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Shareholders, operators divided over removal of oil subsidy

BY PETER EGWUATU & MICHAEL EBOH
Shareholders and operators in the Nigerian capital market are divided over the proposed removal of oil subsidy by the Federal Government. While some of them welcome the development others rejected it completely.

Speaking to Vanguard in a separate interviews over the development, the Chairman, Advancement for Rights of Nigerian Shareholders, Dr. Farouk Umar, said, “The government that is just settling down to revamp the economy should not be talking of removal of oil subsidy.

The removal of subsidy will lead to inflation, as our refineries are not working to full capacity. So government should find a way of encouraging investors to repair our refineries and build two or three new refineries so that it will make it unattractive to import fuel.

Until this is done, subsidy should be allowed to remain because if subsidy on fuel is removed then the common people will suffer because producers of goods will increase their products.

Furthermore, if government is sincere with its policies, then it should find away of reducing the allowances of our legislatures. How can a legislature be earning N1 million on a sitting, when the same government is finding it difficult to pay a worker a minimum wage of N18, 000.00.? So if there is anything to reduce, then it should start from the allowances of National Assembly.

The General Secretary, Zonal Shareholders Association Coordinating Committee, Mrs Oludewa Thorpe said, “We shouldn’t have been talking about subsidy by now. The subsidy ought to be removed because the big people are enjoying more than the common people.

So I am in full support of the removal of the oil subsidy so that investors can build refineries that will eventually make competition keener and invariably bring down the price of petrol.

National Coordinator, Proactive Shareholders Association of Nigeria (PROSAN), Mr. Taiwo Oderinde, said, “The government has no direction. How can they come up with the idea of removing petrol subsidy now that President Goodluck Jonathan is talking of transforming the economy?

The removal means we will be buying petroleum products at higher prices and this will lead to higher cost of goods and services. So all this will lead to total hardship to Nigerians.”

Continuing, he emphasized that the economy has not been well managed by our government. “ I was reliably told by one of the managing director of an oil company that the money on oil subsidy can build one or two refinery(s) in two years. But the issue now is how subsidy can be removed when new refineries have not been built.

The government should first address the issue of building refinery so that there will be competition among the marketers which will have the tendency of bringing down the price of petrol. But in a situation where the crude oil is refined outside the country and subsidy is removed it means price of petrol will be increased astronomically. All this will lead to continuous hardship to the people” he added.

The Chairman, Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, “ The government is playing politics with the Nigerian economy. Over many years ago we have been hearing of removal of oil subsidy and yet we still remain where we are and the big men and woman are enjoying themselves with our money.

First of all, how much has the government been subsidizing, so they should let us know. We don’t have good road, no power, no free medical facilities, all infrastructure is dilapidated. So the government should address these entire problems before talking of removing subsidy.

The removal of subsidy will lead to inflation. People will begin to increase the price of their goods and services since; virtually everybody makes use of petrol either directly or indirectly.

Kayode Tinuoye, Investment Research, Afrinvest (West Africa) Limited

The immediate impact of the proposed removal of fuel subsidies will be a sharp increase in prices of imported fuel as landing costs would now play a crucial role in price setting of petroleum products.  This could potentially raise production costs for manufacturing companies.

We would likely see a squeeze in margins which could lead to price adjustments in many cases . This is because a sizeable chunk of manufacturing costs in Nigeriarelates to power and other energy related expenses. Further, domestic fuel costs will become highly correlated with global oil prices.

However, the longer term positive effects will include a more attractive local refinery business as prices of petroleum products would be set in such a way as to maximize profits. This would significantly augment the current low refining capacity in Nigeria.

Imported refined products would reduce in the long run while constant product availability can be assured. On the other hand, fiscal savings from the removal of subsidies free up funds for more productive spending which could positively impact standard of living of the average Nigerian.

By and large, I think the long run success of the removal of oil subsidy depends largely on how the government channels associated savings.

Mr. Johnson Chukwu, MD/CEO, Cowry Asset Management Limited

The decision of the Federal Government to remove subsidies on petroleum products with effect from 2012 is an economic imperative although politically sensitive. While it is true that the subsidy removal will bring some form of hardship to the populace, the long term benefits will far outweigh the temporary pains.

The challenge with the current petroleum products subsidy regime is that most of the subsidies do not actually get to the masses, which they are meant for. Aside from the fact that only a few petroleum marketers appropriate the benefits of the subsidies, by subsidizing the consumption of imported products, we are actually exporting employment to other countries.

The removal of petroleum products subsidy is one of the necessary pains we have to go through as a people in order to restructure our economy and position it for sustainable growth. With the subsidies gone, establishment of refineries and petrochemical companies will now become feasible. This will save our country the huge foreign exchange that is currently being expended on the importation of refined products.

While the products prices may increase significantly upon the removal of the subsidies, they will eventually moderate downwards as private refineries come on stream and the inefficiencies built into the prices of imported products are eliminated.

Mr. David Adonri, Chief Executive Officer, Lambeth Trust and Investment Company Limited, said, “ It is a welcome development that the Federal Government of Nigeria has finally summoned the political will to remove petroleum subsidy. This is an audacious step towards total deregulation of the Energy industry.

Like the telecoms industry post deregulation, market determined prices will create the enabling incentive for private capital formation to flourish in the Energy industry. Eventually, market mechanism will drive prices to competitive levels beneficial to consumers as currently witnessed in the telecoms industry.

Petroleum subsidy has been a failed attempt at subsidizing consumption in an economy begging for subsidy on production. Whereas, it is through production that wealth is created and productive employment generated. If in 1980s, the Military regime had deregulated the Power, Energy, Metallurgical and telecoms industries as advised by IMF, the inefficiency of state monopolies in those industries would not have forced the country’s light industrial production into deceleration.

Due to institutionalized corruption attendant to public finance in Nigeria, it has failed woefully to catalyze capital formation in the energy industry.

This will be redressed when the industry is deregulated, paving the way for capital formation through private equity type finance.

Removal of petroleum subsidy is just a step towards eliminating the structural imbalances in the economy. Sustainable  macroeconomic transformation will occur only when the Federal Government privatizes all state enterprises that still occupy the commanding heights of the economy. The economy can no longer continue to endure under their inefficiencies.”

Mr Ituah Ighodalo, Partner, SIAO Nigeria, said, “ Fuel subsidy has caused a lot of distortion in our economy and even though petrol is relatively cheap it has led to a lot of misallocation of resources and greatly enriched only a few.

My opinion is that it should be removed and let every one compete fairly . The price of products might go up and fuel inflation but it will stabilise and there will be efficiency. What Government should also do is make sure their constant power supply, as this will reduce demand for diesel and fix our refineries while actively encouraging private sector participation in refining.”

Mr. Seye Adetunmbi, Chief Responsibility Officer, Value Investing Nigeria, said, “

The short-term effect may make the already impoverished masses worse off, likewise the already tasked/challenged manufacturing sector and may cause hike in inflation.

The extent which this short-term challenges may go or endure will depend on the judicious/prudent use and application of the money saved from the removed subsidy.

In essence, it should be a bold step in the right direction towards impacting the economy positively in the long run, provided there will be probity in the public sector when the resources are channeled to salvage the infrastructural problems facing the nation.

By implication, one’s fear is if the poor masses won’t be worse off in the final analysis. However, if it is executed and managed prudently by blocking the leakages peculiar to the Nigerian factor, then it may be what the economy needs to look up.


Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.