The Unanswered Questions on Fuel Subsidy Removal

Ever since the Nigerian government officially announced a few months ago its plans of removing the subsidy on petroleum or premium motor spirit (PMS) by January 2012 , the debate for or against this policy has raged on and is only increasing in intensity by the day. Those for the policy, mostly from the camp of the Executive arm of government argue that fuel subsidy hardly benefits majority of Nigerians, that it only serves to benefit an exclusive class or “cabal” of petroleum importers; and that in the face of dwindling revenues in this tumultuous global economic climate, the close to N1.3 trillion spent annually on subsidizing fuel is unsustainable when it could be channelled towards development projects and provision of infrastructure. Those against the policy argue that removal of subsidy, which is one of the only way most Nigerians get their “share” of massive oil revenues, will lead to an over 100% increase in the price of fuel with a rippling effect on the entire economy and thereby bring untold hardship on the common man.

In all this intense debate, certain questions have remained unanswered  particularly from the camp of the government, not just on whether subsidy should be removed or not, but on what exactly this policy entails and its consequences,. The government has been exceedingly secretive, vague and ambiguous over its exact plan of action to this end that is how such funds/proceeds would be utilized in realizing all the lofty promises of infrastructure provision and investment in capital projects, how the government would address the inevitable inflationary pressures that would occur and what palliative measures would be put in place to minimize and cushion the harsh effects of these inflationary pressures on the  populace and on the economy.

Even the most nonchalant and blasé observer of events in Nigeria would agree that the government has done a very poor job in political communication and engaging stakeholders and common Nigerians on this subsidy issue. Nigerians became acquainted with government’s plans to remove fuel subsidy from rumours a few weeks after the inauguration of President Goodluck Jonathan, which the government denied several times, before the bombshell was dropped in the National Assembly. As if that wasn’t bad enough, the government to date has neither made any concerted effort to properly engage Civil Society, academics and the general public nor does it have a coherent policy document or blue print with a clear break down of the amount of PMS consumed daily/monthly/annually; the quantity of PMS refined and produced domestically vis-a-vis the amount imported; the exact amount of subsidy that covers what percentage of PMS; the exact manner in which the “cabal” is fraudulently benefiting from fuel subsidy at the expense of Nigerians; measures to be taken to combat this fraud and bring these perpetrators to book; a projected timeline of how subsidy would be removed and how the funds would be utilized; the short, long-term and medium-term effects it would have on the economy; a timeline of rehabilitation of existing refineries and how many new ones would be built over what period of time and how the supply structure of fuel would be overhauled. In the absence of this policy statement, most of what many informed people have learnt about the fraud and opaqueness revolving around petroleum subsidy has emanated not from the government, but from the efforts of academics and journalists such as Farooq Kperogi, young activists such as Kunle Durojaiye,  former head of state General Muhammadu Buhari,  a Former Federal Director of Budget Chief Omowale Kuye (OFR), all of whom have shed light on the issue.

While the government has repeatedly stated that subsidy only benefits a few middle class to upper class Nigerians at the expense of common Nigerians, it remains very sketchy how government intends to utilize these funds to the benefit of common Nigerians. We have learnt that the proceeds from the removal of this subsidy would be used in building infrastructure, schools, hospitals, roads and refineries. The Vice President Namadi Sambo on Friday 13th December while engaging some members of Civil Society said a subsidy savings management programme would be unveiled with which Nigerians can monitor the judicious management of these funds. As this was only announced after the subsidy-removal debate had raged on for months with barely a month to the implementation of the policy proper, one could rightly assume that this came as an afterthought to the government in a ploy to assuage angry Nigerians as the plan is bereft of detailed explanation. Given the notorious inefficiency, leakages, corruption, waste, mismanagement and excessive bureaucracy that characterize the management of public funds, what assurances do Nigerians have that the management of subsidy proceeds would be any different from the norm?

Most importantly, it remains unclear what palliative measures would be put in place to cushion the inflationary pressures on Nigerians, that would inevitably abound from this policy. As the Minister of finance, Dr. Ngozi Okonjo Iweala announced, the price of PMS per litre would go up from the current official rate of N65 to more than N120 and upto N150 ($1). In the absence of a coherent, logical and clear-cut policy document, government has not made projections on how long this price increase would last before market forces kick-in and bring down the price, what projected impacts the increase would have on the lives of Nigerians and on the economy, what precise inflationary pressures would be the consequence and whether this inflation would be short-term, medium-term or long-term and how government will ensure that such inflation would not have a deleterious on Nigerians and on the economy. Though the Honourable Minister said “palliative measures” would include the launch of the Subsidy Reinvestment and Empowerment Programme (SURE) , maternal and child services, youth employment programmes, urban mass transit, “infrastructure” projects etc, these proposed programmes remain vague and disjointed because they would simply be a duplication of functions of already existing ministries and parastatals. It is difficult to envision how “maternal and child services” would for instance curb inflation.

Given that the entire Nigerian economy is an oil-based enclave economy in which every sector literally depends on petroleum while the  perennial problem of power supply has ensured that industries, banks, schools, hospitals, factories and households, are all powered by generating sets fuelled by diesel or petroleum, it doesn’t require a super macro-economist to extrapolate and deduce that an increase in petroleum prices by 100% would lead to a corresponding increase in all goods and services by same percentage: foodstuff and consumer goods, school, hospital and banking services, transportation fares and everything else. This inflation is inevitable, yet the government has kept mute over how exactly it will cushion these anticipated impacts. Are there going to be special social benefits to be handed out to Nigerians? If so what form would it take and how would it be disbursed?

This unnecessary tension in the polity and controversy surrounding the planned subsidy removal could have been largely avoided if only the government had been more adept and tactful in its political communication with stakeholders and with Nigerians. That there is monumental fraud and inconsistency surrounding fuel subsidy is undisputed, anyone who has keenly followed the debate in the past few weeks would attest to that. However the manner the government has approached the issue with secrecy and lack of consultation at the onset, only now engaging some members of civil society not to engage them critically, but just to win them over even so without a clear policy statement is fuelling the fire of this controversy and making the real motives of government suspect. It remains to be seen how things will pan out in the next few weeks and how long government will continue with this futile and maladroit approach in trying to win over Nigerians to buy this highly unpopular, ill-thought out and controversial policy decision.