Home Analysis Subsidy removal let it be once and for all exercise, we are tired of yearly hike.

Subsidy removal let it be once and for all exercise, we are tired of yearly hike.

by Business News Report

The furore, anger and emotions the planned removal of subsidy next year has evoked shows that Nigerians are yet to embrace the concept of change. Change is the only constant thing here on mother earth. We can not be doing the same thing using the same approach at all times. Nigerians are yet to understand that subsidy enriches just a few and impoverish the rest of us. The cartel in the oil industry who feed on the nation fat as a result of subsidy will do any thing to make the removal to fail. Nigerians all agree that corruption is the bane of the country’s under development, how else will you tackle corruption in the oil sector excerpt by removing the public sector from oil business.

Many known names that hob knob with those in power make huge money from the oil industry just because of their closeness to power. The only qualification is access to political power. All they needed is access to political power and the rest is money rolling in through either importation of product or oil block. This is made possible by the huge differentials they are paid for bridging products from Lagos to other parts of the country because petrol must be sold at government price. It is a huge racket going on in the down stream of the oil sector.

The big question Nigerians must ask themselves is why petroleum products must be treated differently from the food they buy on the shelf which are brought from different parts of the country and sold at different price range. The Minister of Finance and Coordinator of the economy has already hinted that those that go by Night to Mr. President to ask for waivers and concession will no longer have their way.

Nigerians must support such policy for the economy to move forward and end once and for all the current economic rent hindering true production in the country.

Subsidy on imported petroleum products, which runs into hundreds of billions of naira through the Petroleum Support Funds (PSF) must end. The Colossal sum of taxpayers money spent on the bridging of petroleum products through the Petroleum Equalization Funds (PEF) the source of subsidy and economic should go. Are Nigerians not aware of the profound integrity and transparency issues associated with the management of subsidies? What about the bridging funds and the refineries that never function? Nigeria spends about N72.8bn monthly on petrol subsidy can’t that be used for more productive venture? According to the pricing template of the Petroleum Product Pricing Regulatory Agency as at August 15, 2011, the landing cost of a litre of petrol is N129.21; the margin for transporters and marketers is N15.49; the expected pump price is N144.70; while the official pump price is N65. This means that the FG pays N79.70 as subsidy on each litre of petrol consumed in the country. With about 32 million litres of petrol consumed daily across the country, it also means the government is paying about N2.6bn as subsidy every day, which translates into N18.2bn per week and N72.8bn per month. The country currently imports most of its petrol with the refineries all working far below capacity. Nigeria has an installed crude refining capacity of 445,000 barrels per day but the refining output is insignificant when compared to the national demand. Are Nigerians not concerned about these anomalies in the oil sector of the economy?

This spending pattern poses very grim consequences for the economy. Worse still, most of this expenditure is always not appropriated by the National Assembly which is a major economic governance challenge, a huge source of wastage and corruption. Nigerians must encourage government to work out an exit strategy for all public enterprises from direct production, procurement, distribution and marketing of petroleum products. The Petroleum Equalization Fund should be scrapped and there should be creative incentives for the private sector to set up refineries both for domestic consumption and for export.

I thought that those opposed to the idea of subsidy removal now will come up with the argument that private sector agencies should be engaged to manage and maintain pipelines and that refineries should be immediately privatized, with labour issues adequately addressed. The argument should be that NNPC should be made to disengage completely from retailing petroleum products. Its ongoing acquisition of retail outlets is totally inconsistent with the envisaged reforms in the sector. Retail outlets, is the least of the problems in the sector. The commitment of public funds to the acquisition of retail outlets is absolutely unacceptable; there should be a strong regulatory institution with clear guidelines to guide investors in the sector and protect the interest of the consumers.

The possible result of the acceptance of the foregoing by Nigerians is greater private investment in refineries, procurement, distribution and marketing of petroleum products in the economy which will eventually lead to reduction in the prices of petroleum product in the long run in the economy. Also, the economy would save the huge sums of money currently being disbursed as subsidy and bridging funds and be rescued from the massive rent seeking activities and economic parasites in the downstream sector.

What labour and civil societies should be asking the government to do is the channeling of the fund to be saved from the exercise to productive use and intervention in the critical sectors of the economy. The federal Government had in 2007 in its bid to remove this same subsidy envisaged some sectoral intervention in the economy as palliatives. The envisaged sectoral interventions are meant to cushion the immediate, medium and long term effect of subsidy removal. According to government plans then, it said it will intervene in the economy through the rehabilitation of the railway, power, textile, support to development financial institutions for on-lending to the real sector of the economy, with particular focus on Small and Medium Enterprises, low-income housing and for export oriented industries. The challenge for labour and civil society is to discuss these interventions with government on behalf of the masses since the 2012 budget is still in the works.

The envisaged strategic interventions according to government thinking would help address infrastructure bottlenecks, unemployment and enhanced growth potential of the economy through the diversification of the economic base of the country. Nigerians instead of resisting the removal of subsidy should be asking the government of the envisaged interventions and the means by which government intend to diversify the economy to create more jobs.

The Federal Government had said that it planned to support for mass transit efforts by states and local governments, especially those in urban metropolitan areas in a bid to ameliorate the pains that the envisaged deregulation would visit on Nigerians. Has this been done and how will government ensure this in the current move? Certainly reduced ownership cost of means of transportation in the country should go a long way in reducing the upward pressure on transportation fares when subsidy is eventually removed from fuel.

Government strategic intervention plan then was to invest in National Railway Networks and support/invest in Metro Rail projects which will reduce the current pressure on roads and government maintenance expenses. Migrating Nigerians from road transportation to rail will reduce the demand for petrol and that inter-city rail will further reduce the cost of transporting goods, especially food products. Railway product as a palliative may be relatively long term, and tough to sell as part of an immediate impact palliative measure. Will these measures if faithfully
Implemented not be more beneficial to the economy, the common man then the current subsidy which is an economic rent that make billionaires out of few Nigerians with access to political power?

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