over a decision by those considered as top beneficiaries of the subsidy scheme under the aegis of oil marketers, to stop product importation and distribution as a way to demand the payment of their subsidy claims and exchange rate differentials, which runs into billions, from the federal government.

Outgoing minister of finance and coordinating minister of the economy, Dr. Ngozi Okonjo-Iweala, disclosed that between December 2014 and April 2015, the federal government had paid about N500 billion to oil marketers as subsidy and exchange rate differentials claims, a development she said was unsustainable in the face of falling oil price leading to scarce resources for government.

Meanwhile, to take a final decision over this lingering debate, is incoming president Muhammadu Buhari, whom analysts have described as being between the devil and the deep sea as far as this matter is concerned.

Speaking exclusively to LEADERSHIP in this regard, the national Coordinator of Publish What You Pay (PWYP) Nigeria, a global coalition against corruption, Faith Nwadishi, while recalling that it has only been three years since Nigerians protested against subsidy removal with some losing their lives in the protest, wondered what has changed since then.

Reacting to the possibility of subsidy removal by the incoming government she said, “The reasons for which we protested have they been resolved? What alternatives are there to serve as palliatives for Nigerians? The refineries are still not working, if subsidy is removed as it is, some people will smile to the banks while many will cry and feel betrayed because in 2012 Jonathan was called many unprintable names for removing subsidy.”

Nwadishi who also represents civil society organisations from English speaking Africa countries on the board of the global Extractive Industries Transparency Initiative (EITI) while informing that she was part of the January 1, 2012 anti-subsidy removal protest, said if taken off now, a litre of fuel may go as high as N1000 in some places.

She said: “We have seen now that this country runs on fuel as everything was shutting because of scarcity these few days. Cost of living will increase, house rent will increase and foodstuff too. Telecommunications providers will make a case for increased tariff, other sectors will follow suit and who bears the brunt?

“The midwife in the village maternity home may begin to ask women to come with four litres of fuel when coming for delivery. We have to be smart about this before we lose all our foreign direct investment to other African countries,” she said.

On the other hand, while acknowledging that many people are into fuel importation business because it is lucrative, Nwadishi said government must first be very prepared to regulate the marketers post subsidy removal.

She urged government to first ensure the Department of Petroleum Resources (DPR) and other regulatory agencies in the sector are overhauled to ensure that marketers do not arbitrarily increase fuel price and or, bring in adulterated cheap products when the market is eventually deregulated.

On what conditions she feels would be right for subsidy removal, the expert said, first the refineries which presently work at less than 20 per cent must be fixed and mechanism put in place to ensure that marketers given license to import do not import adulterated products into the country.

She added that all existing fuel import licenses should be recalled by the new government and the marketers made to go through a fresh application process, in which case anyone who has been previously indicted in the fuel subsidy scam should be barred from application.

“The government should also put a clause in the agreement that anyone who is found wanting of malpractices will have their license withdrawn and they should clean up the regulatory agencies and while doing this, they should fix the refineries before subsidy is eventually removed.”

Also speaking exclusively with LEADERSHIP on the matter, industry analyst and international business consultant, Dan Kunle, while expressing a divergent view said, the new government should stop the ‘monthly disbursement’ to marketers and free more money for the country by removing subsidy immediately.

Kunle who pointed out that it was a hard decision the Buhari government will have to make and noting that the development will lead to hardship, however, said Nigerians will have to adjust and make sacrifices in the meantime until things got better. He added “there is no easy solution to this matter. If he (Buhari) does not remove it no foreign investor will come into the sector.”

He however, observed that an alternative will be to invite the oil majors to, in the meantime, be importing products and bring up joint venture proposal to set up refineries in the next two years. “While this is ongoing, we should be fixing our refineries,” Kunle said.

He explained that the country needs to work towards refining about 1.2 million barrels of oil per day to get almost 60 million litres of fuel daily. “If the country is consuming about 40 million litres of fuel daily, we will have a surplus of about 20 million litres for export,” he submitted.

Another alternative he also said, would be for the new president to invite the Chinese to build refineries in Nigeria, if the majors refuse to do so, with an agreement that they must employ at least 60 per cent of Nigerian workers while they can come with 40 per cent foreigners.

Meanwhile, Kunle posited that government can only sustain subsidy if it has control over the entire value chain in the fuel import process, which includes the depots, vessels and pipelines, but asked “Where are the deports government have that can take 35 million litres daily?”

Speaking further he said, “If government have control over pipelines and can send fuel through the pipelines, then they can sustain subsidy. But all governments assets have been run down so the cost of subsidy will be too high to manage for government as it does not have the parameter to manage the cost,” Kunle said, concluding that this leaves government with only one option which is to remove subsidy.

For his part, the executive director of Civil Society Legislative Advocacy Centre (CISLAC), Auwal Musa Rafsanjani, told LEARDERSHIP that the entire subsidy scheme is surrounded with a huge fraud which needs to be brought to an end.

He said, “There’s nothing like subsidy actually, it’s a matter of fraud and scam, they are using it to enrich themselves if not government should have fixed the refineries by now and stop the fraud called subsidy.”

He said various investigations carried out by different committees, including the National Assembly have disclosed that the subsidy scheme is a huge fraud. He also added that civil societies, including CISLAC coalition, had offered advice to the outgoing administration on how to go about subsidy removal, but their position was overridden by the interest of the cabal who want the scheme to continue.

“It’s a good thing that the incoming president have worked in the petroleum sector before and has a vast knowledge of how the sector runs, so he knows whatever needs to be done to address  this challenge and end this fraud,” Rafsanjani said.

According to him, Nigerians and civil society organisations will support any genuine effort to stop the subsidy scam while making reference to unfulfilled  promises made by the Jonathan administration in 2012. “They promised us that the refineries will work at 45 per cent installed capacity in 2013 and 80 per cent capacity in 2014, but none of those promises were ever fulfilled which shows they had no genuine intention to end the subsidy scheme,” he said.

On the envisaged hardship immediate removal of subsidy would cause Nigerians, Rafsanjani doubted if fuel subsidy would be immediately withdrawn, stating however, that what is certain is that the incoming government has an idea of what to do to end the scam of people who just collect money in the name of product they never imported.

“I want to believe it will take some time before they take a decision on the matter, they may need about six months to settle and decide on how to go about it.  But for me putting the refineries in place is what we need to stop putting money into the scam called subsidy,” he added.






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