Monday, January 9, 2012

The ABC of the fuel subsidy debate

This is just an attempt to put the fuel debate into perspective as the NLC shuts down the country over a highly emotional and controversial issue.
The Issues in subsidy removal
1.       Nigeria is a major exporter of crude oil but also imports refined crude into the country
2.       Nigeria imports refined crude because the four refineries built by the government to refine fuel that would be used in Nigeria has not operated at more than 30% of its installed capacity in the last ten years or more.  The four refineries are in Kaduna(1), Port Harcourt (2) and Warri (1)
3.       The Government sells crude oil for domestic consumption (about 445,000 barrels per day) to the Nigeria National Petroleum Corporation (NNPC) at the international spot price.
4.       The government however imports into the country the refined petroleum for local use.
5.       The government has over time allowed Nigerians not to pay the full market price of the imported refined fuel. For example, while the current cost of imported refined fuel is estimated by the government to be about N131, Nigerians pay only N65 at the pump for the product.
6.       Initially the government used to import all the fuel requirements for Nigerian consumption through NNPC but over time inefficiencies in NNPC importation schedule which led to several fuel shortages in the country forced the government to invite private individuals to also import fuel for local consumption.
7.       However, since private individuals will only import fuel if they can sell at a profit, the government has had to guarantee that though they sell the imported fuel at N65 per litre, it will pay them N135 per litre being the actual cost of the imported fuel. The difference of about N70 per litre is the subsidy that the government bears.
8.       The government claims that between 2006 and 2011, it has paid about N3.7 trillion to individuals (about 77 companies) who bring in refined fuel into the country in the name of these subsidies.
9.       The cost of these subsidies has been rising mainly because the price of crude oil has also been rising in the international markets. The government claims that in 2011, it paid about N1.3 trillion to about 77 companies that brought in refined fuel into the country.
10.   The government now says that it can no longer afford to bear this burden basically because it is no longer earning enough revenues to support this level of subsidy.
11.   The government claims it had to borrow about N835 billion of its total expenditure last year to support this subsidy payments. It claims that it cannot afford to borrow at this level again this year as it will add to Nigeria’s already US$47 billion current debt pile.
12.   Besides, the government also argues that removing the subsidy will allow private individuals to build refineries and in the process create jobs for Nigerians. It has also promised to use the money saved from the fuel subsidy to revitalize the railways and build roads.
The People’s argument against the government
1.       The people’s arguments against subsidy removal are mainly on two poles. Trust and corruption.
2.       Most Nigerians say the government cannot be trusted to deliver on its promises.
3.       Many times in the past, the government has promised that the removal of subsidy will lead to investment in infrastructure without the promised infrastructure appearing after the subsidy is removed.
4.       The government should have shown a sense of sacrifice before demanding sacrifice from Nigerians. A government that is asking for sacrifices should not been seen spending lavishly on itself as seen in the Presidency’s and National Assembly’s 2012 budget, Nigerians argue.
5.       The government should first have punished those who corrupted the fuel importation regime before asking Nigerians to pay more for fuel. If the government cannot punish corrupt officials and businessmen, why should it punish Nigerians
6.       The only benefit the people get from the government is fuel subsidy and nothing else. So the government should not touch it.
7.       Prices of goods and services will rise astronomically with the removal of fuel subsidy making life even harder for already struggling Nigerians
8.       Electricity supply is still unstable and the roads are still very bad, the government should fix some of these things before raising fuel prices
9.       There are also those who argue that there is nothing like fuel subsidy. That since Nigeria produces crude oil in the first place; it should sell the crude oil for local consumption at the international price. Based on this argument, Nigerians are already paying more than they should for locally consumed fuel.
10.   Finally, there are those who say the government, from the local government to the Federal government should cut down all their wasteful expenses like security votes and luxury cars and travels before they talk about subsidy removal.
There are some Nigerians who also support fuel subsidy. Their arguments are;
1.       Subsidy payment benefits just a few companies at the expense of the nation and it is building up a debt burden that future Nigerians will have to pay perhaps when crude oil production must have run out
2.       Subsidy payments are obviously unsustainable in the long run. Even if this fight is won, whatever government that comes after Jonathan will still move to remove the subsidy because it is unsustainable
3.       Instead of fighting against subsidy removal, Labour should use its strong organisation ability to pressurize government to deliver on the projects that the subsidy savings will be spent on
4.       Labour is part and parcel of the corruption in the subsidy regime and the nation. If only, labour will ask its members to stop facilitating corruption for themselves and politicians, corruption will be history in Nigeria.
5.       Nigerians should not expect development when they have a government which runs almost 100 per cent on oil revenues. If we want development in Nigeria, we have to meet up with our responsibility as citizens, pay our taxes and demand for accountability and transparency in governance
6.       The states and local governments are more corrupt than the Federal Government and Nigerians will achieve more success in pursuing economic development if they are able enforce accountability at the local government and State government level which collect billions of Naira monthly but never tell Nigerians what it is spent on.
7.       Labour does not need to go on strike to stop subsidy removal. They consume the largest chunk of government expenditure, all they need do is agree to say 10% cuts in labour cost and overheads across the board from local government through the states to the federal government level, and it save the nation over a trillion Naira to invest in infrastructure.
8.       Only the Niger Delta people have a right to subsidy, they contribute 90 per cent of government revenues and bear the cost of oil exploration. Other parts of Nigeria just consume the oil without any associated cost and contribute less than 10% of government revenues.

This is the battle line as the NLC calls out workers on strike today to protest the removal of subsidy by the government. 

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