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THE FALLACY OF OIL SUBSIDY AND ITS REMOVAL

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Once again, Nigerians are being put through the pain and trauma of the debates, posturing and propaganda around removal or non removal of ‘subsidy’ on petroleum products. In the last decade, this debate has had crippling effects on the economy, as speculations around it always results in needless suffering for the citizenry, evidenced by panic buying, hoarding of petroleum products, and the attendant long queues at petrol stations, which we are already witnessing all over the country. From all indications, this will be a bleak Christmas indeed, judging from the kilometers long queues at petrol stations all over the country, barely one week to the Christmas festivities.

But why do Nigerian leaders always research into ways of making life difficult for the citizens? What is the benefit that Nigerians derive from being citizens of this country, and why do they have to go through all this pain from the government all the time, when they get nothing tangible in return? What does the government benefit from stirring up trouble when none should ordinarily exist?

The boring arguments in support of removal of fuel ‘subsidy’ are being once more recycled, as the government ramps up its position on the issue, apparently hell bent on having their way, and making lives miserable for the citizens in the new year. Such arguments as using the N1.2 Trillion currently paid as subsidy to improve infrastructure, provide healthcare, etc, are so mundane and over flogged that no self respecting Nigerian takes the government seriously on the issue. The truth remains that the clamour for increase in pump price of petroleum products (which is what it actually is, not removal of subsidy, because there is no subsidy), is predicated on government’s resolve to increase the amount of funds available to it for profligate spending, and nothing more. That clearly accounts for the overwhelming support the proposal is getting from all the 36 State Governors without exception, because they are already salivating at the thought of what they will do with the increased revenue when it gets into their hands. It will be interesting to know the views of a Governor like Adams Oshiomole of Edo State, who recently, as NLC President, firmly opposed the proposal while Olusegun Obasanjo was President, and in one television debate on the matter, so humiliated the President on the issue, that the debate had to be called off midstream, because the President apparently lost his temper! It will be a cold day in hell indeed, if Oshiomole’s metamorphosis as Governor has made him to see the light, and abandon the people he so stoutly defended at the time, so soon.

The purpose of existence of any government is to make life livable for the people. Any government that cannot do this fails in its social contract with the people, and risks the ‘Egyptian’ or ‘Libyan’ treatment. It is very easy for our rulers to delude themselves into thinking that such uprisings are not possible in Nigeria, but recent happenings in the Arab world, which was for many years thought to be docile, clearly shows that anything is possible for a people for whom there is really no meaningful difference between living and dying.

On the technical aspects of this debate, it is clear to all honest and discerning people that there is no subsidy on petroleum products in Nigeria. At the risk of being shouted down by government apologists who are only looking at the personal benefits they will derive from the increase in pump prices of petroleum products, what government is seeking to do is passing the cost of their own inefficiency to the citizens of this country. To start with, it is not the business of the ordinary citizens to set up refineries and get them functioning at optimum levels. In spite of the huge expenditure in Nigeria’s comatose refineries, they have failed to function anywhere near optimal levels, and all the citizens are fed with, is that corruption and entrenched interests are responsible for the lingering inefficiency. Who appointed the people running the refineries inefficiently? Who is supposed to monitor their performance and come up with policies to plug the many loopholes fuelling corruption in the system? How can the President and his aides in government throw their hands up in the air and tell Nigerians that because of their own inability to curb corruption among their own ranks, life must be made more difficult for the citizenry?

Furthermore, the current pump price of petroleum products, which is predicated on the import cost of the products, is inefficient and unsustainable. To start with, fluctuations will continue to exist in the exchange rates, which will always mean that the pump prices will continue to fluctuate to the disadvantage of the citizens, for something that they have no control over. Also, the cost of freight, demurrage, storage, etc, which are all tied to imports, are completely inefficient and foisted on Nigerians by government’s refusal or inability to get the local refineries to function, again, due to no fault of the citizenry, who are now being made to bear the brunt. If these costs are backed out of the current pump price, one begins to come to terms with the reality that there is indeed no subsidy.

Finally on this point, the 2012 budget is predicated on an international price of $70.00 per barrel of crude oil. The transfer price of crude, recognized by NNPC in computing pump price and the subsidy thereon, remains the international market price of the product, which is much higher. How can government recognize its income on a product at one price, and use a different indices for recognizing the price for the same product for local consumption? If the same pricing mechanism is used for both scenarios, it becomes clear that the pump price of petroleum products should be lower than they currently are, and not higher. A barrel of crude oil is approximately 200 litres, which on refining, produces about the same quantity of Premium Motor Spirit (PMS), Diesel (AGO), Kerosene (DPK), other lubricants, and Petrochemical products, with minimal losses in the refining process of catalytic cracking. Even if you assume that only 200 litres of petrol comes from a barrel of crude oil (which cannot be the case), the unit cost of one litre of refined products should be in the region of N54.25k at current exchange rates. So where is the subsidy?

Nigeria also does not operate in isolation of the international community. The practice in Nigeria must draw a parallel with other countries with similar economic and natural endowments as Nigeria. The easy comparison to draw is that of other developing countries which are also equally endowed with oil and gas, as Nigeria. Two simple examples will suffice for this purpose – Saudi Arabia and Venezuela, both oil and gas producing countries. A gallon of PMS costs $0.91 (or N141.05 for 4 litres) in Saudi Arabia as at today, which translates to N35.26k per litre. The same gallon of PMS costs $0.12 (or N18.60k for 4 litres) in Venezuela today, translating to N4.65k per litre. The standard of living in these two countries is much higher than in Nigeria, where the average citizen sees a direct benefit of citizenship on a daily basis, unlike Nigeria where majority of citizens are entirely on their own, with no form of support whatsoever from government. If there is any society in the world where the social contract, which is the basis of the concept of taxation has failed, it is Nigeria.

CONCLUSION
Our government officials at every level live heavily subsidized lives, from their houses, to their cars, to even the food they eat in their homes. This subsidy reflects in the heavy cost of governance which we see in annual budget estimates from year to year. When you divide this cost by the number of beneficiaries in government offices, the unit cost of every government official to the country is astronomical. Apparently, this does not matter to the government. What they are preoccupied with is the pittance the citizens are alleged to be getting through ‘subsidy’ of petroleum products, which in reality is a farce. Having failed in this debate, what we expect the President and his cronies in government to do is put on their thinking hats, and reduce the cost of governance through bloated lifestyles and frivolous expenditure, while focusing how to make lives livable for the people, not embittering an already near impossible existence.

**** Madaki O. Ameh, an Oil & Gas Consultant, is a Senior Partner in Bbh Consulting, based in Abuja. [email protected]

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