It is definitely not news that on January 1, 2012 the Federal Government of Nigeria as a surprise New Year gift to Nigerians announced a removal of the now popular fuel subsidy which necessitated an over 100% increase in the pump price of Premium Motor Spirit (PMS) commonly called fuel which now sells for between N141 - N145/Litre across the country as opposed to its initial price of N65.00/Litre. Resultantly,
there was an astronomical hike in the price of goods and services generally to the same degree. Presumably, there was much agitation and angst among the citizenry such that on January 9, 2012, about a week after, Nigerians in their numbers across the length and breadth of the country under the leadership of the Nigeria Labour Congress (NLC), the Trade Union Congress (TUC) and other Civil Society Organisations (CSOs) took to the streets in protests and asking for a reversal of the said subsidy removal.
It is significant to note that the House of Representatives of the Federal Republic of Nigeria had an emergency sitting on January 8, 2012, a day before the rally and passed a resolution that the Federal Government should suspend its policy on removal of fuel subsidy. This is understandable because these Law Makers are due representatives of the citizenry and have heard the cry of their constituents beyond mere policy support. But, in a twist of events, the Federal Government declared the very next day that the House only expressed an opinion and there was no going back on its decision.
Further, there have been cross pollination of ideas, opinions and diverse views as to the absurdity or otherwise of the Federal Government’s Policy to remove Fuel subsidy. This piece is geared to craft an objective standpoint from the light of a corporate finance and infrastructure development perspective as these are germane issues at the core of the argument on fuel subsidy, which is the utilisation of the funds accruing therefrom for infrastructural and economic development.
Flowing from the above, and the preposterous arguments posited by several persons on national television, I would like to emphasis that beyond the fuel subsidy calculations and looking through the eyes of an ignorant layman, we need to critically x-ray key reasons postulated by the Government for the removal viz:
1. The Federal Government claims that there is an unknown cabal of petroleum dealers that loot the money used in subsidising petroleum products for the economy;
2. The Federal Government and its economic team claim that it therefore intends to save that subsidy money and invest same in the economic development of the Nation and thus eradicate suffering;
3. The Federal Government wants to spend the subsidy savings in various sectors of the economy;
4. The more recent argument that this decision has been taken because the Federal Government is broke and needs funding;
5. There is a need to deregulate the petroleum sector of the economy; and,
6. The Government needs to make tough choices for the development of the economy and the citizenry need to make sacrifices for this development.
Having said that, it is important to weigh the claims of the Federal Government against the following facts:
1. The Federal Government has a duty and the resources to fight, fraud, corruption, crime and prosecute criminals;
2. The government makes allocations yearly in the Budget in the same sectors that it claims it now wants to develop; there is an annual budget for power, roads, health, education, security, transportation, agriculture, etc and these are the same sectors where it intends to utilise the saved subsidy funds. Does this mean that this money never gets to these sectors?
3. From financial statistics generated, building a refinery is about a $66 Billion USD investment and can be completed within 2 years – from design to completion.
4. The same Federal Government borrows money in excess of billions of dollars (Billion $USD)to fund its recurrent expenditure which include, motor vehicle purchase allowance, feeding, entertainment, hardship, furniture, newspaper, wardrobe, recess, accommodation, utilities, domestic staff, personal assistance, vehicle maintenance, leave, travel allowances, etc for the President, executive committee members, the legislators amongst others.
“Deregulation” of the Petroleum Sector vis-a-vis the “Timing”:
In favour of Government’s argument, a lot of people have canvassed that deregulation is necessary and as such the Government must be supported. I agree. Others have opined that the timing is not right and as such Government should inform the entire citizenry that sometime in April or June 2012 the Subsidy Removal policy would take effect and this would have been better to enable adequate preparation; while in countering this, some have said Government needed to spring a surprise so that the said ‘cabal’ and petroleum product marketers would not have time to stockpile fuel now and sell at higher prices later when subsidy is removed.
Consequently, it is important to state that there are two clear distinctions that we need to make going forward for purposes of clarity and fundamental engagement between the Federal Government on the one hand and Labour, the Civil Society Organisations as well as the entire citizenry on the other. These are:
1. The issue of “Timing”, and
2. The issue of “Deregulation” of the petroleum sector.
When it is said that the ‘timing’ is not right, this does not refer to or mean a later date in this year or next year; neither does it mean giving Nigerians an opportunity to get themselves ready financially and otherwise. Not at all.
There are several definitions of “Time”. Time is part of a measuring system used to sequence periods, events and circumstances, to compare durations of events and the intervals between them and to quantify rates of change, circumstances, the temporal position of events and circumstances with respect to the transitory present. A simple definition also states that time is what the clocks measure.
However, the two major ones are as it refers to “a Period” and “Circumstance”. In the present context of fuel subsidy removal, the timing referred to here from a corporate finance and infrastructure development perspective if one of “Circumstance” as opposed to period. Therefore, saying that the time is not right simply means that the circumstances in the country at the moment (infrastructurally, and otherwise) are not right for subsidy removal.
Further, a deregulation of the petroleum sector is necessary, definitely. But, it is pertinent to understand a salient and necessary distinction here; it is that though Deregulation may or may not include subsidy removal, it is “NOT” necessarily the same thing as subsidy removal.
Deregulation in simple terms means government reduces its role and allows much greater industry freedom by creating an environment for competitiveness in a sector, therefore higher productivity, more efficiency and lower prices overall. The key elements here are “competitiveness”, “higher productivity”, “more efficiency” and “lower prices”.
The question you want to ask in the present Nigerian scenario is: where are the competitors, where are the lower prices, where is the efficiency and higher productivity and therefore, has the right environment been created?
I returned to the City of Abuja from my holidaying on January 4, 2012 and was deeply saddened by what I saw. It was like no other experience I have had in my thirty plus years on earth. Very few personally owned cars on the streets (which were exotic by the way), taxis with no passengers in them, more Keke Napeps than I had ever seen, and hundreds on their feet trekking long distances with umbrellas and face caps. In addition to this was the fact that from my blackberry feeders, people were resolving to buying bicycles as the new movement/transport apparatus.
Meanwhile, as I was driven home, the driver shocked me further, lamenting as he told me the story of his sister who though lived in Kogi State is a civil servant working in the FCT, Abuja. She would remain in the city of Abuja for the week and return to Kogi State by the weekend to be with her family. She drives a Toyota Sienna and for her entire stay and return to Kogi State, she would usually buy fuel at a maximum price of N14,000.00 (Fourteen Thousand Naira only); and how presently, the total cost for her weekly trips to work in Abuja from Kogi State is now at least N35,000.00 (Thirty Five Thousand Naira only) with the fuel pump price increase. Her husband has given her two options: which are, either she gets a job in Kogi State or goes to Abuja by public transport because he would neither give her nor allow her spend N35,000.00 (Thirty Five Thousand Naira only) on just fuel for herself alone for a week.
As these went through my mind, I recalled that many years ago, the class distinction in Nigeria was very sharp; to the degree that the distinction was clearly that of an “Elite Federal and State Governments”, the “Very Rich” and the “Very Poor”. However, just a few years ago, thank God to the Olusegun Obasanjo regime for instance, there arose a burgeoning “Middle Class” with a strong potential to be “Very Rich” in a very short time given the right economic environment to grow; such that we now had a third category of citizens in Nigeria, viz: Rich, Middle Class and Poor.
The situation I met in Abuja on January 4, 2012 was such that not only was this present state of affairs in the country more impoverishing for the poor, even the already evolved Middle Class was on its way out. And it dawned on me that this Federal Government policy of Fuel Subsidy Removal though a good idea, but introduced at this “time” in our national existence, was a cankerworm that needed to be bludgeoned to death immediately because if not, the Rich in this country, Nigeria, the economic team made up of bourgeoisie economists (who earn their fees in dollars) as well as imperialist intellectuals and the elite Federal Government would have succeeded in the conspiracy to totally annihilate the Middle class and the poor in a bid to feed corruption.
Now, in all honesty I voted for President Goodluck Ebele Jonathan. I did not just vote, I believed in the man to the degree, I muzzled up all my resources, time and potential to get the vast majority of those I knew, those who believed in my ideologies, those who shared my philosophies and those who cared to listen to change their minds about him at the time. I believed we were voting in an individual with sound ideas to build our economy to a gargantuan degree of economic reproductive growth and geometric economic proportions; even to incurring a few enemies for myself at home, in the office, via social media, etc to the degree, I only made back a few of my lost friends later in 2011. Yes, I put my neck out to that extent, just to see that the right thing was done.
So you will understand how really difficult it is for me to take a position that is counter the present Federal Government policy of subsidy removal. However, it is said that “the voice of the people is the voice of God”; and in its barest meaning, democracy is the government of the people, by the people and for the people, therefore, a policy that is not in favor of the people is against the people and against God. In saying this, I must also state that Government would often times make decisions that may not be popular but yet be in the best interest of the people “but” a major element of governmental decisions should be “its critical impact on its citizenry balanced alongside executive benefits and impact”. In otherwise, economic policies should not be tilted, one sided or impoverishing to the citizenry only. Therefore, as opposed to government’s position, this decision on subsidy removal has got nothing to do with government making tough choices because any policy that intends to take people from rich to poor and from good to bad to worse is not a good policy.
Pre-Subsidy Removal Steps:
Before I proceed, I would like to ask a few relevant questions; such as “Is this Federal Government policy to remove the subsidy on fuel price a good one”? Yes, it is! “Will the economy be developed by the resources and funds saved from the policy”? Sure, it will be. “Will the entire citizenry be better off for it”? Sure they will be.
But, the issues herein for a proper and clear cut engagement on ideas for a practical way forward as already stated is not about whether the Subsidy (if there was any in the first place) should be removed or not, but the issues are that “Is this the right time? Is this the right circumstance? Is government prepared? Does the federal Government have a clear pro-active plan in place to invest the said funds to be saved? Has the Federal Government taken the required steps pre-subsidy removal in order to give the citizens options and enable them balance out in the economy and not suffer total annihilation? Is Nigeria, ready? Are the people prepared? And the resounding answer is “NO”. Again the answer is “No”.
A worthy sacrifice for national development I dare say is a great and noble cause, but should by no means be at the expense of the citizenry.
Having said that, I want to state categorically and request for the Federal Government’s economic team to counter this if possible, that there are necessary conditions that should have been put in place before considering a removal of fuel subsidy. The Finance Minister, Ngozi Okonjo Iweala should know this better than anyone else (if at all there are those among the team who don’t). The government has its own responsibility to play by putting down first and foremost the required governance infrastructure and critical infrastructure before asking the citizens to accept this policy. Note that I said:
1. Governance Infrastructure, and
2. Critical Infrastructure
This is how a pragmatic government should take development steps; these are globally recognised infrastructure development paradigms, these are water tight national developmental processes. You can never go wrong if this is done. Other globally recognised and developing economies are clear examples of this process; the United Arab Emirates-Dubai, the ASEAN +3 Countries, the United States of America, the United Kingdom, etc. and if we are going to emulate these countries, like the economic team would always say, then let us do it right!
Governance infrastructure simply means having good governance in place. A credible, accountable, transparent, participatory, equitable, efficient, minimized corruption, sincere, people oriented, development focused and infrastructure building government that is mindful of the rule of law. Governance infrastructure assures that corruption is minimized and the views of the citizenry are taken into account, the voices of the most vulnerable in society are considered in decision making and is responsive to the present and future needs of society.
Critical infrastructure refers to assets that are essential to the functioning of a society and economy. Examples are: electricity generation, gas production, transportation, oil and oil products production, transporting and distribution of oil products produced, telecommunications, adequate security, etc.
There are several sectors affected by the Subsidy Removal, but I will cite just one example with respect to transportation.
The Washington Metro which is the rapid transport system in Washington D.C., United States operates the Metrorail and the Metrobus. It has a daily ridership of over 737,196 people as at September 2011 and commenced operation on March 27, 1976. The fares vary based on the distance travelled, the time of the day, and the type of card used by the passenger and range from $1.95 to $5.00 depending on distance travelled. Discounted fares are available to school children, the disabled and the elderly. Charges are reduced on all federal holidays. Riders enter and exit the system using a “stored-value” card in the form of a paper magnetic stripe farecard or a proximity card known as a SmarTrip.
The Metro construction was built with billions of US Federal Dollars originally provided Congress under the Authority of the National Capital Transportation Act of 1969 (Public Law 91-143). The cost was paid with 90% federal money and 10% local authorities’ money. This Act was amended on January 3, 1980 by Public Law 96-184, “The National Capital Transportation Amendment of 1979” (also known as the Stark-Harris Act), which authorised additional funding of $1.7 billion to permit the completion of 89.5 miles (144.0 km) of the system as provided under the terms of a full funding grant executed with the transport authority in July 1986, which required 25% to be paid from local authorities’ funds. On November 15, 1990, Public Law 101-551, “The National Capital Transportation Amendments of 1990” authorised an additional $!.3 billion in federal funds for construction of the remaining 13.5 miles (21.7km) of the 103-mile (166 km) system completed via the execution of full funding grant agreements, with a 63% federal/37% local matching.
The Dubai Metro, was built under similar circumstances.
These are few examples of critical infrastructure put in place by federal governments. So when government puts in place the required infrastructure, then and only then would they have the capacity to require payment by the citizenry.
As I conclude, I will leave you my dear reader to make up your own mind on whether this present federal government and its elite economic team have been fair in their policy of Fuel Subsidy Removal.
Precisely on August 23, 2010, I wrote in this same paper that “I read a cartoon in a National Daily the week before that made mention of the fact that Nigerian Government officials and politicians go around the country during the day giving lovely speeches at market hall meetings, conferences and meetings emphasizing the need for a change in our Nation, and how they intend to make that work and so on and so forth, but then retire at midnight to divide the spoils (sharing the national cake so to speak) among themselves to the detriment of the citizens whom they ‘supposedly’ lead.” I added that: “This gave me food for thought … as I could see reason in the fact that as much as our rulers (I am yet to see true leaders in the Nigerian Government) talk about doing the right things every now and again … the facts are still evident that there is more said than actually done. I wish that someday some leader would make it a mandate to ensure that there is more done than said.”
Fellow Nigerians, my fellow citizens, that was true then as it is now and especially about the issue of the Fuel subsidy removal. Therefore, I call on the Federal Government to evolve the political will to do the needful. History will judge you right or wrong.
This is what the Federal Government of Nigeria led by the President and the economic team must do in addition to budgeting and revenue allocation:
1. Evolve a real visionary leadership anchored on a structured credible governance infrastructure;
2. Withdraw all unnecessary allowances and travel expenses for the executive, legislature and judiciary and pay only the basic salaries which as the president has stated should also be reduced by 25% (though I believe 25% is like a cup of water out of an ocean);
3. Re-introduce the monetisation policy introduced by the Obasanjo administration and let officials live of their basic salaries only; thus curbing the culture of waste in the system;
4. Borrow funds if they must (if Government officials can borrow billions for personal use, they should borrow for national infrastructure and economic development);
5. Pass the Petroleum Industry Bill (PIB) into law to marshal the regulators and investors into action in the petroleum industry thus creating an open field and competition;
6. Build brand new Refineries;
7. Revamp old refineries;
8. Refine crude locally;
9. Raise the required funding from exports, budgeting, etc
10. Build the required critical infrastructure to sustain the economy; and
11. Probe and prosecute corrupt individuals who are plundering the petroleum sector.
I dare say that if this is done, government will not need to increase pump price of petroleum products or subsidise any.
Finally, I believe that the entire citizenry should support and join Labour, TUC and the CSOs in their bid to ensure that Government does the right thing. This is a noble cause and government should listen to the citizens. You are not leaders by force, it’s a social contract and the terms are jointly agreed.
Long live the federal republic of Nigeria.
Obozuwa E. Dominic
Corporate Finance Solicitor and National Commentator