Of Oil Subsidy Removal, Jonathan, Sanusi Lamido, Okonjo-Iweala and the Collapse of Nigerian Economy

By

Jibo Nura

jibonura@yahoo.com

 

 

Introduction:

The euphoria on oil subsidy removal on January 1, 2012 by President Ebele Jonathan and his economic henchmen such as Sanusi Lamido Sanusi, Ngozi Okonjo-Iweala and co. explains the hypothesis and theoretical nature of an expensive decision, which was taken out of sheer economic anxiety that if Nigerians continue to enjoy oil price relief, the nation’s economy will no doubt perish, because its foreign reserves had been depleted.

Be that as it may, but one thing remains clear. Nigerians are tired and increasingly becoming impatient on President Jonathan’s oil subsidy removal vagueness, verbosity and waffle. We are very seriously fed up with Sanusism and Okonjoism gospel singing on improving our nation’s economy based on gobbledygook and apocalyptic certiorari. In a country of imperfect economic competition where microscopic few noisy individuals like Labaran Maku (President Jonathan’s Minister of Information), can come out boldly and tell us that there is no harm in the fire brigade decision of removal of oil subsidy, then it means an individual economic unit or group of individuals in Nigeria can decide to pursue their own self interest based on unilateral actions and attitudes that are heavily lopsided with aggrandizement and sheer arrogance, which are at a complete variance with the overall wellbeing of Nigerian society as a whole.

Indeed, the economic assumption(s) behind the President’s anxious decision on this oil subsidy of a thing finds a place in the lack of knowledge and understanding of Human Relations Approach (HRA) to leadership management and practice. It exposes an inertia in fuel capital management, which is realistically and logically not in tandem with mechanistic theories and modus operandi of the classical and scientific management school.

The thrust of our analysis today will therefore be centred on the behavioural viewpoint which states that people deserve to be looked at as central concern of any organized activity, which must be guided by democratic and participative management. We shall achieve this based on three (3) subsidization philosophies and economic frameworks as mathematically deduced by Tamuno David West (2011), Izielen Agbon Izielen (2012) and Elton Mayo (1927). As we explain these philosophies of subsidization and national humanization approach that were since advocated by scholars and authorities such as Mary Parker Follet, Douglas McGregor, Abraham Maslow, Frederick Herzberg, Charles Handy and Dale Carnegie, there is the need to take into cognizance the monumental national economic deficiencies that were superficially and terribly postulated by Mr. and Mrs. Know-all (Sanusi Lamido Sanusi and Okonjo-Iweala). We shall eventually look at the superficiality and setbacks in Sunusism economic model that have neglected the role of people in an informal economy who should be viewed as central focus to productivity, welfare and negotiation. But before we go further there is also the need to state categorically that one-sided calculation on national economy according to Adam Smith (1776) and Henri Fayol (1925), is directly proportional to inefficiency, and do not guarantee good job performance and satisfaction, instead success depends on people and their fair treatment as a community.

Oil subsidy removal myth and reality:

A common cause of internal conflict in a nation is the absence of definite responsibilities where leaders do not clearly understand their roles and limitations. To avoid this conflict, leaders must be ready to at any point in time design and boldly outline their duties and responsibilities to the citizenry. For Jonathan, Sanusi Lamido and Okonjo-Iweala to take a stringent measures and decision on the entire nation on oil subsidy removal with total disregard to decorum by playing with our psyche and economic knowledge, is indeed worrisome. They deliberately shied away from explaining to us the way the nation’s foreign reserve is being depleted within 8 months by Jonathan and his political puppets. An investigative report in the Daily Trust stable of Thursday, January 5, 2012 revealed that the Federal Government under Goodluck Jonathan has unpatriotically and irresponsibly depleted the stabilization account where he (Jonathan) single-handedly withdrew in different installments N114 billion from September 2010 to May 2011. Sadly, most of these funds were mischievously used for car finances scheme, so-called police peace keeping mission in Haiti (the most corrupt country in the world now assisted by another corrupt government), and in financing the terrible INEC elections activities that was presided by Prof Jega to mention but a few. These monies were 100% withdrawn and spent by Jonathan government, but the question is: what impact and/or improvement have we seen in the nation’s economy let alone Nigerian politics?

When Sanusi Lamido Sanusi was busy playing to the gallery on his so-called exposition of the
spending of 25% of the national income on payments of salaries and other expenditure for

Nigerian Senators and Rep Members, what advice has he given Mr. President on the way to tackle the spending spree in the National Assembly? The cardinal question here is: why can’t Sanusi, Okonjo-Iweala and the talkative Labaran Maku come out and explain in plain language how the nation’s external reserve was callously depleted instead of dilly-dallying and disco-dancing over oil subsidy just to cause confusion by putting discomfort in the minds of ordinary Nigerians?

The irony is: when Sanusi boldly took that step of unraveling the financial spending in the National Assembly, immediately they retaliated in defense, he was completely silenced, because he wanted to save his job. That was why he could not take that same bold step again to candidly advice President Jonathan to revisit and cut-down the salaries of those Senators and Rep. Members. What balderdash!

The same Sanusi deliberately refused to tell us the whys, hows and whats of spending the following monies from our external reserve by Jonathan administration.

. Loan to fund INEC-N87.70 billion

·           Funding of National Council on Finance and Economic Development (NACOFED) activities-N255.75 million

·           Release to Federation Account Allocation Committee(FAAC) Secretariat for the year 2004-N31 million

·           NACOFED conference of 2004-N25.70 million

·           Loan to FGN 2006 Car Scheme-N4.58 billion

·           Loan to IG-N308 million

·           Loan to FGN Car Scheme in paramilitary agencies-N10.76 billion

·           Loan to FGN pioneer Car Scheme-N2.8 billion

·           Advance to FGN to meet shortfall in revenue-N985 million (Source: Daily Trust Stable, January, 5, 2012)

In the 2012 budget the following monies are included therein and will be 100% spent by the end of this year. We therefore wish to ask Mr. President why the following monies cannot be used to save the nation’s economy from collapsing if at all he and his economic cronies are ready to salvage Nigerians.

·          N280 million-for the purchase of two bullet proof vehicles-claiming that the current one is too old. As Majek Adega (a writer) challenged elsewhere i.e. why the President and his V.P can’t continue to drive the existing ones until the economy gets better?

·                  N125 million-for the purchase of 5 Mercedes Benz Salon Cars.

·                  N100 million-for the purchase of 10 assorted SUVs at N10 million each.

·                  N76 million-renovation of 3 of Aso Rock’s Gates.

·                  N152 million-extension and renovation of GEJ’ family wing of the presidential villa.

·                  N385 million-reclamation of land at the state house medical centre.

·                  N230 million-extension and renovation of the V.P’s guest house. This same project according to Adega gulped N400 million in the 2011 budget.

·                  N37 million-for the renovation of the presidential chalet at Nnamdi Azikwe International Airport. In 2011, N48 million was spent on the same project.

·                  N1 billion-for food allowance for the President and his V.P in 2012.

·                  N45 million-purchase of kitchen equipment.

·                  N45 million-president’s Jonathan’s 2012 Newspaper budget.

(Source: Majek Adega, “Why the Removal of Fuel Subsidy cannot be justified”, Facebook, Page 1).

Summing up the above figures, we think our CBN Governor can easily calculate for us how we can make-up the nation’s treasury without much ado about oil subsidy removal. But one fact remains: he is not seeing along our line of thinking. He instead, prefers to score cheap economic point by focusing on subsidy; trying very hard to prove that he is a Banker of international repute. He is always eager and enthusiastic to be aired on radio so that he convinces us on how “Nigeria lost $16 billion on subsidy last year”. He has been parambulating that the total amount of money in the foreign reserves was $200,000 short of the spent sum.

May be, one should at this point remind Jonathan and Sanusi and their chief financial Architect, Okonjo-Iweala by throwing them a double-decker question i.e. where were they when the PDP government as we heard from El-rufa’i spent $200 billion from 1999- 2007 on elections and campaigns? Where were the Sanusis, Iwealas and Labarans when

all these colossal amount of petro-dollars were hypocritically spent by the PDP government-the so-called ruling party in Nigeria?

Now let us quickly flash back to our earlier assertions so that we buttress our analysis with Tamuno David West and Izielen Agbon Izielen practical calculations on how much a litre of petrol is supposed to be sold to every Nigerian in every filling station across the country.

Tamuno David West’s mathematical petrol production and functional approach:

a.       1 barrel of Crude Oil =42 Gallons or 159 litres in some cases 168 litres due to variance in barrel size and capacity. The 42 Gallons of petroleum products consists of 4 Gallons of LPG, 9.5 Gallons of Gasoline, 10 Gallons of Diesel, 4 Gallons of Jet Fuel/ Kerosene, 2.5 Gallons of Fuel oil and 5 Gallons of Bottoms.

b.      Nigerian Refineries (4 installed capacity at Kaduna, Warri and Portharcourt) =445,000 barrels per day.

c.       Actual refineries capacity due to ageing equipment and obsolescence=30-38.2% efficiency =133,500-170,000 barrels per day out of which we get throughput refined products of about 13.26 million litres of petrol, 6.8 million litres of diesel and 2.72 million litres of Kerosene/ Jet Fuel, which are all not enough to cater for the total national demand. This obliged us to send our remaining crude oil of about 275,000 barrels per day to be refined abroad and imported back into the country for sale. But even at the level of deterioration of Nigeria’s refineries we get at least 133, 500 barrels= 21.20 million litres.

d.      Local required consumption (F.O.S) = 12 million litres. This means with the moribund status quo of our national refineries, we can actually cater for our local consumption since we just need 12 million litres out of which we have 9.20 million litres in excess.

Now let us look at the David West’s deduction formula on structure of refining the crude oil i.e. Qua Iboe Crude Oil production cost.

e.         Findings/development=$3.50 per barrel
Production cost= $1.50 per barrel

Refining cost= $12.60 per barrel

Pipeline/ transportation= $1.50 per barrel

Distribution/ bridging fund margins=$15.69, which comprises of retailers, transporters, dealers, bridging funds and other administrative charges.

f. True cost of 1 litre of petroleum anywhere in Nigeria

= $3.50+$1.50+$12.60+$1.50+$15.69=$34.79 per barrel 1 litre cost = $34.79÷159 litres = $0.219.

Naira equivalent of $0.219= 0.219x N160= N35.04k Add V.A.T of N5.00= N35.04+N5.00= N40.04k

This N40.04k as calculated by Professor David West, former Nigeria’s petroleum Minister, is actually what every Nigerian who cares to fuel or oil his vehicle is supposed to pay at every filling station in Nigeria. So where is the subsidy that Jonathan, Sanusi Lamido, Okonjo-Iweala and co. are terribly disturbing us about? Who then is unrealistic? Who then is ignorant and nonacademic with national economic statistics?

Indeed, the issue is: even the 275,000 barrels per day that we send daily abroad, we give it out to commodity traders, which are also divided as follows:

a.       90,000 barrels per day goes to Duke Oil.

b.      60,000 barrels per day goes to Trafigura (Puma Energy)- a company that conspired against the Ivorien citizens health status by dumping a hazardous petroleum substance on Ivorian soil. This Trafigura was caught in barbarous throwing away of toxic petroleum waste on Cote d’Ivoire’s soil, which stripped their nutritious land bare, killed scores of people and sickened thousands of Ivorien citizens. The dumping of the deleterious petroleum residue, according to Kperogi was done on July 2, 2006. An Amsterdam court that found the company guilty had to fine it 1 million Euros. But regrettably, the Nigerian government feels there is nothing wrong in engaging this fraudulent Trafigura to refine its crude oil in a crookest manner. Please see Farooq Kperogi’s analysis on Trafigura in his Weekly Trust Column of Saturday, November 5, 2011 i.e. “Notes from Atlanta”.

c.       Another 60,000 barrels per day goes to Societe Ivorienne de Refinage (SIR) in Abidjan, Ivory Coast.

d.      65,000 barrels per day goes to (unknown sources) in a swap deal.

Now let us refer to the 2^nd theoretical framework as deduced by the mathematical Izielen Agbon Izielen on swapped petroleum products before we finally draw an inference after comparing it with Tamuno David West’s petrol production approach.

Izielen Agbon Izielen mathematical method:

If the landing cost of a litre of petrol is N 123.32 and the distribution margin is N15.49 according to the Jonathan’s government, it means: 1 litre =N123.32+N15.49= N138.81, which is equivalent to $3.54 per Gallon=$ 148.54 per barrel.

a.               Technically, 1 barrel of Nigerian Crude Oil= 6.6% volume yield of AGO 20.70% Gasoline

9.50% Kerosene/ Jet Fuel 30.60% Diesel

32.60% Fuel Oil/ Bottoms

The above percentages according Izielen are what we will get when our crude is fully refined.

Now using the Izielen’s netback calculation method, domestic prices are obtained thus:

b.              AGO=$174.48 per barrel Gasoline (PMS or Petrol) =$69.55 per barrel

Diesel Oil=$172.22 per barrel Kerosene= $53.50 per barrel Fuel Oil= $129.68 per barrel

Substituting the government imported PMS prices of $148.54 and $142. 32 per barrel for the domestic price of petrol/gasoline, gross product revenue per swapped barrel =

$174.48x

0.066+$148.54x0.207+$172.22x0.306+$53.50x0.095+$129.68x0.326=$45.89

When we substitute the above figure from the government price we obtain the exact international cost as thus:

$$148.54-$45.89=$102.65= International cost of a barrel of Nigerian crude oil=$102.65 per barrel.

Also substituting the international cost of a barrel of Nigerian crude oil, which is ($102.65 per barrel) from the government figure as obtained inter alia, we get the net cost of imported swapped petroleum products to Nigerian consumers.

c. $142.32-$102.65=$39.67 per barrel of swapped crude oil, which is a net of N39.91 per barrel obtained thus: $39.67±159 litres=.$0.249x N160 Naira equivalent=N39.91. We add V.A.T of N5.00 =N39.91+N5.00= N44.91 of petrol per litre. Again according to the Izielen’s method, this is also a fair price of petrol in any filling station in Nigeria.

Now comparing Izielen’s N44.91 per litre with Tamuno David West’s N40.04 as obtained elsewhere in this analysis, we add the 2 figures together and take the average i.e.

N44.91+N40.04=N84.95±2= N42.48≈N42 per litre.

Therefore, the final cost of 1 litre of petrol, which is supposed to be sold to everybody in Nigeria that wants to buy fuel is N42 not the former government price of N65 per litre and definitely not at the extra-large and hypothetical figure of N141 per litre. The real cost of petrol is statistically obtained from this comparative analysis of the results of two authoritative mathematical connotations, which gives out our oil price per litre in Nigeria as N42. Who then is unrealistic?

This shows how some people with very little knowledge in economics can brag themselves as scholars and hence can ignore the views of professors and authorities that are more knowledgeable than them in the area of Nigeria’s political-economy.

Therefore, the Jonathan-Sanusi-Okonjo-Iweala’s version of oil subsidy removal far “surpassed” our normal understanding, because theirs, is a complete mismatch of our own simplistic definition. That is why one may wish to ask Sanusi his own definition and meaning of subsidy, particularly when he bailed out those five Banks where he single-handedly injected over N10 billion to rescue them out of their operational doldrums. He could have chosen not to do just that so that the Banks could die down naturally, but he used tax payers’ money and relieved them up. Is it not a subsidy that he gave to the Banks to free them from their comatose situation?

Realistically, even the Bank’s bailout plan that he did, was actually faulty. As Irvine Sprague, a former director of the FDIC writes in his book “ Bailout”, “In a bailout, the bank does not close, and everyone-insured or not –is fully protected, except management which is fired and stockholders who retain only great diluted value in their holdings. Such privileged treatment as accorded by the FDIC only benefits an elect few in the economy”. This means bailouts are only

for the rich. Sanusi should know that if, for example, JP Morgan Chase or Citibank gets in trouble in the US., the tax payers in the State pay for all losses. This means the $250,000 limit does not apply. In a nutshell, what the CBN did is just a carbon copy of the FDIC in a simple term, which is a smoke screen protecting the biggest banks. This also means if a bank gets caught, the government bails it out with tax payers money the way Sanusi Lamido did with the likes of Oceanic and Intercontinental Banks. What an economic “guru”?

The CBN governor should therefore go beyond economic polemics and rhetoric in what appears to be his attempt at pleasing IMF and World Bank-institutions that he was vehemently opposed to not long ago. It is indeed mind boggling to see the likes of Sanusi and Okonjo-Iweala who few years ago were heavily opposed to certain IMF and World Bank policies are now disco-dancing to their tunes and lyrics. Sanusi in particular was once attacking these Bretons Institutions, because of their economic policy inequalities in the developing nations. Hear him:

“The struggle against global capital as represented by the unholy trinity of the IMF, the World Bank and Multilateral ‘trade’ organizations as well as that against the entrenched domestic class of contractors, commission agents and corrupt public officers were vicious and thus required extreme measures. Draconian policies are a necessary component of this struggle for transformation and this has been the case with all such epochs in history”.

That was Mallam Sanusi Lamido Sanusi of yesteryears when he was depending “Buharism” in his own version of economic theory and political-economy on July 22, 2002 in Lagos. But shamelessly enough, this same man has today eaten up his own vomit by schematically trying to implement the World Bank’s agenda. That is why he seriously craves for the support of Nigerians to succumb to removal of oil subsidy even when he seems not to understand its real meaning and significance from its originators.

In view of the above therefore, we urge on President Goodluck Ebele Azikwe Jonathan, Sanusi Lamido Sanusi and Okonjo-Iweala to kindly refer to Joseph Stiglitz, the 2001 Nobel Prize for Economics Laureate and one of the world’s best known-economists and former Chief Economist at the World Bank, and get well informed about national and international finances, which he (Stiglitz) honestly argued and explained to, especially President Clinton’s government as the Chairman of the Council of Economic advisers. He opined that subsidy removal, “globalization and its discontents”, cannot simply work for the developing nations such as Nigeria. We also urge them to in the spirit of profound camaraderie and sportsmanship revisit this oil subsidy unilateral decision before it consumes all of us.

For Okonjo-Iweala, the Nigeria’s finance Minister, there is lots of lessons that she ought to have
learnt from her very senior colleague (Professor Stiglitz) when she was at the World Bank, but
she could not do just that. What a waste? She could have learnt from him that subsidy in its real

form and structure, is always given and provided by any apex government to cushion the economic hardship of its citizenry. Definitively, she could have known from Joseph Stiglitz’s school of thought the multinational institutions’ policies and what they want to achieve as a faith accompli in developing countries such as Nigeria. A decade after the Uruguay Round, more than two-thirds of farm income in Norway and Switzerland came from subsidies, more than half in Japan, and one-third in the EU. For some crops, like sugar and rice (not even oil), the subsidies amounted to as much as 80 percent of farm income. The aggregate agricultural subsidies of the United States, EU and Japan, for example (including hidden subsidies such as on water), if they do not actually exceed the total income of sub-Saharan Africa, amount to at least 75 percent of the region’s income, making it almost impossible for African farmers to compete in world markets. The average European cow, gets a subsidy of $2 a day (the World Bank measure of poverty), 80 percent of the people living in Nigeria today live on less than that. This means it is better to be a cow in Europe than to be a poor person in a developing country like Nigeria.

The Burkinabe Farmer, for example, lives in his country with an average annual income of just over $250. He ekes a living on small plots of semi-arid land; there is no irrigation, and he is too poor to afford fertilizer, a tractor, or high-quality seeds, unlike his colleagues in California that can farm a huge tract of hundreds of acres, using all the technology of modern farming: tractors, high grade seeds, fertilizers, herbicides, insecticides etc. The most striking difference here is subsidy on irrigation water (not even oil) by the U.S government, which allows the California cotton Farmer to farm very well, because the water he uses to irrigate land is in effect highly subsidized. He pays for less for it than he would in a competitive market. But even with the water subsidy, even with all of his other advantages, the California Farmer simply couldn’t compete in a fair global marketplace were it not for further direct government subsidies that provide half or more of his income. Without these subsidies, it would not pay for the United States to produce cotton; with them, the United States is, as we have seen, the world’s largest cotton exporter. And this brings us to the end of this discourse on oil subsidy removal using Elton Mayo’s Hawthorne studies framework that the incentive plan on subsidy given to people if removed in effect; it affects their general output, socio-economic wellbeing and standards, because it is the key determinants of individual’s welfare and behavior.

Conclusion:

The Federal Government of Nigeria should therefore as a matter of national interest urgently reverse the decision on oil subsidy removal. The money it claims to be losing on oil subsidy each year, can be obtained by cutting the salaries of all the political appointees and office holders by 50 percent not by 25 percent as meagerly asserted by President Jonathan in his address to the nation yesterday night. These political appointees, starting from local government councilors, to chairmen, state and federal rep. members, senators, ambassadors, ministers, governors, vice president and president, should be reduced their salaries by half if at all we are serious about

nation building. The unnecessary committee sitting allowances given to House Committees should all be remitted back to government coffers for Project Nigeria. Once this is done, we can invite the Sanusis and Okonjo-Iwealas to reevaluate and calculate the national income index and see if the N 1 trillion that they said we are losing on subsidy cannot emerge out of those political appointees spending jamboree. There is no conflict whatsoever between this and action committed to meaningful goals. The two are inseparable. We should intellectually, but ideologically challenge President Jonathan administration, his cohorts and economic think-tanks such as Okonjo-Iweala, Sanusi Lamido and Diezani by collectively letting them know that there are teaming fellow Nigerians who are out there that only manage to eat once a day. We must remind them anytime that because of their stern and inhuman actions on oil subsidy, there are lots of children who will drop out of school, because their parents can no longer afford to send them to study anymore. Indeed, we must tell them that the decision they took, maliciously means afflicting more hardship and suffering to ordinary Nigerians. We have no choice than to tell them that we can no longer confide in them that they will do something tangible with the oil subsidy money trillions that they said will save for the development of Nigeria. We feel nothing will be done with the money other than to be shared again by government top echelons in their business as usual. As we put our hands on deck to salvage Nigeria, we shall pursue our own cause with personal temerity, grandeur and passion. What is wrong, useless and should be avoided is what honourable Dr. Yusufu Bala Usman once referred to as hot-air jargon what is popularly called in Hausa as Dogon Turanci.

Jibo Nura (Quantity Surveyor), is lifetime Member, West African Research Association (WARA), African Studies Centre, Boston University, United States. He can be reached at: jibonura@yahoo.com.