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The case against removal of fuel subsidy & the Sovereign Wealth Fund account

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On 3rd Nov. 1981, the CVU 4200R was filled with 14litres of petrol at the National Petrol Service Station with a total of N2. On 11th Nov. 1981 the CVU car no. 942 bought a full tank of 32.7 litres for a total cost of NS. Also on 13th Nov. 1991 another CVU car no. 480B attached to my office bought 19.6 litres for N3. All the receipts from the National Petrol Service Station on Ikoyl Road,

Obalende, Lagos are verifiable In my records. There are many others as I always Insist on receipts to clear any advance given to the drivers. At that time, I was the Federal Director of Budget. By 1990 the records presented remained continuous until 1992 when the price escalated to 70kobo per litre. In 1993 the government decreed a price of N 11 per litre.

The records presented so far were without any subsidy paid by the government. At that time we produced the crude oil which we refined In our local refineries earlier constructed with a processing capacity of 440,000′ barrels per day. By 1993, for lack of maintenance, the production of the refineries reduced to 240,000 barrels’ per day. That started our journey to Importation of· petroleum for our use in Nigeria. By the time the so-called civilian administration came in 1999, a price of N40, later raised to’ N65 and now about to be raised to N145 per litre by January 2012. Clearly, the record of the CVU cars given already indicated why … subsidy should never have existed in Nigeria for petroleum products. We produce crude oil at some cost – perhaps $4 per_barrel. If in the years when we refined our crude oil we were selling petrol at 15kobo per litre and, the cost of production has not changed astronomically as we are being made to believe, why does the Nigerian government insist on the removal of subsidy that, in the first place, could not be justified, and if they are justifying it by the import price plus other costs and transportation, why can’t we build more refineries as was done by previous administrations.· There is a danger signal if that incorrect,· unsupported decision is stubbornly carried out in 2012 as we have been told.

The most important case against the removal is that prices of everything will rise. Transportation will become more expensive for all the commuters whether car owners or ordinary passengers. The farmers in the villages will pay higher transportation cost for food items to be brought to towns and cities. Students will pay more for schools. Workers will pay more. Market women’ and men will raise their prices. The recently announced N1B,OOO minimum wage will buy less than when they earned N7,SOO as minimum wage. Please, Mr. President, don’t remove the petroleum so-called subsidy. You will multiply the hardship of Nigerians.

Mr. President ‘should, instead, consider constructing, a big refinery in Lagos to refine some 400,000 barrels per day. The cost of the so-called subsidy will finance the construction of such refinery. The refinery will not only make Nigerians self-sufficient in domestic supply but will have some excess for export. At today’s cost, considering the one that was just built in Indonesia to refine 400,000 barrels per day at the cost of 4 Billion US Dollars, you -will sell a litre for far less than today’s pump price of N65.

The undefined, non-specific promises of spending the subsidy to be withdrawn on infrastructure are unacceptable. The prices to be paid are specific and certain. The promises of Mr. President can not be evaluated. Nigerians will pay N145 per litre. Will Mr .. President tell Nigerians what items of their current expenses will the additional infrastructure to be provided replace? Nigerians are not willing to accept a general statement of benefits undefined. Mr. President should not sell to Nigerians a pig in the poke. We should know precisely what we shall get from our additional price hike of N81 per litre – we want to be able to subtract our loss from our gain and see whether we are better or worse off.

The cases against the removal of the so-called subsidy on petroleum products are factual and realistic as stated. Removal will bring unimaginable hardship. It will accelerate poverty.

Nevertheless, subsidy is heresy to a free enterprise economy that Nigeria is struggling to become. But an economy based on importing what it produces and which could be refined within the’” country is not qualified to practice a free economy doctrine .. Nigeria is not a free economy yet. Notwithstanding the doctrinaire and the mouthed 20-20-20, Nigeria has no foundation of a free economy now nor will she have it at the end of the year 2020. Nigeria is an economy that is not yet committed to providing jobs for her workforce. There is no reason why Nigeria should use the price of imported goods processed from her raw materials (crude oil) abroad to determine the pump price of oil in Nigeria. That is certainly not the correct price as it has already included 2 ways additional costs’ of transportation, more expensive labour costs of refinery abroad, demurrage, storage costs plus the profit mark-up of the marketers. The present price of N65 per litre is NOT the correct price. It is a lazy economic thought. It is an economic principle unknown to all economic textbooks. Yet, the importers must recover their cost and profit mark-up.

Nigerians must be challenged by Mr. President to process Nigeria’s crude .oil at home. They must be challenged to create jobs for their children roaming the street by being employed at the refinery. To challenge Nigerians, Mr. President should get the amount being brandished around as subsidy to build refinery at the Lagos port to process 400,000 barrels per day or more. He must fix the existing refineries to refine 440,000 barrels per day or not less than 300,000 barrels per day. Government ministries should ‘not be entrusted with the management. The board should be constituted from our brightest businessmen and women. Somenames that keep coming to me are General IBM Haruna (Rtd), A/haji Aliko Dangote, Chief Osunkeye, Malam Nuhu Ribadu, Malam EI-Rufai, Mr. Fola Adeo/a, Mr. Femi Otedola, Mr. Atedo Peterside, Mrs. Yewande Zacheus, Chief (Mrs) Bola Shagaya, Dame (Mrs) Priscilla Kuye and Chief (Mrs) Bola Doherty. A loan of 4 Billion U.S Do/(ars will provide for the construction with a 2 year moratorium, pa’yable annually for 15 years at the market rate of interest in U. K. or European countries.

The price per litre at the pump stations will not be N65, it may not be N3 for 20 litres as in 1981 or 70k per litre as in 1992 but, certainly it will not be N145 as the removal of subsidy will bring about.

Mr. President, ,this is the\ better choice than the removal of subsidy with your undefined promise of compensatory infrastructure to which Nigerians will not be able to hold you. Do not remove oil subsidy. Nigeria will not be able to bear the chaotic consequences.

Mr. President should therefore not regard the opponents of the removal of oil subsidy as enemies of his administration as he was quoted to have said in the Tribune Newspapers of 14th of November 2011. The opponents mean well for his administration considering the hardship the removal will bring. To declare that “the opponents want to topple my government” sounds like blackmail. And, for Mr. President to insist that “no going back on oil sector deregulation” sounds dictatorial. It means once we have voted for him we have surrendered our rights to complain. His administration will be worse than that of a military dictatorship 31though he told Nigerians few weeks ago that he was not “a V1ilitary General”. A Military General will not be worse.

On another related issue of the Sovereign Wealth Fund (SWF), the Minister of Finance, the Vice-President, Economics/Prime V1inister declared on the television few days ago that “there is no Joing back on the account of SWF” because that is the capacity hat she now operates. She said it has already been opened with he 1 Billion U.S. Dollars from the Excess Crude Oil Account. In he 1999 Constitution of the Federal Republic of Nigeria, there is 10 provision for Excess Crude\Oil Account. The 1999 Constitution )f the Federal Republic of Nigeria provides that “the Federation :hall maintain a special Account to be called “the Federation Account” into which shall be paid all revenues collected by the government of the Federation, Section 162 (1). And, Section 162 (2) provides that subject to the advice from the Revenue Mobilization and Fiscal Commission Any amount standing to the credit of the Federation Account shall be distributed among the Federal, State and the Local Government Councils in each state” Section 162 (3).

However, the Coordinating Minister of Finance/Vice-President Economics/Prime Minister has told Nigerians in a televised interview, that the account has been opened “with 1 Billion U.S. Dollars taken from the excess crude oil account and that there is nothing anybody ‘can do about the SWF account”. One believes that Nigerians want to be governed by law. It is difficult for many of us to accept this blunt statement in view of the subsisting law suit of some State Governors at the Supreme Court and, the provisions of the constitution. Mr President should please reverse that decision.

There are no countries in the world that operate their economies without subsidy of one kind or the other. The most free economies in the world are: The United States of America, the United Kingdom and the European countries. All of them subsidize their agriculture. If they also decide to introduce new products, they encourage their investing citizens with all sorts

of financial assistance. It is only the economies of the poor countries caught by the new (IMF) International Monetary Fund doctrinaire of free importation without protective import duty and total removal of subsidies that are propagated by the theories of the IMF economists as if there is no economic principle of Infant Industry. All economic textbooks, no matter how elementary, granted to non-developed countries the right to protect their infant industries behind a high tariff wall so as to get them to industrialise. Without such policies no developing country will ever be industrialised. They will never acquire modern technology without subsidy and other assistances from their government. They will not be able to provide jobs for their workers. They will remain perpetual exporters of raw materials to the developed world. They will not be able to raise the standard of living of their people. Those countries will remain perpetually poor.

Mr. President, Sir, please DO NOT REMOVE THE PETROLEUM subsidy, Instead, create jobs for Nigerians by providing the seed money to build refineries in Lagos and Port-Harcourt while Kaduna refinery is refurbished with an increase in capacity.

Chief Omowale Kuye(ofr),

Former Federal Director of Budget, he is also the Otun Olubadan of Ibadan

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