Fuel subsidy: time to reason
It is not a matter of wrong or right but what is considered from the perspective of what is in the best interest of the nation after weighing all the pros and cons
In advertising, emotional appeal is used to market products that appeal to passion while rational appeal is used to market products that require rigorous analysis. Where you replace such rigor with emotion, it is not possible to make a rational decision.
Such is the situation that the nation finds itself with respect to the subject of petroleum products subsidy. Those opposed to its removal are in a mental laager and are impervious to any contrary arguments. Those who support its removal are seemingly locked into their perspective that there appears to be no possible meeting grounds with contrary opinion.
Yet, if only we could pause for a while and listen to each other, the merits and demerits of each point of view can be appreciated and a more rational decision will become possible.
I have been following with keen interest the press reportage of the debate especially following the submission of the Medium Term Expenditure Framework and Fiscal Strategy Paper to the National Assembly by the Minister of Finance, Dr. Ngozi Okonjo – Iweala where it was disclosed that part of the economic transformation package is the rationalization and removal of petroleum product subsidy.
Unsurprisingly, opinions have been sharply divided on the policy which is as it should be in an economy such as ours that is poverty-ridden and in which bread and butter issues are the most critical.
However, what I have found most disturbing is the position taken by some serving senators who oppose the removal of the subsidy and attempt to demonize the Finance Minister on the issue.
Some were said to be peeved with the presentation style of the Minister which they saw as overbearing. Such grandstanding from members of the National Assembly is indeed worrisome as the issue is not an emotional matter but one which fundamentally touches on our national development or lack thereof.
The policy in question touches on the well-being of every Nigerian and should therefore be approached with sobriety. It is not even a matter of wrong or right but what is considered from the perspective of what is in the best interest of the nation after weighing all the pros and cons.
Clearly, part of the reason why the subsidy on petroleum products argument has raged for so many years is the opacity in the administration of the subsidy and I expect our law makers to be concerned about this. From all indications, subsidy on petroleum product has for some years now, been the largest single item of annual national expenditure, yet no one has raised an eyebrow about the fact that in the past twelve years of civil rule, there has not been any appropriation for this expenditure. This is in spite of the fact that the Constitution provides that no money shall be spent from the public funds of the federation or of the state except as appropriated by the national assembly or the state house of assembly.
What an oversight?
Rather than fully accounting for the oil revenues of the federation on the one hand and presenting estimates of total expenditures on the other h and in the annual budget, what the Federal Government has been doing is to make direct deduction of the subsidy from the crude oil revenue before crediting the Federation Account with the net revenue.
In effect, instead of the total revenue being available for distribution to the three tiers of government as required by the constitution, it is the total revenue less petroleum product subsidy that is made available in flagrant breach of the constitution.
In seeking to resolve this argument, one would have expected that the first step from the Senators will be an insistence that further breaches of the constitution by the first line deduction is halted forthwith. That way, there will be accurate accounting for the nation’s revenue followed by a proper estimation of the subsidy in a transparent manner. I would then imagine that if, out of a total national revenue of say N5 trillion, we appropriate N1.2 trillion (using 2011 projected spending) for petroleum subsidy, N200 billion each for education and health and N400 billion for roads, the distinguished Senators will rightly question the priorities set by the executive. The nation would definitely be interested to see how the distinguished senators would rubber stamp such an expenditure proposal from the executive.
Even if we assume that the N1.2 trillion referred to above proposed budget for subsidy on petroleum product is accurate, we would confront the challenge of determining how much of such subsidy is attributable to each beneficiary of the Federation Account so that their legislatures can appropriate the sums to be centrally administered.
I feel certain that each state and each local government area would want to know how the subsidy burden in their domains are computed and how the Federal Government will contribute to the subsidy. Will the Federal Government bear responsibility for only the Federal Capital Territory or will it contribute to States and Local Governments and in what ratio? I can imagine the unfolding scenario in which we try to determine how much subsidy is attributable to each Nigerian and the basis for allocating such to each level of government. Will it be on the basis of residency or state and local government of origin
While we struggle to determine the allocative mechanism for the subsidies, it must be remembered that there have been serious concerns about the exact size of the subsidy considering allegations of fraudulent practices in its administration and accounting as in practice, the managers of the subsidy regime face the daunting task of reconciling the subsidy claims based on paper documentation and actual quantity of products supplied and consumed in the economy. Perhaps, this process will provide the National Assembly and the State legislature critical data to interrogate the actual national consumption of the products and compare with the subsidy claims.
Perhaps the process of transparently computing and accounting for the petroleum product subsidy will also reveal the inefficiency and waste in consumption of the product when the full cost is not borne by the consumer. A manifest human behavior is that when you take somebody to a restaurant and ask the person to order on your account, the decision the person makes will be dramatically different if you gave the person the same sum of money and ask him to take care of himself. This is perfectly human. Spending other people’s money leads to wastage and unnecessary consumption. This is also what the nation is suffering from under the petroleum subsidy regime. People buy cars without regards to fuel efficiency because they are not bearing the full cost of the motoring.
Imagine how much savings the nation will achieve at the macro level in terms of more efficient consumption of petroleum products if each person has to bear the true cost of his consumption.
Indeed, it is such massive wastage that has been responsible for the burgeoning subsidy which in turn exerts a downward pressure on the exchange rate of our domestic currency. The continuous devaluation of the Naira has been a major contributor to inflation in the country. In response, we have attempted at different times to adjust the national minimum wage in the hope of enhancing the living conditions of workers. This appears like a vicious circle that needs to be approached with a new and sustainable solution. In fact, this point also actually raises serious questions about the wisdom in the belief that continued retention of the subsidy regime protects the welfare of workers as the protection it provides is a mere illusion.
It seems like a choice between administering a bitter medicine in small doses so that the bitterness is not noticeable but there is no chance of curing the illness as opposed to an appropriate dosage of a bitter medicine such that the bitterness is immediately felt but the ailment is cured.
One more point to be discussed within the framework of this paper is the common argument that the reason why petroleum products cost so much in Nigeria is because we are importing them instead of refining them in this country where crude oil is produced.
Clearly, no right thinking person will accept that we have any reason or business importing petroleum products, however refining crude oil in Nigeria will largely create savings in labour cost and unnecessary insurance and freight charges. It must be borne in mind that without product pricing that guarantees an acceptable return on investment; no refinery will be built or profitably operated in this country. Even if government decides to build and run such refineries, we will be back to the same arguments some few years from now.
The reason is that we are operating in global village and as long as human beings driven by the same desires run this operation, no ombudsman is going to prevent it from falling apart because the business model will be at variance with realistic human behaviour.
Perhaps, we can now go back to where we began this essay. From all that has been said, if the Federal Government stops breaching our constitution, we will discover that we cannot operate a subsidy regime on petroleum products. If we become less emotional about this issue and factor rational human behaviour into our policy choices, we will also discover that the nation will eliminate a lot of wastage and inefficiencies associated with the subsidy regime and our people will be the beneficiaries of such gains. This is a time to reason.
