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Is Nigeria Incentivizing Corruption with Fuel Consumption Subsidy? II

by Olabisi Showole - 08 July 2021 133 Views
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In the first installment of this write-up, following the oil bust and the ensuing structural disequilibrium, four options were proposed to tackle the issue of subsidy payments for refined petroleum products. Of the four options, it appears Option i will be more cost effective and preferred; it should therefore recommend itself to the government for acceptance. However, in the interim, while awaiting the sale/privatisation or the revamping of the 4 Refineries (option i), Option iv should be considered by the government for ultimate adoption. In making the case for Option iv, I dare say that the initial expected high price should not be a constraint because competition amongst the Independent Oil Marketers will ultimately, determine the ruling pump price of refined fuel or prices of other petroleum products, which in any case are also subject to the dynamics of demand and supply of crude oil in the international oil market as well as the demand and supply elastic conditions. By virtue of the demand or supply of fuel being price inelastic, price swings of the products will not matter much as consumers are willing and ready to pay whatever the ruling market price for the refined petroleum prducts. From hindsight, we know that Nigerians were usually, undeterred by high prices of the refined fuels during the usual scarcity when operation of black market takes the centre stage of the sales of refined petroleum products, including particularly the PMS. Thus, it will be unnecessary, wasteful and foolhardy for government to continue to subsidise the consumption of refined fuel more so that World Bank believes, “these subsidies disproportionately benefit high-income households, and they are a costly way to protect the poor". Added to this is the fact of our subsidising foreign refineries from which we import to meet the national fuel consumption needs.


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Is Nigeria Incentivizing Corruption with Fuel Consumption Subsidy? I


Unfortunately, the Nigerian government in its wisdom, seems to prefer Option iii- the continued import of all of our refined fuel needs from abroad by the government and the Independent Marketers. Thus, despite the Buhari administration's unrelenting rhetoric of no more fuel subsidy or its grandstanding on fuel subsidy payment removal- a grand deception of Nigerians at best- subsidy payments for imported refined fuel continues unabated, but with the active support of the PPPRA (Petroleum Products Pricing and Regulatory Agency) and, believe it or not, the Nigeria Labour Congress (NLC) and other unions in the downstream petroleum sector. Let these Union leaders continue to deceptively, chant "aluta continua"; let them cry themselves hoarse in their feigned opposition to removal or termination of fuel subsidy program, that will not excuse their irresponsible and unpatriotic collaboration with the NNPC, PPPRA and the Independent Marketers in bastardizing the refined fuel subsidy program by engaging in corrupt practices.


The corrupt practices or the unproductivess of this program was attested to by the recent disclosures by PPPRA and the Nigerian National Petroleum Corporation (NNPC). According to PPPRA and the Nigerian National Petroleum Corporation (NNPC) between 2006 when the Petroleum Support Fund (PSF), was set up and 2018, N10.32 trillion had been spent on petrol import subsidy, distributed as follows: 2006:  N257bn;  2007:  N272bn;  2008:   N631bn:   2009:  N469bn;   2010:  N667bn;   2011:  N2.11tn;  2012:  N1.36tn;  2013:  N1.32tn;  2014:  N1.22tn;  2015:  N654bn;  2016:  N1.19tn;   2017:  N145bn, and 2018:  N24bn. And Financial Derivatives Company (FDC) also projected that Nigeria might spend as much as $5bn (N1.51tn) in subsidy payments by the end of 2019. Meanwhile, the most disturbing, disheartening and agonising of the subsidy payments drama is that payments were made even when refined fuels were not imported- made possible by collusions between NNPC, PPPRA, the  Independent Petroleum Products Marketers. In this regard, we could recall that several individuals and companies were indicted by Buhari administration but were not prosecuted. This much came to public knowledge in the first term of the Buhari administration in its  bid to hoodwink Nigerians that it was fighting corruption. Fuel subsidy remains a programm riven by high powered corruptions. So, if Nigeria was to cease incentivizing corruption, federal government must have the political will to terminate the fuel subsidy program in the country.


Our political leaders must take a cue from the position of financial institutions like the World Bank and the International Monetary Fund on subsidy. These International financial institutions had urged governments to cut these costly national subsidies because they “impose a heavy fiscal burden and are likely not sustainable”? Fuel subsidy imposes huge costs on Nigeria's fiscal operations. Its apparent unsustainability, in addition to the cost imposed by the unpredictability of crude oil price swings on oil producing and exporting countries, over which they do not have control, make it imperative that Nigeria must embark on the journey to reform the downstream sub-sector of the Oil & Gas sector,  including the liberalisation of refined fuel market which goal is the  discontinuation of the fuel subsidy program on a permanent basis.


With regard to the proposed discontinuation of fuel subsidy program, Nigeria will not be first oil producing country to do so. Countries like Algeria, Iran, and Egypt, as well as the six Gulf Cooperation Council (GCC) countries- Saudi Arabia, the United Arab Emirates (UAE), Kuwait, Qatar, Oman, and Bahrain are already doing this needful because of the expectations that the freed resources from fuel subsidy can be channeled to other sectors of their economies, thereby boosting their GDP.


The proposed Option 1- sale/privatisation of NNPC as well as the four moribund refineries will achieve the goals of sanitising NNPC, otherwise described as a cesspool of corruption or a nest of pen robbers. The option will also terminate the entrenched wasteful and corruption-infested subsidy program. The core advantage to derive from the implementation of Option i will doubtlessly, be the freeing of resources that are being looted for use in other sectors of the economy. For these reasons, the reform of the entire petroleum sector, including the NNPC is a necessity. In this connection, I am saying without equivocation that NNPC must be unbundled and sold to Nigerian or foreign investors for efficiency, productiveness and for optimal performance and delivery, which will translate to improved gross domestic products (GDP) that must be channeled to raising the per capita incomes of Nigerians, and for improving their welfare and the living standards as well- the essence of growth and development. Added to these benefits, government can also explore transfers to vulnerable Nigerians an alternative policy action that will ensure that the termination of subsidy program will be without pains.


The recent warning by the NNPC confirms the general belief that fuel subsidy compromises the over 90% of revenues contributed by the petroleum sector to the national economy thus, harming the economy and making its discontinuation urgent and imperative. In the Premium Times report of April 28, 2021 titled, "More Troubles for Nigeria as revenues wiped off by fuel subsidy", NNPC was reported to have warned that, as a result of increase in subsidy payments, its monthly contribution of N111billion to the federation account might, be jeopardised in May 2021. The implication of the warning is that governance will be arrested at both the national and sub-national levels, leading to inability to pay staff salaries, restiveness and other social malaise. This Premium Time's  report is a call to action in support of immediate discontinuation of the fuel subsidy program in Nigeria and its replacement by Option 1, which is the sale/privatisation of NNPC as well as the four moribund refineries to Nigerian or foreign investors. Once Option 1 is operational and the subsidy program is terminated, patronage or looting spree will become a thing of the past and NNPC's warnings that it will not be able to meet its obligation of monthly remittance to the federation account, as a result of the increases in the largely bogus subsidy payments, as recently reported, will not arise because the privately owned and operated companies in the downstream sector  are not obliged to  make monthly remittance to the federation account after discharging their corporate tax payments obligation to the nation.

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