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POLICY INTERROGATION, DISCOURSE AND DEBATE BY OSELOKA H. OBAZE
Ending Nigeria’s Fuel Subsidy By Default
Op-ed - Tuesday 24 May 2016
Fuel subsidy ranks high on the list of policy albatross President Muhammadu Buhari inherited. A recurring theme in Nigeria’s policy realm, subsidy removal has been debated for over three decade. Except for President Umaru Yar’Adua, every head of state since General Ibrahim Babangida had skillfully played the fuel subsidy removal game; which turned fuel subsidy into a synonym for fibs and myths. In character, fuel subsidy, translated to an egregious policy, deprivation, and pilfering of trillions of Naira. Ironic as it may seem, it was only Gen. Sani Abacha that effectively used the money saved from fuel subsidy for national projects under the auspices of the Petroleum Trust Fund (PTF) managed then by Gen. Muhammadu Buhari, Nigeria’s incumbent president.
President Olusegun Obasanjo tackled the issue by removing subsidies in 2003 and creating the Petroleum Products Pricing Regulatory Agency, (PPPRA). In 2012, President Goodluck Jonathan established the Subsidy Reinvestment and Empowerment Programnme (Sure-P), which sought to use federal government savings from the fuel subsidy to build better infrastructure, increase human resources and encourage greater use of public health services. Sure-P however became a conduit for rewarding political cronies at the federal and state levels. Hence, the fuel subsidy regime failed Nigerians, as a source of relief and better services and infrastructure. It was this failed system that President Buhari inherited, even as Nigerians hoped that his administration would also not make nonsense of the already skewered policy. The president was aware and before his election, observed that “When you touch the price of petroleum products that has the effect of triggering prices rise on transportation, food, and rents. That is for those who earn salaries, but there are many who are jobless and would be affected by it.”
As Kayode Komolafe noted ahead of Buhari assuming office in May 2015, “The change that Buhari promised with so much passion would be put to severe test by the manner in which he unties the fuel subsidy knot.” Komolafe’s prescient analysis materialized when Buhari’s found justifiable cause for subsidy removal, albeit, by a different name. Information Minister Lai Mohammed, simply proclaimed that “Nigeria is Broke”; meaning that the fuel subsidy was dead. Evoking Nigeria’s insolvency also meant no reprieves or any basis for meeting labour unions’ imminent demands. Surprisingly, segments of Labour invoked strikes, oblivious of the inherent contradictions.
By definition, “a subsidy is a form of financial aid or support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy.” Whereas successive Nigerian governments harped on the need to end the fuel subsidy, the courage and political will seemed absent. But on 12 May 2016, the federal government unilaterally increased the pump price of premium motor spirit (PMS) from N86.50k to N145.00 per litre –a markup of 67.63%. Even though the Buhari Government will eventually get credit for the gutsy policy of ending fuel subsidy, it was sufficiently concerned about the repercussions of subsidy removal that it elected to call the policy action by another name —fuel hike. The fuel subsidy was, is and will remain controversial. The merits of removing the subsidy are strong. Subsidy payments drain resources meant for human and welfare services, and core infrastructure and distorted economic planning. But fuel subsidy was also a major source of foreign exchange revenue for select Nigerians, who had privileged access to contracts and facilities to lift, process, procure and market premium motor spirit (PMS) – all at guaranteed favourable foreign exchange rate sourced from the national coffers. The rest of Nigeria simply underwrote their greed.
Alarmingly, overtime the federal government could not explain “the difference between the amount actually disbursed for subsidy and the cost borne by Nigerians” meaning that successive Nigerian governments had lost control of the public interest narrative justifying the retention or removal of fuel subsidy. Depending on the Nigerians you ask, the subsidy removal will either mark the courageous decision of the Buhari administration, or its utter folly. Some have argued that “it is commonsensical that the fall in the international price of crude oil should only lead to a further fall in the prices of PMS in Nigeria.” Others consider the subsidy removal part of President Buhari’s policy summersault, and indicative of “a level of confusion in his administration that should have Nigerians really worried and prepared for the worst.”
Considering its sensitivity, subsidy removal required broad consultations and ownership. The present policy, from every indication, was clearly implemented by subterfuge or by default. The latter seems more the case. Undoubtedly, there was a meeting on 12 May 2016, attended by some ranking members of the Buhari administration, some National Assembly leaders, some governors and representatives of Labour led by NLC Secretary-general Dr. Peter Ozo-Eson. By Labour’s account, the meeting rose with no agreement on process or prices. Yet the government unilaterally announced a new pump price, leaving Labour no choice but to allege that “The minister used deceit to market whatever policy they had brought forward” and did so in violation of the extant Petroleum Products Pricing Regulatory Agency Act.”
The Government, for its part, said the fuel hike was predicated on the critical shortage of foreign exchange and the need to allow independent marketers to commence importation by sourcing their own foreign exchange, after NNPC 50-50 bridging efforts collapsed. Vice President Osinbajo offered this insight: “Since last year, independent marketers have brought in little of no fuel because they have been unable to get foreign exchange from the CBN. The CBN simply did not have enough (in April, oil earnings dipped to $550 million. The amount required for fuel importation alone is about $225).” What this means, is that the fuel subsidy was essentially ended, not as a deliberate policy option or negotiated policy settlement, but by default, compelled by force majeure. This also explains why government, which had earlier reduced pump prices from N87 per liter to N86 will suddenly do a volte face and hike prices unexpectedly. Then again, the foreign exchange shortage excuse delinked the subsidy removal from any IMF prescription or recommendation.
Split within the Labour Unions strengthened the government’s hand ensuring that Labour blinked first. But the potential for renewed conflict remain. Absent favourable foreign exchange rates, can government regulate maverick importers, who must now sell PMS on the basis of the rate at which they sourced foreign exchange? Will this be a case of ending the subsidy yoke only to submit to importers’ whimsical pricing yoke? If the government was policy-focused, it would have declared the amount tagged on to petrol prices as luxury tax; while subsidizing the cost of mass transit. That way, there would be a trickledown effect for poor commuters.
Myths have always driven the fuel subsidy debate. In 2012, Tunde Bakare dissected the unsubstantiated claims by Nigerian governments about the subsidy, and noted that “the federal government of Nigeria cannot explain the difference between the amount actually disbursed for subsidy and the cost borne by Nigerians.” That concern subsists and because successive Nigerian governments have played coy with fuel subsidy, the Buhari government does not enjoy the benefit of public trust on this matter, as it ought to and when indeed, market forces are now the key drivers compelling subsidy removal. Suspicions and questions therefore persist; and “The larger question is about policy disarticulation.”
Regardless of its appellation, the present subsidy removal or hike policy was never a critically-thought-out policy option, evaluated for its positive and negative implications. It’s understandable that government was simply unable to sustain the official foreign exchange rate used by marketers for importing PMS. One salutary overcome is that the new pump price might make it less economical to ship Nigeria’s PMS to neighbouring states. But there are also some heady questions: What will the government do with the savings of $255 million a month that was routinely outsourced to importers? How would the funds trickle down to Nigerians? It seems ironic, that external forces would forcibly end Nigeria’s fuel subsidy, at a time when it seemed most inopportune and least tolerable to do so. Regardless, Nigerians feel that another campaign promise was broken. And increasingly, there’s a disconcerting sense that Buhari’s policy summersaults continue unabated. Overcoming such distrust remains for President Buhari, a looming challenge. |