Vanguard Conference Hall is the highest interactive editorial platform for public policy enlightenment, advocacy and solution delivery. It offers public office holders, civil society groups, academicians, opinion leaders and corporate chiefs, the arena to debate and exchange ideas for good governance. In this edition, the topic for discussion is entitled: “Fuel subsidy and the ethical deficiencies in public office in Nigeria.”
Over the years we have had this argument that government spends too much money to subsidize the importation of petroleum products and that the benefits are not going to the intended targets.
Early in year, the country erupted in crisis as a result of the removal of the subsidy in Premium Motor Spirit (PMS or petrol). There were recriminations, parliamentary probe and finally a sleaze that raised ethical issues in public office. The issue of petroleum subsidy may seem simple on the surface, but it is highly political as well as economic.
We have in this edition, Mr. Obafemi Olowore, the Executive Secretary of Major oil Marketers Association of Nigeria, (MOMAN); Mr. Dapo Abiodun , Chairman of Depot and Petroleum Products Marketers Association of Nigeria (DAPPMA); and Mr. Chuks Onyeka, Director of Media for Trade Union Council (TUC).
The Vanguard Conference Hall team is led by Mr. Jide Ajani, Sunday Editor; Ms Clara Nwachukwu, Energy Editor; and Mr. Hugo Odiogor, Coordinator/Foreign Affairs Editor.
Let’s ask ourselves what has brought about subsidy? It is because we cannot refine or provide enough locally, hence we have resorted to importation. Subsidy arises even if you produced locally because of the fact that NNPC that produces the product locally buys the crude at the international market. Once you buy at the international market, there is going to be a difference of what is produced and what you are told to sell.
Whether it is right or wrong is not what I’m after. What I’m after is the fact that somebody is buying the product at a particular price and therefore he has to recover his cost. If he does and he recovers fully and you tell him to sell at a lower price, then there is gap and that gap is the subsidy.
The effect is that we are throwing out money. Who gains is another question. A lot of arguments came up as to who is gaining from subsidy. People feel that those of us that sell the products are the ones that gains from the subsidy. I am a player in the industry and I believe that it is not the seller that actually gains from it.
Because the seller has bought the product at a higher price and is forced to sell at a lower price, having incurred the cost upfront, he is entitled to reimbursement which is the subsidy. Again, whether it is right or wrong is a different matter. So, as far as I am concerned, there is subsidy and all effort should be geared towards removing that subsidy. Perhaps that is where the political side comes in. For me, there has not been enough political will to remove the subsidy.
If we continue to say that government is bleeding, the economy is bleeding because we are spending money on subsidy and we are not making effort to block it then there is a problem. I was with one popular professor in Nigeria at one forum one day and he was saying that there is no subsidy on PMS, then I looked at him and I said: first of all, his is a professor in biology and not a professor in Economics.
If the cost of the crude which is the main input is that high then there is no way that there will not be subsidy except you are saying that because the crude is produced here, it should be given out free. I believe that that in itself, is bad economics; so there is always going to be the subsidy thing.
The removal of subsidy is a political thing. If government can continue to be paying subsidy, all well and good; but for me, it is nonsense because it does not pay anybody if we continue to have subsidy. Government should bite the bullet.
If the removal in one swoop may be to traumatic for the economy, then they should agree with all the stakeholders to do it in phases. We have been talking about this phases for a very long time. Six months may not be ideal, maybe 12 months, or 18 months but everybody must be carried along. Ghana did it for a period of 24 months and they did it gradually and we saw what they were using the money for.
The Trade Union Congress of Nigeria is not against the removal of fuel subsidy if it does exist. We have also questioned the origin of the subsidy. Why is it that it has become a problem? And that is where we talk about ethical dimension; we also talk about people who cannot deliver to the people.
And because of that, they know they cannot win election a so, they have to find a way of reproducing themselves and finding themselves back into governance and the only way they can do that is to deepen their pocket so as to be able to buy votes through all manner of manipulations to win votes.
So, how do they do that? They corrupt subsidy regime in such a way that they distort the process and create a room to make more money. These are the basic issues. So we are saying that if we first of all trace the quantity of fuel consumption in Nigeria, what is the quantity of PMS that is subsidised in Nigeria?
We know that the country gives NNPC 450,000 barrels per day and when you factor that in, you will now look at the quantity that is imported to augment, what we have internally. That is the only way you can determine the quantum of subsidy that is on the product.
Quantum of subsidy
It is when we have determined the quantum of subsidy on the products that we can start to talk about the subsidy, but we have not determined the quantum of subsidy on the products, so we cannot start to talk about it.
Prior to when the President announced the increased on PMS on the 1st of January 2012, it was reported that Nigerians consumed 28 million liters per day, but at the end of the day, we discovered that the government was funding about 59 million liter per day on subsidy.
We looked at all these; we accept that there was a budget that was appropriately passed in 2011 that made provision for the subsidy regime, but now they are saying that we are spending close to N2.5 trillion in the same process. How did it happen? Somebody has to be held accountable. How did it happen in an election year? How did it jump from hundreds of billions to trillions? Is there a connection between the subsidy regime and the election that took place in 2011?
Now we hear all sorts of stories that some people suddenly were brought to court and all of a sudden the cases instituted against them were withdrawn. But they are saying that they have not withdrawn the cases against them but that there is no evidence against them and as such they want to build solid evidence against them; that is what they are telling us now.
But we know that the people that were arraigned: the marketers, that they will tell Nigerians where the money went to that is, the money they collected and did not import any products.
It is as a result of this threat that the government decided to withdraw their charges against them. We are talking about transparency, honesty, openness, doing things right and due process in the subsidy regime. We want to know how much is involved. When we go to NNPC, or PPPRA, and DPR they will be able to tell us what is the quantity that we have, what quantity do we consume as a people.
But you cannot find that data anywhere not even with MOMAN or DAPPMA. So that is a very big problem and Nigerians are paying for what they not ought not to pay.
Marketers and government are manipulating data of our daily consumption
What I said is that knowing what we consume on a daily basis as far as PMS is concerned is a point of departure. The Minister of Finance said our refineries produce about 15 per cent later it went to about 40 per cent. We now know what we produce locally and what we consume and there is a difference. It is actually the difference that we can bring in from the outside through importation.
It is actually the ones that we bring from outside that there is subsidy, and now we have to look at the entire process of bringing in the products from outside. Who is bringing the products? Where are they bringing the products from? and at what cost? We also have to look at all these issues. When the country consumes about 100 million litres and somebody is importing about 200 million litres of PMS then there is a problem somewhere. That is the only way you can check the corruption if you have the facts.
That is why is in Nigeria there is a deliberate attempt to falsify data to make sure that we don’t have accurate data. It is not as if somebody is making a mistake somewhere, it is not a mistake, it is deliberate, it is conscious to make sure that due process is not followed.
At 445,000 barrels per day, our refineries cannot consume all. So the starting point should be, to give the refineries what they can consume. The issue of what the refineries can consume and what should be taken abroad to be refined and brought back has some complications.
If the refineries are consuming only 200,000 barrels per day, give them that quantity, then the others go back to the federation and let the federation sell it the normal way they are selling crude and get the money. Because at the end of the day, all these offshore processing, crude swap and everything has a problem of accounting and I am talking as a Nigerian, there is a problem of accounting.
You cannot say that one barrel of Nigerian crude will translate to a certain number of litres if refined elsewhere, because every refinery has the capability of shaping what it brings out, depending on the season. For instance, if it is winter season abroad when everybody sit at home and they need more of heating oil, they will produce less of PMS.
For me, the starting point will be: if the refineries in the next six months is adjudged to be able to produce X quantity, give them that and turn the rest back to the federation and let the federation sell the crude and let the money come into the federation account directly without going through NNPC accounting procedure.
When President Obasanjo was around, he set up a committee but remember that before he came to power in 1999, we did not have an idea of what we consumed. We thought that we were consuming about 19 million litres per day because that is all our refineries could produce and as a matter of fact, that is all the 450,000 barrels could produce.
Anytime they say that the refineries are producing about 100 per cent, the first question you will ask is how about the FCC unit is it working? If it is not working and the refineries are producing about 80 per cent, they are just burning crude and getting more on the heavy fuels which are LPFO and HPFO, which pleases the people to export because people can now export that product, refine them and bring them back to us again.
Establishing of some good records
If we repeat the exercise that President Obasanjo did in early 2000, we will be able to establish some good records.
At that time, we picked a very generous average of 50 litres consumption per day and we were able to arrive at 26 million litres of consumption per day. Even if our consumption has risen, I don’t think it will have gotten to that 59 million litres we were told.
But we need to do that exercise again after 10 years and establish our national consumption. It will be fair for everybody because we have to and the people who did it then are still around. It was a committee of NNPC, DPR, MOMAN, IPMAN, and the vehicle registration agency in each state. It took us about three months and it was ok for some time until the consumption overtook the demand. So we need to go back and establish the actual volume that we consume every day.