PEOPLE AND POLITICS BY MOHAMMED HARUNA

The Manipulation of “Oil Subsidy”

There is something cynical about the decision by the Federal Government to remove the so-called fuel subsidy on petrol beginning from January. And it’s not just the fact that since the oil subsidy debate begun back in 1985, government’s arithmetic on the subject, as on all other subjects, has never really added up nor has it been transparent. In addition to lying with statistics there is the fact that it seems government would rather subject ordinary Nigerians to collective punishment than square-up to the challenge of taking on members of the “oil cabal” – its own words – that, on its own admission, have profited immensely from so-called oil subsidy.

I have advisedly used the word so-called in describing our oil subsidy because it is debatable that it exists at all. Or that if it does, it is no where the figures successive governments have bandied around.

Chief Olu Falae, an economist and leading politician and, before then, a leading banker, once gave a simple but telling illustration of the dubiousness of government’s claim to subsidizing oil consumption in the country.

Chief Falae should know; in addition to being a banker and an economist he was the leading advocate of deregulation as the Secretary to the Government of the Federation and subsequently Finance minister under military president, General Ibrahim Babangida, who first introduced the Structural Adjustment Programme (SAP) that has defined the political-economy of this country ever since.

In an interview in Sunday Trust (November 8, 2009), he debunked the idea of oil subsidy. He did this by comparing the price of Star beer in Nigeria and in the UK. Subsidy in Economics, he pointed out, “is the difference between the price government says you should pay at the cost plus profit of a company producing that product.”

If, he said, the Nigerian Breweries sells Star at 130 Naira per bottle, the price covers its cost of production, transportation and profit. Now if government says it should sell the beer at 100 Naira then the 30 Naira difference is the subsidy.

“Let’s take the example of beer again,” he said in making his comparison with the cost of Star in the UK. “In London, the last time I was there about a year ago, I bought a bottle of beer (Star) there for one pound and 20 pence. And with today’s exchange rate here it is about N260. That is the price at which Nigerian Breweries sell beer in London. It sells to you here at N130.00. Why doesn’t Nigerian Breweries say because we sell beer in London for N260.00 you should pay N260.00 in Nigeria? And because you are not paying N260.00 you think that is subsidy. There is no subsidy. At N130.00 they are making profit. So similarly if you go to the oil sector, if our refineries are working and they buy crude oil from Nigerian Oil Company at the cost of product plus profit to the company and they refine it and they sell it...By the time they cover these elements of price (i.e. cost of production, transportation and profit), if the price is still N50.00 per litre there is no subsidy...The truth of the matter is that the price of oil in the international market bears little relationship to the cost of production...Summarily, I am saying once the price we pay covers the price of producing the oil, transportation within Nigeria and the profit of the companies; once the price covers those three elements, there is no subsidy even if the price is far lower than the international price.”

If I have bored you with an extensive quote from the chief, I am sorry. But you’ll agree with me that it was useful, perhaps even necessary, to expose the fallacy of the argument for the removal of oil subsidy.

Of course the chief’s argument contained caveats, not least of which is efficient refineries. And we all know that our refineries have not been working for decades now, never mind being efficient. But then we also know why they have not been working; corruption, in one word.

If President Goodluck Jonathan truly wishes to tackle the problem of so-called fuel subsidy he should know that this is the monster he must confront. As Professor Sam Aluko, one of the country’s leading economists said in an interview in The News magazine (October 9, 2000), something must be wrong with us that we have been unable to make our refineries work. “How,” he asked rhetorically, “can we have four refineries in the country and then the four will break down at the same time? Even when we tried to award the contract to Total, they kept telling us that Total could not do it. Total has seventeen refineries around the world; they are all working, it’s only our refineries that they cannot put in order. You know something is wrong somewhere.” Without using the word it was obvious that the man meant corruption.

Professor Aluko’s solution then was to stop importation of oil products. “I,” he said, “alerted the nation that as long as we continue to import, it would not work. We’ll struggle and it will work temporarily only for the problem to come back again...There is a cabal made up of importers who cause the problem.”

Today we have become so import dependent for oil products that it is not possible to apply Aluko’s solution at one go. But a determined President Jonathan can phase out oil importation within a year. And he can also confront members of the oil cabal because it not a faceless clique. By definition they are prominent members of society.

Then there are things that the he can do to demonstrate to ordinary Nigerians that he truly has their interests at heart that do not require the will he needs to tackle the admittedly formidable oil cabal. One of these is to cut down the cost of governance. It speaks volume of his commitment to reign in government overhead that, for example, only this week he appointed four more presidential special advisers – remember these are of the same status as ministers - at a time he is asking ordinary Nigerians to make sacrifices.

Similarly it is also instructive that only recently the House of Representatives which is dominated by his party ordered for 360 top of the top of the range Camry saloon cars at a cost of 2.5 billion Naira for its members.

Now even if there is oil subsidy, such waste and mixed-up priorities in government spending can hardly persuade anyone that removing it should be government’s main weapon of economic management.

At 65 Naira per litre, perhaps there is some degree of oil subsidy. But as government itself has admitted in its recurring battle against the subsidy since 1985, the principal beneficiaries are members of the famed oil cabal, not ordinary Nigerians. Eliminate the cabal with all the capacity its members have for manipulating the price of oil to the detriment of the rest of us, and you are well on your way to bringing down the subsidy, to the extent that it exists, to a sustainable level.

The fact of the matter is that there is no economy in the world, including capitalist America, where government subsidy in one form or the other does not exist. The difference lies in who the beneficiaries are and how sustainable the subsidy is. The comparative advantage of Nigeria having huge reserves of oil and gas dictates that we should no Nigerian should pay an arm to consume petrol and other oil products.

And those who say government has no business in the business of commerce and production are obviously not being honest with themselves. As we have seen with Japan and among the so-called Asian Tigers, government can succeed in business just like the private sector. All it takes is good governance and transparency.

For President Jonathan to advocate a doubling of the price of petrol - perhaps even more - from January is to admit that his government has neither the capacity nor the will to bring about both in this country. In other words all his talk about transformation is no more than mere empty sloganeering.