Wednesday, December 14, 2011

On the Budget and the Removal of Fuel Subsidy - EiE Nigeria

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Some days ago, I got this press statement from EiE Nigeria (Enough is Enough) on the current national debate about the planned removal of fuel subsidy by the Federal Government. While I ultimately believe in the restructuring if not removal of the fuel subsidy, I believe EiE makes some valid points in this release. The budget has been released now, and it is even more obvious that the economic team of President Goodluck Jonathan haven't done much work in replugging the funds from the proposed subsidy removal into relevant sectors of the economy. Read the statement and tell me what you think.


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December 12, 2011. Lagos, Nigeria – Despite the concerns raised from different groups and individuals, President Jonathan will, tomorrow, present the 2012 Budget to the National Assembly excluding the provision for fuel subsidy.

In her two appearances before the Senate Joint Committees on Appropriation, Finance and Petroleum Resources (Downstream) for the public hearing on “The Operations of the Fuel Subsidy Scheme in Nigeria,” the Minister of Petroleum represented the Federal Government’s position as follows:

"The fuel subsidy structure is inefficient, costing us N600bn (~$3.75bn) in 2010 and N1.3 trillion (~$8.125bn) from Jan – October 2011. The Federal Government cannot continue to pay as it’s unsustainable. By removing the subsidy, the savings will be used to provide critical infrastructure and services. Currently, only a small percentage of Nigerians (the marketers, middle & upper-class Nigerians) benefit. When removed, more Nigerians will benefit."

In the words of a Yoruba proverb, the Federal Government has, yet again, left leprosy to treat ringworm. While we understand that the current cost structure is unsustainable, Nigerians can no longer afford to pay for government’s inefficiencies. It’s too expensive (financially; productive man hours and human lives) and it’s also NOT sustainable.

Issues to Consider

1. A lazy, thoughtless approach
The government clearly finds it easier to undertake an unwise blanket removal of subsidy than engage in the discussion of trimming the inefficiencies in fuel subsidy management and in the running cost of government. The language is also deliberately confusing – one minute it’s ‘deregulation’ and the next it’s ‘fuel subsidy removal’.

2. How much subsidy?
The Interim Report on the Process and Forensic Review of NNPC by KPMG states “Based on our analysis, subsidy over-deduction for 2007, 2008 & 2009 was estimated at N2 bn, N10.3 bn and N16.2 bn respectively. A rough estimation of subsidy payment on product losses for the period under review (2007-2009) is estimated at N11.8 billion.”

Clearly, the subsidy management regime is fraught with waste, graft and insincerity; evidence that the ‘N1.3 trillion’ does not accurately reflect the amount of petrol imported or consumed by Nigerians.

3. A matter of trust?
To counter the argument that Nigerians do not trust the government to wisely manage the ‘savings’ from the removal of the fuel subsidy, the government is planning a subsidy savings management program. The details were shared by the Vice-President in a meeting with some civil society organisations on Friday, December 9th. Why has this plan not been made public? The questions and concerns that arise are obvious ones:

a. How does the government plan to calculate ‘fuel subsidy removal savings’?
Will these savings be the theoretical cost of the subsidy – minus cost of corruption – or the current (inflated) figure? Also, how does the government intend to remit same to this proposed quasi-government agency? Will this necessitate the setting up of another special account, in the manner of the Excess Crude Account?

b. The Obasanjo regime wound down the widely acclaimed PTF because it served as a duplication of the work of the ministries.
We agree with this approach.

c. Setting up a new body means an increase in recurrent expenditure for staffing, salaries, pensions, cars, running costs etc. This is UNACCEPTABLE.

4. No Effect on the Poor
The government’s assertion that the subsidy removal would have little effect on the poor is quite simplistic. The resultant increase in the price of PMS would drastically increase the cost of food, transportation and doing business, shutting down many small enterprises which directly or indirectly depend on the price of petrol remaining low. The middle class is the engine of growth by way of consumption and the SMEs that create jobs. Any strain on them is negative for the economy.

The Way Forward

The government should take a more measured and sustainable approach that takes into consideration all stakeholders in the Nigerian project. They need to:

1. Reduce Cost of Governance
The government must drastically cut down the cost of maintaining public and civil servants – security votes, multiple advisers, fuel guzzling convoys, excessive foreign travel and estacodes etc. Expenses such as (a) the Vice-President’s residence awarded to Julius Berger at N7 bn ($43.75m) with a request for N9 bn ($56.25m) more; (b) disbursement of N250 billion per year in ‘security votes’ to the President and Governors; and (c) a N1.7 trillion wage bill (2012 Budget) are criminal and unstainable!

2. Reduce Cost of Subsidy
Why does NNPC get 445,000 barrels of crude a day that it can’t refine? In 2006, there were 3 marketers; we now have 77. According to BusinessDay, “the increase has also been linked to this year’s elections and it has been suggested that the subsidy programme became an avenue for patronage extended to those with political connections.” Significant savings can be made on the bandied N1.3 trillion if the government will prune out the “briefcase marketers”, clean up the NNPC/PPPRA to plug waste and leakages, and tackle smuggling.

3. Restore or Sell the Refineries
This is of critical concern and priority. Increasing the capacity of our refineries would reduce the amount of fuel that needs to be imported into the country. How much has been spent on repairing the refineries in the last 12 years?

4. Provide Power
According to a 2009 report by the Nigerian Electricity Regulatory Agency (NERC), Nigerians spend N797 billion yearly to buy fuel for powering generators. In 2010, President Jonathan said the cost of fuel (to power generators) was $13 billion. NERC’s estimates 32% of generator fuel is PMS. This means Nigerians spend about $4.19 billion or N646 billion on petrol, while the rest goes to diesel. Imagine how much fuel import dependence we can curb if this government fulfills the often-repeated promise of improving power supply in Nigeria!

Why has the government not presented a policy document or engaged openly and directly with Nigerians on this issue? Why the rush to remove the subsidy when other holes have not been plugged?

Enough is Enough Nigeria will continue the conversation by hosting a public Town Hall Meeting within the next 10 days to discuss the issue. In a country that provides no social services and the average citizen provides all basic utilities – water, electricity, and security; the government cannot remove the bread from our mouths while it continues to feed fat on its princely cakes.

We will engage in words and action. Enough is enough!

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EnoughisEnough Nigeria (www.eienigeria.org) is a coalition of individuals and youth-led organizations committed to instituting a culture of good governance and public accountability in Nigeria through advocacy, activism and the mobilization of the youth population as responsible citizens. The coalition includes The Future Project; Paradigm Initiative Nigeria; Education as a Vaccine (EVA); Kudirat Initiative for Democracy (KIND); RISE Networks; LYNX Nigeria; Chocolate City Group; EME and Light Up Nigeria.

EiE Nigeria created the RSVP (Register|Select|Vote|Protect) Campaign to leverage technology, especially social media to mobilize significant participation from citizens in the 18-35 age bloc in the 2011 elections and beyond.






7 comments:

  1. The approach is SO bad! Look at the statement Jonathan made on being ready for Nigerians. Policy makers always make the mistake of doing the right thing (ensuring market forces work) at the wrong time (people are still starving for goodness sake)!!

    Adiya
    Muse Origins
    Muse Origins FB

    How have you been Myne?

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  2. after reading this i see what EIE said. I was for the removal both now i think nigeria government really has left leprosy to treat ringworm. so sad.
    www.secretlilies.blogspot.com

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  3. Excellent points made definitely, I wonder if our leaders think before they come up with their proposals.
    2.51 million barrels per day, 2.95% Share of world oil production and our people cant afford to drive their cars.

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  4. Nigerians Voted Jonathan (At least that's what they said, so they should enjoy him)

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  5. @Muse, Tamuno and 9jafoodie, thanks so much.

    @Breeze, Hmmm..lol...

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  6. The EIE made some valid points. If subsidies is costing the government billions, how much is corruption costing the government?

    http://fresherangle.blogspot.com

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  7. Inasmuch as i feel the plight of Nigerians,i feel we still have not grasped the reason behind the removal of fuel subsidy.There's a cabal in NNPC and they are the brain behind the dilapidated state of our refineries.These cabals are the owners of the refineries where our crude is taken for refining.If our refineries work,theirs outside the country would suffer great loss so they always make sure nothing is done concerning refining our products in-house.The removal of subsidy is intended by the Federal government to work on the refineries so as to start refining our crude in-house.This,i believe,is a very good step.However,my fear is that the money should not be misappropriated,since this is always the case in Nigeria.Truth is,if we want changes in Nigeria,we have to take drastic steps.For instance,if we want the power sector to experience a turn around,let the importation of generating sets cease.But there's a cabal involved in that too and they'll fight tooth and nail to see that it doesn't happen.But they all fail to realize it's our nation that is suffering.This is my little contribution Myne,sorry for taking so much space though.

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