Beyond Fuel Subsidy: What Next?


Why SURE is not a sure route to Infrastucture Development


At the height of the tremendous mobilisation and organising efforts aimed at preparing Nigerians for resistance and persuading the government to change its policy course on subsidy removal, I had written a paper in December 2011, titled ‘Governing by stealth: exploding the myths of fuel subsidy removal’, attempting to summarize all the counter arguments of civil society and its labour allies against the hiking of price of petrol.
The principal planks of the counter arguments which remain valid even today bear some brief mention; first, there is the whole question around the nature of the subsidy. The most important fact here is that around the reason why the subsidy which is the difference between the landing price and the pump price, exist in the first place. This reason is fourfold – the parlous state of our domestic refining capacity, which necessitates that we have to import refined products, the floatation of our currency against major currencies, as well as the corruption in the import regime of the refined products. It is the sum total of all of these that ensure that the subsidy exists and continues to build up after every subsidy removal exercise. As long as we continue to depend on importation, and the value of the naira declines against the dollar, the landing cost of refined products will continue to rise. If this is coupled with a desire to make the product easily accessible and affordable because of its centrality to the economy due to the parlous state of power generation and distribution, then there will always be a subsidy that will always be on the rise.
Second, is the whole debate around the actual beneficiaries of the subsidy? Government assumes and promotes the false idea that only the super elites and the cabal benefit from the subsidy. In fact the major beneficiary is the overwhelming majority of ordinary citizens who have access to petrol because it is affordable, in the midst of crushing poverty (61% of the population according to latest NBS figures); the overwhelming majority of whom need to use petrol to power their businesses [small, medium and large scale, as well as formal and informal sectors of the economy] and earn a living.
In reality as the NASS probes have now revealed, the cabal and corrupt government and industry officials have been corruptly enriched by the fraud perpetrated and perpetuated in the import regime and in the management of the subsidy. But this is a criminal benefit, which ought to and should be subject to prosecution and punishment with fraudulently collected subsidies recovered and returned to the coffers of the federation account.
Third, there is the issue around the financing of the subsidy, and it is the issue most directly connected with the SURE program. If the subsidy is being financed through deficit budgeting/public borrowing, then the only thing that can be achieved by hiking fuel prices to the same level as ever increasing landing cost [which stood at 141 naira per liter as at 31s Dec 2011, and has now risen to 165 naira per liter as at 29th February 2012] will be to stop borrowing! No savings would be possible to be made, and therefore there will be no money for the SURE program. This is basic economics.
The fourth issue is then directly the argument around freeing money for critical infrastructure development, what then became conceptualized into the SURE program. And here it is important to mention that the SURE program in its original form [before its withdrawal, is at best a deceptive collection of programs into a wish list. A program that will be implemented requires more serious approach; it requires a strategic, operational and implementation, as well as investment plan. SURE was none of these.
The SURE program had no sense of the strategic linkages of the infrastructure projects; there was no prioritization; no costing, and no timeline for implementation [no start and end dates for the projects]. There was also no indication of what each will cost to implement, what the total cost for the entire package is; what part of the budget the subsidy reinvested fund will cover; what the funding gap will be; and how this funding gap will be filled.
What is even more appalling and an indication of the shoddiness of its preparation as well as the inbuilt deception in the program is the fact that ongoing projects for which contracts have been signed were severally included in the SURE pot-pori of critical infrastructure interventions!
Additionally as we now know thanks to the subsidy probes at the NASS, the funding regime was based absolutely on guesses not on empirical information. No body as at the time the program was being put together had any idea about the true cost of the subsidy fraud, which we now know cost us well over 2 trillion naira in 2011!
Even now no one is certain what the actual daily consumption rate for petrol is, the actual amount we pay for per day, the actual daily production rate of existing refineries; much less a sense of determining what the actual short fall in daily supply is, which will require an actual quantity of refined products per day!
What is perhaps more shocking with respect to revealing the mind of the regime, is the shocking assumption, that the subsidy program was designed on the basis of an annual available funding of 478 billion naira over a four year period! Why is this shocking and scandalous? Precisely because it assumes no reduction in the quantity of imported refined product per day, translating into an assumption or rather more appropriately, an intention to keep current domestic refining capacity at 2011 levels over the four year period.
The implication of this is that no additional domestic refining capacity will be acquired over the four year period, and we will continue to be dependent on importation of refined products, at current, if not at increasing levels over the four year period! It also means that we will have to remain subjected to higher and ever increasing pump prices of petroleum products, based on increasing landing costs, due to changes in the value of the naira in relation to the dollar on the one hand, and as well due to rising production cost internationally on the other hand.
And finally on this issue, where is the sense of strategic linkage in the SURE program, between the refineries to be built under the program, the private refining licenses to be issued, and this assumption that we will remain dependent at the very least on current import levels for the next four years?
Fifth, there is also the set of issues around the need for all of us to sacrifice. The fallacy of this argument is that the overwhelming majority of Nigerians are already over sacrificing; and have become so thoroughly impoverished by their level of sacrifice; a sacrifice that actually corresponds to a citizens subsidy of the opulence and corruption of the ruling political elites, the various cabals and high officials of the civil/public service.
Those who need to sacrifice are the ones that have refused to demonstrate a willingness to sacrifice while urging the rest of us who are already over sacrificing to sacrifice more! A critical look at federal and state budgets reveals these inconsistencies. Since the January uprising we have been regaled with snippets of such ostentation in the federal budget: 1billion to feed the president in this year; 1.7 billion to fuel cars in the presidency [remember that we are paying from public coffers for them to fuel their cars, while we are expected to pay from our own pockets these deregulated prices for petroleum products!]; another 1.3 billion naira to fuel generators in the presidency [does this ruling class have any shame at all?]; etc etc.
Sixth, the issue around what the real deficit is, which is the deficit of trust. No one trusts the Nigerian government, and all of the things that have happened since the January Uprising firmly underlie the reason why we cannot and should not trust this government. As a government they have so perfected the act of lying and governing by deceit that they also very often believe their own lies and act on its basis.
This regime needs to rebuild trust, and nothing in all the actions it has taken so far indicates that it is willing, able to, or capable of being trustworthy.
Seventh, there is the claim by government,[ its supporters, and does who support deregulation, who may even be in opposition to the way the government is going about it] that government can not successfully operate refineries, that government has no business in operating companies in the petroleum [downstream & upstream] and power sectors; and that it is only the private sector that can successfully operate these businesses!
The fallacy in this argument is obvious in the fact that the monumental failure of giant corporations/TransNational Corpoarations [including Enron, Lehman brothers, and banks and corporations across Europe, North America and Japan/Asia]; as well as the failure, bankruptcy and collapse or threatened collapse of whole national market economies [from Iceland, through Ireland, Greece, Portugal, Italy, Spain, etc]; has been the defining character of the period since 2007; yet no one has said that capitalism, and the system of private ownership of the means of production, alongside the market on which it is based has failed!
How can such a system that has faced such monumental crisis of existential proportions be still held up as the only way to run business, and as the viable alternative to public ownership and management of businesses?
Besides, when they shamelessly make this argument while signing contracts to build and operate refineries, independent power plants, railroads, including oil and gas exploration contracts, etc with state owned Chinese firms?
And while they try to white wash their own incompetence and ineptitude in managing the economy, they forget to give examples from Indonesia, Brazil, and Venezuela, that have built successful transnational state owned operations in the petroleum sectors. It is obvious that what has failed is not public ownership, but incompetence, ineptitude and impunity in the management of our political and economic life by a thieving and looting ruling class!
Eighth, there is the other claim by the regime and its supporters, that this debate is not political, it is purely economic! What can be more political than a situation where a government avoids all rational economic options, and sticks dogmatically to a set agenda, aimed at completely ousting the state and the public administration from the management of the petroleum sector?
Refineries can and ought to be made to work, and yes, those owned publicly? Those who mismanage them, sabotage, or defraud them are committing economic crimes, and ought to be prosecuted and punished. Those who are guilty only of incompetence and ineptitude should be sacked and new managements brought in!
Linked with the supposedly non political nature of the debate, is the claim that this debate is not ideological. What can be further from the truth? The arguments around the alleged public sector inefficiency vs alleged private sector efficiency are purely ideological given that they are made without reference to the deep rooted global crisis of capitalism!
Besides, the insistence by the government and its supporters that hiking fuel prices would have no impact on the poor and would not contribute to increasing poverty levels; while also insisting that making petrol, that is so central to the economy, available at affordable and accessible price only benefits the super rich and the cabal; can be understood only within the context of ideological faith and fidelity!
The last myth, the ninth one is the made prominent by the CBN governor, around the nature of subsidies. He, along with the supporters of the government claim, that there are two broad categories of subsidies: subsidizing production vs subsidizing consumption! They further claim, that what grows the economy is a subsidy on production, and that the petrol subsidy is a subsidy on consumption!
How fallacious and desperate can these people get! Petrol, is in the Nigerian economic context, a factor, if not a primary factor of production! In a context where electricity is conspicuous only by its absence or epileptic presence, every sector of the economy: formal and informal, manufacturing and commerce; small, medium or large scale; is dependent on using generators to provide power. Over 80% of generators in use require petrol not diesel. How can the availability of such a central product not be a factor of production? How can a subsidy to make it accessible not be a subsidy on production?
Since the January Uprising and the probes at the national assembly of the petroleum sector which it has engendered and energized; several important revelations has come to light with respect to the lack and or complete absence of coordination in the management of the economy, inspite of the fact that we have in place not only an economic team, but also a coordinating minister of the economy.
Furthermore, although several mind boggling revelations have come to light, there is as of this moment no serious indication that those implicated in the fraud will be prosecuted and punished, and looted funds recovered!
In addition, although several task forces [about four so far] have been set up to tackle specific challenges that parastatals of the ministry were established to handle in the first instance, no such attempt at seriously interrogating the basis of the fraud has been undertaken. And what is the basis of the fraud? It is the way and manner by which we questimate daily consumption rate for PMS and other products. As long as there is no scientific, strategic and empirical way of determining this rate; it would always be possible to manipulate the figure in other to benefit importers.
And this can be done simply, monitored monthly, to get monthly averages. The total number of tankers transporting petroleum products ought to be known, they ought to be registered, along with their capacity. Likewise petroleum products dispensing stations/outlets ought to be ascertained and registered along with their capacities. Tankers should check in when lifting products and check out when they have offloaded the products. Sales at outlets ought to also be recorded and monitored to determine daily sales and monthly averages. We can have the first empirically proved figures within a month with seriousness.
Additionally, there is a need for a strategic plan, with operational and implementation plans showing how we intend to improve domestic refining capacity over a given period of time [no more than 24 months], to such an extent that we would have achieved self sufficiency in domestic refining. Such a plan, with a budget, will also include a timeline for reducing importation as domestic refining capacity improves until importation gets to zero. This is no rocket science, it can be done.
The most significant indication of the seriousness of any government with respect to the development of basic infrastructure and delivery of basic services is the extent of commitment in its annual budgets to the development of these. Our budgets continue to fail woefully on this score with recurrent to capital expenditure ratios still in excess of 7:3 in favour of recurrent expenditures.
No nation grows and develops human capital in this way. If the wastage, leakage and fraud in management of public resources and budgets are cut and eliminated, huge amounts of resources can be freed for development of critical capital projects. If all the looted funds in the power and petroleum sectors are recovered, culprits punished, impunity in governance will be dealt a crucial blow, and we can make our money work for us.
One other issue, our penchant for extra-budgetary spending is once again demonstrated in the design of the SURE program outside of the budget.
On a final note, if rather than address and tackle these outstanding issues, if rather than take concrete steps to sanitise the power and petroleum sectors and implement the recommendations of the probes, the regime instead goes ahead to increase electricity tariffs and prices of petroleum products from April as it has severally indicated; then it will have demonstrated that it learnt nothing from the January Uprising; and it would have taken steps to provoke another Uprising in April!
For let there be no doubt about this: we shall mobilise Nigerians to return to the barricades, take over the streets and OCCUPY NIGERIA, if the issues are not addressed and further hardships are imposed on Nigerians from April.
And let there be no ambiguity about this too; unless citizens actively organise and mobilise politically, and challenge the ruling class politically; unless we take the bold step to take power into our own hands, and proceed to remake Nigeria in our own interests [the interest of the majority]; the fundamental problems of governance in our country will not, and cannot be resolved in favour of the popular masses.

This piece was the text of a paper presented at the

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