Posted By: TOLA AKINMUTIMI AND KEMI OLAITAN

 


President Muhammadu Buhari may ride on the crest of favourable public opinion by taking immediate steps, in collaboration with other arms of government, to end decades of the fiscal scam called fuel subsidy.Dawha

At the moment, only few retail outlets sell fuel at the official rate of N87 per litre. Others still sell for as high as N120 per litre, but the common price now is N100.

Before now, the debate for or against the subsidy had been polarised along primordial socio-economic hard lines, with the organised private sector, OPS, seeking its removal, while the organised labour, as expected, maintained a different stance, claiming that removing it would hurt workers and the vulnerable groups in the society.

The tones have changed radically as at yesterday with most stakeholders calling for an end to the fuel subsidy debacle.

For instance, while most of the investors in the nation’s oil and gas sector have not spoken specifically on fuel subsidy removal, they however are using a more subtle terminology to canvass total removal of the subsidy regime.

President of the Lagos Chamber of Commerce and Industry, LCCI, Mr. Remi Bello, whose group has been in the vanguard of the campaign against fuel subsidy in the past two years because of the fraud it symbolises, advised the Federal Government to immediately deregulate the oil and gas downstream sector in order to provide an enduring solution to the recurring problem of petroleum products’ scarcity.

According to him, the measure would also help to tackle the menace of corruption inherent in the subsidy regime, the collapse of refineries, lack of investment in the downstream sector, loss of jobs and so on.

Noting that options open to government on the subsidy saga remains few, the LCCI boss pointed out that the current regime of subsidy and government’s direct involvement in the operations of oil and gas sector is undesirable for the economy.

Analysts at the Financial Derivatives Company, FDC, Ltd believe that the massive corruption that characterised the nation’s public and private sectors had defeated the purpose of the subsidy as a fiscal tool for social reengineering.

The leading financial consulting outfit identified two major components of the subsidy regime, namely, the amount spent on it and its direct, consequential and opportunity cost, and the structural weakness in the system that has become the exploitative channels for perpetuating corruption by some fraudsters and their cronies who ensured that the refineries never worked.

Painting a sordid picture of the nation’s corrupt subsidy regime, the FCD stated: “The sharp decline in oil prices, which started in 2014, pushed many oil exporters to embark on austerity measures to mitigate the impact of lower prices on their fiscal revenues.

“Ghana partially removed its fuel subsidy, while Angola has fully removed its fuel subsidy payment effective September 2015.

“The Nigerian government on the other hand reduced the pump price of petrol by 10 per cent to N87 in 2015. The current fiscal problem facing Nigeria is further impetus to remove the subsidy.

“Between 2006 and 2013, the government spent over N5.42trn on subsidy, which was 15.57 per cent higher than the 2014 national budget of N4.69trn.

“For the 2015 budget, a total sum of N220bn has been allocated to the subsidy. Yet, the economic growth and development resulting from the subsidy is negligible at best.

“Therefore, it is imperative to analyse the potential costs and benefits associated with subsidy removal.”

Expatiating further, the company noted that the benefits of subsidy removal were usually long term and would be determined by how efficiently utilised are the savings, especially in supporting productivity.

Specifically, it pointed out that if the subsidy is removed, the pump price would jump to approximately N130, which is the total open market price, when one considers both the landing cost of petrol at N115.77 and the margin for transporters and exporters of N15.49 as at May 10, 2015.

It stated further: “In the long run, subsidy removal will assist the government financially and create a path to addressing the problems in the oil sector.

“At the core of the petroleum crisis is the state of the downstream infrastructure. The refineries as well as the distribution network were all built between 1978 and 1988.

“Subsidy removal presents the government with the funds needed to reassess the state of the country’s refineries. Boosting refining capacity to above 50 per cent of domestic consumtion could put Nigeria in a position of being both a producer of crude products and an exporter of refined crude products. “Subsequently, economic stability will ensue as pump prices will not be determined by external factors arising from the international oil community but rather economic activities within the country.”

Chairman, Capital Oil and Gas Industries, Mr. Ifeanyi Ubah, has also advocated the deregulation of the downstream sector as a strategic option of ensuring its efficiency, transparency and improved services and returns on investments.

While saying that he had identified the corruption in the present regulated system in the past, he urged the new administration to frontally tackle the monster by totally deregulating the downstream sector.

Similarly, the chairman of International Energy Services Limited, Dr. Diran Fawibe, had during a chat with National Mirror pointed out that deregulation was desirable for the economy as it would help in attracting substantial investments into the downstream sector in the medium and long terms.

In what appeared a political advocacy angle to the controversy, a non-governmental organisation, NGO, Buhari Volunteers Network, BVN, yesterday pitched its voice with groups advocating total removal of subsidy, saying doing so would be in the interest of the country.

The NGO stated this in a communiqué issued at the end of its seminar titled, “Fuel subsidy removal as a mechanism for plugging waste and spurring job creation,” held in Ibadan, the Oyo State capital.

In the communiqué signed by its South West Coordinator, Mr. Ismaeel Odulana, the group maintained that oil subsidy was fictitious and therefore has not had any positive effect on the lives of the masses.

While calling for transparency in the petroleum sector, especially the sale of crude and the distribution of the various products locally required, the nongovernmental organisation urged the Federal Government take a critical look at the business of procuring the various products with a view to uncovering how other by-products of crude were disposed off or not been accounted for over the years.

The group canvassed the need for the Federal Government to create jobs through the new order expected to emerge through the removal of subsidy, while assuring of its readiness to ensure that the masses are well informed about the logic in removing the subsidy when government finally takes the decision.

Even after its initial opposition, the Nigeria Union of Petroleum and Natural Gas Workers, NUPENG, recently reversed itself by declaring support for the subsidy removal.

NUPENG however would like what is saved from the subsidy to be channelled towards the rehabilitation of the nation’s refineries and infrastructure.

President of the organised labour group, Mr. Igwe Achese, told National Mirror that if government continued to fund the businesses of fuel marketers through subsidy and interest payments, the lingering fuel crisis in the country would continue to the detriment of the economy.

However, the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, remained one of the major stakeholder groups that still maintain that fuel subsidy should be sustained.

PENGASSAN’s spokesperson, Mr. Emmanuel Ojugbana, in a statement, argued against the removal of subsidy, claiming that it would push fuel price beyond the reach of Nigerians.

Ironically, Nigeria remains the only oil-producing country that sources substantial part of its domestic fuel needs through importation.

“Sadly too, the imported fuel comes with socioeconomic costs that have continued to hurt Nigerians and the economy, with the attendant implications for rising unemployment and deepening poverty for millions.

A few weeks ago, the Petroleum Products Pricing Regulatory Agency, PPPRA, puts the landing cost, including the product cost, plus freight rate at N107.66.

When other cost elements, including margins are added, the open market price is estimated at N135.15 per litre.

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