Nigerians
are yet again going through the misery of fuel scarcity for the
umpteenth time. This time round, the effect of the scarcity has been
particularly brutal in the capital city, Abuja, with reports of
motorists spending days in queues at petrol stations. For those who
cannot endure the painful agony of waiting in queues, petrol hawkers
provide a welcome relief, that is, if you are prepared to pay as much as
N300 for a litre of petrol. The queues are said to be less outside
Lagos and Abuja where operators are reportedly selling petrol at prices
in excess of N120 a litre- way above the control price of N87 per litre.
So,
although the government would have paid these oil marketers subsidy to
sell petrol at N87, apart from the Nigerian National Petroleum
Corporation, they have collectively decided not to pass on the subsidy
to consumers in the form of lower petrol prices; no doubt, believing
that there will be no consequences for defrauding government, – and so
the fuel subsidy scam continues with impunity.
The
cost to the country in lost revenues as a result of this policy is
huge. We continue to allocate over a quarter of the federal budget to
just one line of expenditure. We continue to pay trillions of naira to
Nigeria’s 130 or so oil marketers for fuel subsidies that are only
passed on to residents of Abuja and other major cities, whilst the rest
of the country buys their fuel at market price. It is common knowledge
that the closer you are to the Nigerian border, the less likely you will
ever buy petrol at the controlled price of N87, as marketers would
rather drive their tankers across the border where they would obtain a
higher price for their product. With the depreciation of the naira, the
country may yet find itself spending up to N1.5tn on fuel subsidy; more
than the combined budgets of Education, Health, Agriculture, Rural
Development, Works, Transport, and Lands and Housing put together.
Insanity of the highest order.
You do not have to be Albert
Einstein to see that the current subsidy regime is corrupt and
unsustainable. As a nation, we can no longer afford to fund this scam,
especially in the present climate of falling oil revenues, where states
and the Federal Government are struggling to pay civil servants.
Although fuel subsidy is supposed to help the poor, the biggest
beneficiaries are actually the rich. We cannot be spending a paltry
N600bn on job creating capital expenditure and over a trillion naira to
subsidise the lifestyle of the rich, so they can maintain at least two
fuel guzzling jeeps and their generators. This does not make social or
economic sense. It is indeed immoral.
The truth is that the
subsidisation of petrol distorts the market and has resulted in
inefficiencies and substantial loss of revenue for the government
through corruption. It has contributed to the collapse of our local
refineries by making them unprofitable for private investors to invest.
The subsidy regime has also been responsible for sporadic fuel shortages
at fuel stations as corrupt marketers, after receiving subsidies, have
then proceeded to sell the subsidised fuel to neighbouring countries at
higher prices.
It would be irresponsible for the incoming
government to do anything else but abolish subsidies. We should be
subsiding the cost of travel (mass transit), not petrol at the pump. The
poor will benefit more through targeted measures as I argued in my
article during the fuel subsidy protests of 2012. In the United Kingdom,
for example, bus tickets are subsidised by government to make travel
for the masses more affordable but petrol is taxed to fund public
services. The trillions of naira we expend making dollar millionaires of
marketers would be better spent equipping our schools and hospitals,
building our transport infrastructure and investing in power.
The
debate on the removal of subsidies has been plagued by sentiments,
scare mongering and misinformation, even by our so-called economists who
should know better. One of these individuals even stated in a TV
interview that the United States subsidises petrol at the pump, –
shocking untruth. Far from subsidising petrol, the US actually levies
taxes on petrol and diesel (13 per cent tax on petrol and 12 per cent
tax on diesel); as do most developed economies. In Britain for example,
60p of every pound spent on petrol goes to the government in taxes to
fund public services.
For decades, expensive and unsustainable
subsidies on fuel have curtailed growth in developing countries. Apart
from perhaps the rich Arab states that have huge reserves and where
vital infrastructure is already in place, many developing countries are
grappling with strategies to unburden themselves of fuel subsidy
payments in order to release resources for economic development. The
last of Morocco’s diesel fuel subsidies came to an end January this
year, following two years of careful planning and a public outreach
programme. Malaysia, Indonesia and Egypt have significantly cut fuel
subsidies and plan to phase them out altogether. With Venezuela’s
economy in recession and widespread shortages of goods, the embattled
president, Mr Vincent Maduro has hinted his intentions to remove petrol
subsidies. For Nigeria, falling oil prices present a golden opportunity
for the new government to remove subsides. The new government will do
well to learn from the failed attempt of the present government to
remove subsidies in 2012. It must put in place measures to cushion the
impact of subsidy removal on the poor.
The removal of subsidy
will make little difference to motorists outside our main cities as they
already pay well above the market price for petrol anyway. If anything,
the forces of supply and demand would drive prices down. With no
subsidy, it won’t make business sense to transport petrol to
neighbouring countries, with all the attendant risks and transport
costs. All of this should increase the supply of petroleum products in
Nigeria and drive down prices. Also, the government in the new
competitive environment would be able to use its presence in the
forecourt as major shareholder of the NNPC to drive down prices through
its pricing policy.
The current subsidy regime cannot be policed
or reformed. The only sensible thing would be to scrap it. As long as
this subsidy regime persists, there will be no end to fuel scarcity in
Nigeria. To continue with the current policy will be suicidal for the
country. It is time to put sentiments to one side and bury the lie that
subsidy helps the poor. The poor will be better served if the trillions
of naira currently spent on fuel subsidy were invested in schools,
health centres, hospitals and poverty alleviation.
- Emmanuel Nwachukwu is an international business consultant based in London
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