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Why Fuel Subsidy Must be Negotiated By Salihu M. Lukman
No issue has stirred up emotions in our polity at the moment like the issue of fuel subsidy removal. Government says it is spending a significant percentage of its income on subsidising the cost of petroleum products imported and consumed in Nigeria. However, a lot of misinformation surrounds not just the claims of subsidy, but the processes and actual costs involved. Some opponents argue that no subsidy exists and thus, there was no basis for its removal.
What is subsidy? Does government subsidize the prices of petroleum products consumed in Nigeria? What is the real story behind the subsidy imbroglio and what should be the way forward? Generally, any method designed to reduce the cost of an activity to below normal market prices can be defined as a subsidy. Governments introduce prices to keep prices low, to maintain incomes, protect employment and to influence investments and other aspects of an economy. All indications point to a resolve by government to remove the subsidy on petroleum products. Reports suggest that effective January next year, the policy will come into effect – meaning that the prices of petroleum products will be increased. Deregulation or removal of subsidy would therefore lead to increase in the price of PMS from the current N65 to about N144.
According to reports, government has already expended N1.3 trillion between January and August this year on petroleum subsidy. Accordingly, government says it needs these funds for other development projects. Coupled with the new minimum wage of N18, 000 and the pressure from state governments, it argues that there is a need free the monies spent on the subsidy and convert same to distributable revenue in the federation account. Of course, there is the painful side to it as it has been argued by some is that the subsidy only goes to benefit corrupt officials and smugglers. Notwithstanding, there are many logical and convincing arguments on both sides.
The unfortunate reality however is that these arguments only come to citizens through the media. They are not part of enlightenment or engagement agenda between government and citizens. More importantly, the approach chosen by government hasn’t taken into account existing levels of social discontent which enhances the potential for violence. The reality on the ground today is that any approach that is not based on stakeholder engagement clearly portends danger for the polity.
How did we reach this impasse? Though government involvement in the importation of refined products began in the 1970s, the issue came to the fore following the introduction of the Structural Adjustment Programme (SAP) in 1986, leading to the fall of the naira against major currencies. Worsening economic conditions and exchange rates made it difficult to meet local consumption of petroleum products. The installed capacity of our local refineries of 445,000 bpd as at 1989 was equal to about 140% of domestic demand. The four refineries in Nigeria have barely operated at about of 50% capacity since 1990. As the naira fell in value, the cost of imported petrol also went up, leading government to increase the local price. This policy has never gone down well with labour unions, leading to strikes every time a new price regime was announced.
On June 1, 2000, the price of petrol was increased to N30/litre from N11. This was reduced to N20 after an 8 Day strike. Two years later in June 16, 2002, the price was again increased from N20/litre to N26/litre. The subsequent 2 day strike was declared illegal by the government and union leaders were arrested and charged to court. A year later in 2003, the price was again increased from N26/litre to N40/litre. This was reduced to N34/litre after an 8 day strike. Another year later in June 9, 2004, the price of petrol went up from N34/litre to about N50/litre. A Federal High Court in Abuja gave a ruling for a return to status quo (price reversal to N34/litre). Notwithstanding the court ruling, NLC and government agreed to a new price of N42/litre, but only after a three day strike.
Again, on October 11, 2004, prices again went up from N42/litre to N52/litre. Government appointed a 19-member committee on under Deputy Senate President Ibrahim Mantu to offer palliatives after three days of strikes. But barely a year later in September 2005, prices again went up from N52/litre to N65. Mass protests were organised by Nigeria Labour Congress (NLC) and coalition of civil society, resulting in a decrease in the price of fuel. In June 2007, there was another price increase from N65 to N70/litre, but negotiation between government and labour resulted in a return to the old (and current price) of N65/litre – after a four day strike.
Looking at the resolutions of all disputes since 2000 on prices increases, it is clear that the missing element is strong enlightenment and engagement at the initial stage. The 2005 work of the Sen. Mantu Committee and its recommendations would have served as an opportunity to break-away from the cycle of (a) policy announcement (b) opposition and ultimatum by Nigerian trade unions (c) possible last minute negotiations (d) strike (e) negotiations (f) agreement (h) strike called off.
The question that keeps coming to mind is why must we always follow the same predictable and costly pattern? A quick glance at this history indicates clearly that Nigeria has lost productive time and resources through strikes. Unfortunately, the cycle may be repeated with the current scenario. The first chain in the cycle, i.e. announcement, has been accomplished. The second chain, opposition by Nigerian trade unions and other groups, has also been expressed. From all indications, as things are and based on past experiences, it will grow into ultimatum and possibly strikes, completing the second and third chain by January 2012 when the policy is scheduled to come into effect.
The record also indicates the preeminent position of labour groups in the fight to oppose the incessant price increases. Indeed, except for a few instances, in no other country in the world have labour unions and civil society successfully championed the struggle for the economic and political rights of the ordinary citizen as in Nigeria. When other stakeholders wither in the face of government pressure, labour unions have come up again and again to fight for the perceived interests of the ordinary citizen.
The time has come to move from the vicious circle of price increase – strikes – negotiations. The cost of strikes to the economy is simply too high – especially as government in the end always seems to gate away with price increases. This means that the fuel subsidy issue must be negotiated. All stakeholders – government, labour unions, civil society and the organized private sector must come together to find a negotiated solution to the issues. Considering the unstable security situation in Nigeria, any form of strike has the potential to result in far more serious social unrest. This apparent conclusion is that the time has come to engage constructively to achieve mutual objectives.
To avoid the danger of strikes and its unpredictable aftermath, at least, four core principles must be embraced by all parties:
(1) The deregulation of the downstream sector must be presented as a proposal and government should be receptive to recommendations, inputs and proposals from all stakeholders (2) Government should take practical steps to create an enabling environment for consultations and negotiations in order to ensure national consensus. Part of this is to facilitate information sharing and dissemination with stakeholders and the general public on petroleum pricing and subsidy (3) It must be made clear to all stakeholders that the issue of deregulation is no way foreclosed (4) Stakeholders must reciprocate these gestures by ensuring that all positions, grievances, disagreements and objections are channeled to the relevant institutions.
The Constitution of the Federal Republic of Nigeria, 1999 under section 14 (2) (a - c) declares clearly that
(a) “Sovereignty belongs to the people of Nigeria from whom government through the constitution derives all powers and authority (b) The security and welfare of the people shall be the primary purpose of government; and (c) The participation by the people in their government shall be ensured in accordance with the provisions of the constitution”.
The issue of subsidy touches the lives of every Nigerian and must therefore be negotiated. The challenge is to ensure that the outcome represents an opportunity and not a threat to our country. Ultimately, a negotiated solution will lead to a better deal for our people and nation.
Lukman was a former President of the National Association of Nigerian Students (NANS) and Senior Assistant General Secretary of the Nigeria Labour Congress (NLC). He is currently with the Initiative for Peace and Industrial Harmony, Abuja.
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