Opinion: Fuel subsidy removal and the incoming government

by Tope Adesipo

 Members of this cartel are politicians of the two major parties in Nigeria, their big business partners and international collaborators. with this cartel in place deregulation will never work.

The history of fuel scarcity in Nigeria is quite strange. there is hardly a year that runs from January to December without fuel crisis coming somewhere in between. meanwhile Nigeria is an oil producing country. the largest in Africa and its crude is preferred by many Nations of the world. ironically, many of the nations buying fuel from Nigeria are satisfied with the oil situation in their own country but sadly Nigeria has been engulfed in incessant fuel crisis for many years. in the last 4weeeks, reports says there are acute shortage of fuel which has led to long queues at filling stations. the latest crisis seems to be the longest in history of the nation. vehicle owners, commercial drivers and the general populace who depend on fuel for mobility and production of goods and service have suffered untold hardships. Recall the outgoing President Jonathan few months before he lost the historic election reduced the pump Price from 97 to 87 naira per litre.

The economy has been moaning ever since the scarcity started waiting wistfully at bus stops and workers turning up late or not at all for work have become the new Normal. The informal economy made up of artisans and shop keepers is hardest hit. Against the background of the collapse of electricity supply despite privatization, artisans and shop keepers rely daily on generators to power appliances and make a living. Without fuel, it is impossible for this layer of the working masses to make their daily bread.

The current crisis is not caused by the global trend in the crude oil market. Last year, crude oil price crashed internationally – negatively impacting the economies of key oil exporting countries. this scarcity is caused by the refusal of oil marketers, who import refined fuel products into the country for domestic use, to continue to do so until the Federal Government pays what it purportedly owes them in subsidy payments. Subsidy!, the difference between the landing price of fuel and the fixed domestic price, is paid for by the State to guarantee cheaper price of imported petrol there are also reports of banks refusing to open letters of credit to major oil marketers as the reason for this latest crisis. In essence, it is an artificial scarcity caused by the refusal of some sharks. A group of oil marketers and storage companies who have been in connivance with politicians for years ?and have been ripping the country for years through subsidy payments. A probe launched into the subsidy payments in 2012 in response to the demands of the mass movement and strike early in January that year revealed much rip-off and embezzlement to the tune of $1.1billion. But except for a few arrests and circus trials, it has been business as usual for oil marketers, government officials and politicians.

Despite being an oil-producing Nation, Nigeria relies on imports for over 70% of domestic fuel needs. This is primarily because the country’s few refineries are not functioning at optimal capacity. Over 5 decades after oil was discovered in commercial quantity, Nigeria can only boast of four refineries with a combined oil distillation capacity of 445, 000 bbl/d. But even with this amount if compared to total local petroleum consumption in 2014 of 305, 000 bbl/d, it should mean that Nigeria does not have to import fuel at all. However in 2013, the “combined refinery utilisation rate was 22%” (US Energy Information Administration). This significant shortfall has to be taken care of by importation meaning that much of what the country gains in crude oil sale and foreign exchange earnings is in turn lost to fuel imports and subsidy payments.

Nothing better illustrates this absurdity than the current situation where according to the Major Oil Marketers Association of Nigeria (MOMAN) for instance, the Federal Government owes importers and storage companies the whopping sum of N200 billion ($1billion) in subsidy payments (ThisDay newspaper, 14 May 2015). This is after the initial payment of N154 billion in April. A large part of the balance of N200 billion – about N69 billion according to the marketers – is for forex differentials claimed. What accounts for this huge forex differential is the devaluation of the Naira as the government could not further stem its freefall against the dollar with a dwindling foreign reserve. From N168 per dollar last November, a dollar now exchanges for N199.90 at Central Bank of Nigeria (CBN) approved interbank channels. But the freefall of the Naira continues. This means that even if the Federal Government is able to pay the marketers their outrageous claims, the next few months of fuel imports will see an accrual of similar monstrous claims.

Some are calling on the incoming Buhari government to abolish fuel subsidy and embark on total deregulation . proponents are of the view that Nigeria can not continue to subsidize the pockets of a few oil marketers. they believe it does not make economic sense to spend billions of Naira on subsidy when according to them in reality the masses are not actually feeling the impact. they also say Deregulation will encourage private investors to build refineries. In sharp contrast, Obasanjo government gave license to Dangote and co to build refineries in 2005 but they have even converted those licenses to importing refined fuel. according to reports, it will cost around 2billion dollars to build a standard refinery in Nigeria.

We all agree that corruption has been the biggest issue in the petroleum industry and recent probe of the NNPC has revealed the age long suspicion that it is a cesspool of corruption. but Before we all ask the incoming Government to embark on full deregulation, This is what the Government must do. The incoming Government must curb corruption, reform the NNPC and the oil sector, try to diversify the economy and develop the capacity to refine fuel for our own domestic consumption. These are all significant reforms that would all constitute great advances over the sordid past. It is imperative. We need to ask ourselves why do we have to subsidize in the first place? the reason for subsidy is because of cost induced in importation. And our refineries not working which makes the landing cost of the product to be high. the difference between the landing cost and the fixed pump price by the government is the subsidy paid to the oil marketers. a high fuel price for an economy completely living on it would lead to chaos. 70% of the population lives in abject poverty and unemployment is biting harder (forget the NBS statistical abracadabra) The 18,000 poverty wage won by labor in the last 4years has not been fully implemented by some states government many house-holds income, spending, and saving rates would definitely be affected by a high price of fuel worse still electricity is practically non existent in this part of the world.

Why is it difficult for government to build refineries to meet our daily consumption needs? these are fundamental questions we need to ask ourselves. The cartel that controls the marketing and supply of oil in Nigeria.Members of this cartel are politicians of the two major parties in Nigeria, their big business partners and international collaborators. With this cartel in place deregulation will never work. Diesel is a good example. it has been deregulated for many years. After some years, deregulation is supposed to bring the price down. the price of diesel has refused to come down still. meanwhile those calling for deregulation now without a functional refineries believes the period of high price of fuel is for a short period. Diesel proves them wrong. These cartel guys are hard nosed players. profiteering is the name of the game and they don’t mind doing it at the expense of the consumers.the cartel is so big and strong that it can continue to manipulate prices out of the reach of common man. The cartel wants to continue importing fuel while owning refineries in Sao tome and some other African countries.

I believe Buhari is strong willed enough to challenge the cartel. He will need to fight tooth and nail. some of them are his supporters and members of his party. his government must find a way to end import induced cost by making our local refineries work, we will continue to have fuel crisis if we don’t do this.. it is a paradox for our refineries to only work at 22percent utilization rate. we need the new government to ensure the existing refineries are working at optimal capacity and find a way to build new ones. one way to do it is to partner with the oil companies in Nigeria. we already know how much this will cost and i trust that It will not become another conduit pipe for massive looting of the public treasury under a Buhari government. Also it is not only possible to have plans of building new refineries on sustainable basis but also developing other sustainable energy and power sources.


 Op-ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija.

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