The Federal Government’s Planned Subsidy Removal: EiE Nigeria Press Release
December 12, 2011. Lagos, Nigeria – Despite the concerns raised from different groups and individuals, President Jonathan will, tomorrow, present the 2012 Budget to the National Assembly excluding the provision for fuel subsidy.
In her two appearances before the Senate Joint Committees on Appropriation, Finance and Petroleum Resources (Downstream) for the public hearing on “The Operations of the Fuel Subsidy Scheme in Nigeria,” the Minister of Petroleum represented the Federal Government’s position as follows:
The fuel subsidy structure is inefficient, costing us N600bn ($x) in 2010 and N1.3 trillion ($y) from Jan – October 2011. The Federal Government cannot continue to pay as it’s unsustainable. By removing the subsidy, the savings will be used to provide critical infrastructure and services. Currently, only a small percentage of Nigerians (the marketers, middle & upper-class Nigerians) benefit. By removing the subsidy, more Nigerians will benefit. In the words of a Yoruba proverb, the Federal Government has, yet again, left leprosy to treat ringworm. While we understand that the current cost structure is unsustainable, Nigerians can no longer afford to pay for government’s inefficiencies. It’s too expensive (financially; productive man hours and human lives) and it’s also NOT sustainable. Issues to Consider
1. A lazy, thoughtless approach The government clearly finds it easier to undertake an unwise blanket removal of subsidy than engage in the discussion of trimming the inefficiencies in the oil subsidy management and in the running cost of the government .
2. How much subsidy? The Interim Report on the Process and Forensic Review of NNPC by KPMG states “Based on our analysis, subsidy over-deduction for 2007, 2008 & 2009 was estimated at N2 bn, N10.3 bn and N16.2 bn respectively. A rough estimation of subsidy payment on product losses for the period under review (2007-2009) is estimated at N11.8 billion.” Clearly, the subsidy management regime is fraught with waste, graft and insincerity; evidence that the “N1.3 trillion” does not accurately reflect the amount of petrol imported or consumed by Nigerians.
3. A matter of trust? To counter the argument that Nigerians do not trust the government to wisely manage the ‘savings’ from the removal of the oil subsidy, the government is pushing the argument for the creation of a PTF-style agency manned by respected Nigerians.
The questions and concerns that arise are obvious ones: a. How does the government plan to calculate ‘fuel subsidy removal savings’? Will these savings be the theoretical cost of the subsidy – minus cost of corruption – or the current (inflated) figure? Also, how does the government intend to remit same to this proposed quasi-government agency? Will this necessitate the setting up of another special account, in the manner of the Excess Crude Account? b. The Obasanjo regime wound down the widely acclaimed PTF because it served as a duplication of the work of the ministries. We agree with this approach. c. Setting up a new body means an increase in recurrent expenditure for staffing, salaries, pensions, cars, running costs etc. This is UNACCEPTABLE.
4. No Effect on the Poor The government’s assertion that the subsidy removal would have little effect on the poor is quite simplistic. The resultant increase in the price of PMS would drastically increase the cost of food, transportation and doing business, shutting down many small enterprises which directly or indirectly depend on the price of petrol remaining low. The middle class is the engine of growth by way of consumption and the SMEs that create jobs. Any strain on them is negative for the economy and could lead to a vicious cycle. The Way Forward The government should take a more measured and sustainable approach that takes into consideration all stakeholders in the Nigerian project.
They need to: 1. Reduce Cost of Governance The government must drastically cut down the cost of maintaining public and civil servants – security votes, multiple advisers, fuel guzzling convoys, excessive foreign travel and estacodes etc. By outrightly stopping the dispensation of “Security Votes” to the President and governors, Nigeria can save up to N250 billion per year. And if we our lawmakers paid salaries and allowances that reflect Nigeria’s overall GDP, we’ll be saving even more.
2. Reduce Cost of Subsidy Why does NNPC get 445,000 barrels of crude a day that it can’t refine? In 2006, there were 3 marketers; we now have 77. According to Businessday, “the increase has also been linked to this year’s elections and it has been suggested that the subsidy programme became an avenue for patronage extended to those with political connections.” A significant set of savings can be made on the bandied N1.3 trillion if the government will prune out the “briefcase marketers”, clean up the NNPC/PPPRA to plug waste and leakages, and tackle smuggling.
3. Restore or Sell the Refineries This is of critical concern and priority. Increasing the capacity of our refineries would reduce the amount of fuel that needs to be imported into the country. How much has been spent on repairing the refineries in the last 12 years?
4. Provide Power According to a 2009 report by the Nigerian Electricity Regulatory Agency (NERC), Nigerians spend N797 billion yearly to buy fuel for powering generators. In 2010, President Goodluck Jonathan said the cost of fuel (to power generators) was $13 billion. NERC’s estimates 32% of generator fuel is PMS.
This means Nigerians spend about $4.19 billion or N646 billion on petrol, while the rest goes to diesel. Imagine how much fuel import dependence we can curb if this government fulfils the often-repeated promise of improving power supply in Nigeria!
Enough is Enough Nigeria will continue the conversation by hosting a public Town Hall Meeting within the next 10 days to discuss the issue. In a country that provides no social services and the average citizen provides all basic utilities – water, electricity, and security; the government cannot remove the bread from our mouths while it continues to feed fat on its princely cakes. We will engage in words and action.
Enough is enough!
EnoughisEnough Nigeria (www.eienigeria.org) is a coalition of individuals and youth-led organizations committed to instituting a culture of good governance and public accountability in Nigeria through advocacy, activism and the mobilization of the youth population as responsible citizens. The coalition includes The Future Project, Paradigm Initiative Nigeria, Education as a Vaccine (EVA), Kudirat Initiative for Democracy (KIND), RISE Networks, LYNX Nigeria, Chocolate City Group, EME and Light Up Nigeria.
LAGOS, NIGERIA December 12 , 2011