Why Buhari Must Discontinue Fuel Subsidy

Nigerians have elected a new government at the centre and there are great expectations of change that will lead to improved livelihoods across the nation.

As the -elect is known for discipline and transparency, the expectations are skyrocketing by the day and it seems his electoral promises have projected him as a magician, willing, ready and with the requisite capacity to solve all the nation’s existential problems.

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But wait a minute, going by the current trend of fiscal events, from where will the incoming administration get the resources to effect the needed change? Oil revenue has plummeted and may not revert to the 2012, 2013 and early 2014 levels; and there is no evidence of increase in non-oil revenue. Expenditure expectations seem constant and indeed are on the upward trend.

At the level, many states owe workers arrears of salaries and remittances to pension funds. Recently, the organised labour is considering a demand for wage increase in view of the depreciation of the and rising inflation rate.

In the last couple of weeks, Nigerians have been through severe hardship in getting fuel to power their vehicles and for other purposes. The fact is that government has been unable to pay petroleum importers and marketers based on agreements.

We have been told that between January and April 2015, government has paid a total of N500bn. The marketers downed tools claiming they were owed N356bn and last week, the government came up with N156bn with an outstanding balance of N200bn yet to be settled. The marketers are insisting that if they do not get the balance of the money, the hardship will continue. Of course, the marketers incurred expenses including the use of borrowed funds to import and distribute petroleum products.

It is imperative to note that these payments to marketers and the subsequent ones to be paid are not contained in any approved or supplementary . Very soon, we may start asking for the source of the money or money may be missing from a federal agency – probably the big cow the Nigerian National Petroleum Corporation provided it or just any other cash cow of the Federal Government.

If by the fourth month of the year, we have spent N500bn to settle claims, the projection is that we may end up spending about N1.5tn by the end of the year. Although the 2015 budget has yet to become law, we are already spending beyond its provisions.

There are contradictory media reports as to whether the National Assembly made a provision for in the 2015 budget. It seems that a paltry sum of less than N130bn has been provided but we have already spent N500bn and we are bound to spend more. Yet, our constitution forbids spending without appropriation.

The 2015 budget passed by the National Assembly (yet to be assented) has a total expenditure of N4.49trillion; it allocates N375bn for statutory transfers, N953bn for debt service, N2.607tn for recurrent (non-debt) expenditure, and N556bn (inclusive of ý N144bn capital expenditure in statutory transfers). It is a matter of fact that if you take into consideration the subsidy stated above, this projection will not be that actual expenditure at the end of the year.

However, from this expenditure projection, it is clear that we do not get our national priorities right. The capital expenditure without the projections in statutory transfers is a miserly N412bn. The capital expenditure in statutory transfers is more likely to be administrative capital which simply facilitates the running of the bureaucracy and may not have a high impact on the livelihood of majority of Nigerians.

Others may be constituency projects which have always ended up as a job-for-the-boys approach to infrastructure development. It is also a fact that capital expenditure suffers each time there is a deficit in accruing revenue. So, other expenditures go on and if there is a remainder, it will be applied to capital expenditure. So with the entire public clamour for life-changing projects – where will the financing come from?

Back to the subsidy challenge, will it make sense to spend N1.5tn or any other huge sum for fuel subsidy in 2015? My answer is a resounding no. The available resources are shrinking and we cannot insist on living the frivolous and flamboyant lifestyle we are used to. We need to adjust; some mental and physical discipline has become imperative.

The cost of fuel subsidy is very high. In 2008, 2009 and 2010, it was N439.4bn, N421.5bn and N673bn respectively. In 2011, it jumped astronomically to M2.190tn and came down to N832.06bn and N852.06bn in 2012 and 2013 respectively. Over the six-year period, subsidy payment as a percentage of actual capital expenditure amounted to 109.8 per cent. Thus, we are spending more on subsidising consumption than on capital expenditure which is fundamental to our development.

Nigerians will recall that the Obasanjo administration in its twilight days handed over the Port Harcourt Refinery to private investors and there was a huge public outcry from the organised labour and some other interests. They told the late President Umaru Yar’Adua to reverse it (which he did) and make money available for turn-around-maintenance of the refineries.

More than seven years down the line, what has changed? We can no longer continue on the same trajectory of “we no go agree” or “say no” campaign. Insisting that government must rehabilitate refineries before privatising or that public refineries should compete with private ones makes no sense any longer. A public refinery that cannot deliver as a monopolist will now compete with the private sector? Continuing the subsidy is to continue corruption, waste and inefficiency.

The Aig-Imokhuede-led Technical Committee on Payment of Fuel Subsidies recommended the deregulation of the local pricing of kerosene through the elimination of subsidy; or allow both private importers who meet the eligibility requirements of the PSF guidelines and the NNPC to import kerosene and pay kerosene subsidy under the PSF. The further alternative is the elimination of the current financing of rent for a few by restricting the NNPC local distribution to only groups that own significant retail outlets such as MOMAM, IPMAN and the NNPC retail at the approved ex-depot price.

The interest of the NNPC and the PPPRA in continuing the kerosene subsidy regime after Yar’Adua stopped the same on the pretext that the instruction was not in writing is baffling. Considering that Nigerians do not enjoy the benefits as of date and no one has been or will be prosecuted for the rent seeking behaviour, it makes no economic or social sense to continue the kerosene subsidy policy.

We can no longer continue the application of a remedy which has proved ineffectual over the years. Unless the incoming government intends to waste four years in endless subsidy rigmarole, it is left with no option than to stop this avenue of corruption and waste from the outset.

It is also imperative for the civil society and the organised labour to prepare for evidence-based debate with facts and statistics and to concede to superior evidence when presented. Also, we do not need to intervene only in the subsidy debate and go to sleep thereafter without influencing public expenditure decisions and monitoring the same. Otherwise, our labour will be in vain. Mr. President -elect, the figures do not add up, you must let the subsidy go.

Opinion expressed above are solely those of Eze Onyekpere, Follow him on twitter @censoj



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2 Comments

  1. Paschal J.E May 4, 2015
  2. Paschal J.E May 4, 2015

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