BY Tope Fasua
Every presidential candidate in the recently concluded presidential election – save probably for Omoyele Sowore – promised to remove Nigeria’s overhanging fuel subsidy, which takes anything between N4 trillion to N6 trillion of the country’s lean resources every year.
We all know that the figures don’t add up, and the challenge is how to ensure the people are not continually and mercilessly ripped off, especially in a ‘deregulated’ market where a few entities (oligopoly) will control everything and determine what prices they wish to sell to the vast majority.
Deregulation is better regulation
We usually get concepts wrong in Nigeria. Therefore it must be said quickly that what is known worldwide as deregulation actually means better regulation without the unholy interference of corruption or collusion, or the exploitation of consumers by capitalists. With our inability to show some grit with regard to controlling the market today, the new government will have to show that it is different from Day One.
Can we rein in our regulators to do the right thing and face their work professionally? Is the average Nigerian not always scheming to get a leg up on everybody else? Are we going to import new people from planet Mars to replace those Nigerians in our regulatory agencies – many of whom have been implicated in almost all of the past scandals in the industry?
How do we check collusion among the few big players who will naturally dominate the industry? Cartelization is a clear and present danger – if not outright monopolies (if big players move to acquire every competition so as to solely dictate price and market direction). How do we prevent the exploitation of poor Nigerians whose incomes are not catching up with inflationary trends at all?
Lessons from 2011 and Nigeria’s funny statistics
These questions are very important to consider, beyond the statements by candidates – and especially President-Elect Bola Tinubu – to remove subsidies no matter what happens. We have to carefully consider the situation and refused to be pushed down the cliff by multilateral agencies who have insisted over time that fuel subsidies – and multiple exchange rates – are Nigeria’s biggest problems. Admittedly, the lack of accountability is a sad fact around these issues.
In 2011 Nigeria was ripped off in the N2.3 trillion subsidy scam, for which few or no entities have paid any consequences. Many of those implicated continue to operate in the sector and a few of them may have received national honours. Today, we are dealing with much larger figures as a result of the naira devaluation and the usual shenanigans in the sector. I have not added population growth and economic expansion – which should be factors – because I have cause to question our population ab initio. The recently concluded elections bear me witness. Only 24 million out of 89 million validly registered voters showed up in a keenly contested election, down from 27 million in 2019, 29 million in 2015, 39 million in 2011, 38 million in 2007 and 42 million in 2003! Is Nigeria’s population reducing rather than increasing? Or are we just getting better, leaner figures as a result of better technologies deployed for our elections? And does this not imply that our population may not be anywhere near the 220 million we now bandy about? Story for another day.
Another statistical farce that concerns the oil sector has to do with the amount of petrol that they say gets stolen from Nigeria. A simple research I conducted showed that the consumption of fuel in all our neighbouring countries – Chad, Niger, Cameroun and Benin (all Francophone countries) – is not up to 100,000 barrels a day, as against Nigeria’s 445,000. Precisely, Cameroon uses 40,000 barrels daily, Niger 12,000, Chad 2,288, and the Republic of Benin 36,000. Someone must be lying. Either Nigeria does not consume that much, or the needs of these countries are understated.
Someone may argue that whatever is stolen from Nigeria goes further to two countries removed (to our neighbour’s neighbours, like DR Congo, Angola, and Sudan). But the argument breaks down at that point, because some of those countries are also oil giants themselves and don’t have to wait for imported fuel from Nigeria. Some of them even have functional and fully-capacitated refineries – much to the shame of Nigeria. So, the argument about smuggling is perhaps the biggest elephant in the room here. It’s apparent that we are being ripped. The new government must ensure sanity in the industry. Being an oil man himself, we expect Bola Tinubu to tackle these guys.
Diesel and kerosene — Trouble in deregulated markets
Back to the issue. The discussion of how we proceed with this subsidy removal is very important if we look at how other deregulated fuel markets in Nigeria are doing. Diesel presently sells between N850 and N950 per litre. Kerosene is more expensive, selling at between N1,100 and N1,400 around the country. I don’t know who still buys kerosene – hopefully not our poor folks in villages and ghettos who still use stoves for cooking. JetA1 fuel used in aviation mirrors kerosene so one can only imagine what airlines are passing through.
Do these prices reflect the market strictly? Note that they are much higher than what obtains among our neighbours. So why are these products more expensive in Nigeria than elsewhere? Have we priced in our usual inefficiency, corruption and ‘chua-chua’? Are final consumers having to pay for the bribery that interlaces every transaction in Nigeria – especially oil and gas transactions?
So, are we prepared for a runaway petrol price at say N900? How will the government manage the fallouts? How do we prevent inflation from going haywire? Should the government take a more activist stand in calling sector players to try and tame price increases? What does the government do when workers are no longer able to transport themselves to work? This kind of policy, when it is done elsewhere, is designed to discourage people from buying cars or even using their cars if they have one. What are the alternatives we have provided for the vast majority of Nigerians?
Booby trap
One major booby trap lurking around the corner, which most governments are sure to fall into, is the value of the naira. People (liberal economists and foreign press), look at the parallel market rate and call for another subsidy. But it’s not so cut-and-dried. Indeed, many ‘experts’ have called on Nigerian governments to look at the FX subsidy and remove it side-by-side with the petroleum subsidy. The big problem, however, is that these two subsidies are mutually exclusive. In economics, two things are mutually exclusive when they cancel each other. The government must not devalue while deregulating. Hold your rates firm or else the policy crashes.
In 2016, the Buhari government actually did a full and final removal of fuel subsidies when it moved prices from N87 per litre to N145 per litre. The naira rate at that point was N199=$1 officially. The N87 was then like $0.40, which was deemed unacceptable. How could Nigeria be buying a gallon of petrol at barely $1.60 when in almighty America it sold for as high as $5.00 at that time, later receding as a result of the global economic crisis to about $2.50 in some areas of the USA? The increase to N145 was seen as brave, for we could then buy at about $0.80 (or $3.20 to the gallon). Seemed fair. Nigeria then devalued her currency to N360 = $1, sending the N145 per litre back to $0.40 – an unacceptable number. This was how the sole importer – NNPC – started racking up new subsidies, which it now called under-recovery.
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