Kachikwu may yet be the hero, by Ken Ugbechie

It was always going to be a tough call, but somebody has to make it. At last, Dr. Ibe Kachikwu, the Group Managing Director of NNPC and Minister of State for Petroleum has plucked up courage to do it. He has halted what has been a bogus subsidy on petrol as a major step in a guided deregulation. He did not act alone. He got the consent of President Muhammadu Buhari. The removal of subsidy was a volt-face on the part of Mr. President who had earlier voiced a sentiment to the contrary.  But the deal has been done now. Kachikwu has pressed the button, and it’s all for good.

Truth be told, the subsidy that has subsisted in the nation’s oil and gas sector was a huge fraud; a joke taken too far. And it was not new. Right from the military era of Ibrahim Babangida, successive Nigerian governments had tried to remove the so-called subsidy but failed. They were resisted by the masses who ought to be the direct beneficiaries of the subsidy but who never profited from it. It was therefore a resistance propelled by ignorance. I have never shied away from speaking against subsidy in the oil and gas sector.

Subsidy, by its definition, means that government has paid part of the price of the product passed down to consumers. It therefore means that any subsidised product would be affordable; and even available. In the Western world where governments subsidise agriculture, food is affordable and available. In fact, you are guaranteed a good meal at affordable cost because government has cushioned the final cost passed to consumers by farmers. This is not rocket science; it’s just commonsense economics.

In the context of subsidy in the Nigerian oil and gas sector, the economics is twisted, indeed upended. The so-called subsidy did not benefit the poor, did not guarantee product affordability and availability. It was simply a fraud, an arrangement by those in power acting in concert with their acolytes to enrich themselves. And they did enrich themselves. The serial sleaze that signposted the history of subsidy does not lend support to its sustenance.

In April 2012 the House of Representatives’ ad hoc committee set up to probe the subsidy claims of that government at that time made some mind-boggling discoveries. It was discovered that the subsidy regime, as operated between the period under review (2009 and 2011), were fraught with endemic corruption and entrenched inefficiency.

Here is an excerpt from the report: “Much of the amount claimed to have been paid as subsidy was actually not for consumed PMS. Government officials made nonsense of the petroleum support fund (PSF) guidelines due mainly to sleaze and, in some other cases, incompetence. It is therefore apparent that the insistence by top government officials that the subsidy figures was for products consumed was a clear attempt to mislead the Nigerian people.

“Thus, contrary to the earlier official figure of subsidy payment of N1.3 trillion, the Accountant-General of the Federation put forward a figure of N1.6 trillion, the CBN N1.7 trillion, while the Committee established subsidy payment of N2,587.087 trillion as at 31st December, 2011, amounting to more than 900% over the appropriated sum of N245 billion. This figure of N2, 587.087 trillion is based on the CBN figure of N844.944 billion paid to NNPC, in addition to another figure of N847.942 billion reflected as withdrawals by NNPC from the excess crude naira account, as well as the sum of N894.201 billion paid as subsidy to the marketers.  The figure of N847.942b quoted above strongly suggests that NNPC might have been withdrawing from two sources especially when the double withdrawals were also reflected both in 2009 and in 2010.

“However, it should be noted that as at the time the public hearing was concluded, there were outstanding claims by NNPC and the Marketers in excess of N270billion as subsidy payments for 2011”.

From the foregoing, it is obvious that subsidy as had been touted over the years was nothing but a conduit pipe to conveniently siphon money from crude receipts. It is obvious that the nation cannot continue to sustain a regime of fuel subsidy given its humungous financial drain on the economy plus the crowding out of resources that would have been ploughed into economic development of the country. In 2011 alone, subsidy consumed a good 30 percent of the expenditure of the Federal Government. This is unacceptable and it clearly runs counter to the grain of sound logic.

The reality is that subsidy has not really benefited the poor who consume far less fuel than the middle and upper classes.  While the subsidy lasted, only in a few urban centres like Lagos, Abuja and Port Harcourt did people really purchase petrol at the controlled price. In other parts fuel has sold consistently at over N150 per litre. Add to that the intermittent scarcity of petrol.

In times past, the nation had played politics with fuel subsidy. When in 2012, the government of President Goodluck Jonathan tried to remove subsidy, the organized labour, the civil society organisations and the main opposition parties championed by elements of the now ruling party, APC, massed into the streets. Shockingly, the poor masses aligned with the elite to halt what has kept the nation bleeding in its nose. I recall that Asiwaju Bola Tinubu dubbed the attempted removal of subsidy and the corresponding increase in the pump price of fuel as “Jonathan Tax”. The demonstrators were blinded or chose to be blinded to the reality that what is called subsidy was a fat scam in which the Federal Government paid some people for petrol not imported or for petrol imported but diverted to other countries. It was at that time a matter of paper work. Just do the paper work that you have imported petrol, or that 15 ships berthed at the Apapa Wharf all bearing petrol and government, ever generous, would pay you for your patriotism. At the end, the money is shared between the ‘importers’ and some crooked Presidency and NNPC officials. That was what the Nigerian government called subsidy: an elite fraud garbed as palliative for the people.

To quote former CBN Governor, Sanusi Lamido Sanusi: “corruption thrives on the opportunity we create for people to be corrupt”. The way the subsidy in the oil and gas sector was operated only created opportunity for rent-seeking. It was not real subsidy. In 2011, according to Sanusi, $16.2 billion was paid out to importers part (50 percent) as subsidy and the remaining 50 percent sold to them in foreign exchange yet the consumers did not buy fuel at N97 (then the controlled price)  per litre in most parts of the country.

In effect, subsidy has been manipulated to benefit just a few at the expense of the most. Such policy should not be allowed to fester for a day longer. Let’s not live in delusion: removal of subsidy will at this early stage push up the price of fuel. It will surely come with some pain, but in that much pain is much gain. With time, the pain will ease to gain.

Kachikwu must not bow to any pressure to reverse himself. After the initial high price, efficiency and market forces will bring the price down. We witnessed this in telecom where a NITEL line sold for as high as N250,000 (analogue line for that matter) but today with deregulation, you can get a telephone handset plus line plus airtime for less than N5000.

But beyond this, removal of subsidy will free up cash for infrastructure development; remove pressure from the nation’s forex reserves, attract private investors and set the nation on the path of genuine prosperity from the proceeds of oil and gas. It’s still early morning but Kachikwu may yet be the hero at the end of the day.

Source: http://www.politicaleconomistng.com/


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