Why Govt Can Still Remove Subsidy, By Saibu

Femi Saibu, an Associate Professor, specialises in Public Policy and Finance at the Department of Economics, University of Lagos (UNILAG), Akoka. In this interview with IKECHUKWU ONYEWUCHI, he argues that government can only sustain fuel subsidy if, against all calculations, it establishes that the cost of importing petroleum is extremely high. 

WHAT do you make of the recent decision by President Buhari to maintain the status quo as regards the subsidy regime? IN principle, a subsidy is very good.

The economic empowerment indices is very low, so government has to find a way to ameliorate that and at the same time, try encourage the industries to survive.

Also, it makes people have the requisite consumption power to keep the economy running. Given the Nigerian scenario, what we need to define is the actual cost of fuel importation. It is only when we know the real cost that we know whether what is being paid is subsidising or settling people, who are close to the government.

I say this because, all the calculations, including government’s, which was arrived at during the 2012 anti-subsidy protests, point to the fact that no one has exact figures. Government came out to say that it was working with estimates. The subsequent panel set up to probe the sector came out with damning reports that a lot of people were eating government revenue without adding anything.

Nobody has been able to ascertain whether the quantity importers claim to have imported is correct. The first thing I would want government to do is to find out what has happened during that period so that we can get the true cost of importation in Nigeria and whether the gap that government is filling is accurate.

After that, one can now ascertain what government ought to pay. From the economic point of view, I want to disagree with the president that removing subsidy would affect the purchasing power of people. Government should do a study and find out how much people are actually paying at the pumps.

It is only in few stations operated by big marketers that one gets fuel at N87. The price ranges between N100 to N110 elsewhere. So the people the government is trying to protect are already paying the full bill. Nobody in urban communities today buys kerosene at N50.

Government should find out where the subsidy is going. If government were able to establish that people buy fuel at N87 and subsidy is removed, would it affect the cost of living? I am not sure that one would get fuel at N87 at far-flung areas of Lagos.

If that were the case, then it would be evident that the subsidy is not getting to the consumers. Government needs to find out these things; it is not something that is determined from Abuja. My friend in the East told me that there has never been a time that he got fuel for N87, the same applies to the North.

Where do these marketers supply their fuel to, especially in recent weeks? Do you think something else must have influenced the president’s latest stance? There might be political reasons why government may be skeptical about touching a very sensitive issue like subsidy; I can concede to that.

They might want to be politically correct, using political arguments to prove their position. But economically, today, if fuel price goes beyond N100, I don’t think it can change any economic fundamentals in the country. On the average, the fuel price ranges between N110 and N100 and people have already conceded to it. Government needs to, in totality, lay a solid foundation.

It is important that government touches on sensitive issues now, so that it would not need to come back to them towards the end of tenure. For instance, government says it wants to meet 20 per cent of consumption with domestic capacity. If that should happen, automatically, import would reduce and so will the total waybill on subsidy.

The amount paid to individual marketers would not change but government’s total payment would reduce. It is pertinent to ask what has held the country from producing more. What stops government from encouraging people to establish refineries and give them the subsidy, rather than lodging it to foreign countries.

The more money paid to foreign countries through their companies, the more we develop their economies, to the detriment of ours. We should encourage those companies that are refining for us overseas to come and establish refineries here for a period, if entrepreneurs at home are not ready to take the risk.

We tell them we are going to take all the fuel they refine here and they would supply. Since the investment is in Nigeria, it would generate a ripple effect for employment. I think there is more to be done to establish the cost of importation and what people are paying.

The difference between the cost of importing is what ought to be paid, not the current arrangement where no one knows where anything is going. Can we trace any discrepancy in cost to the Petroleum Products Pricing Regulatory Agency (PPPRA), which is the government body charged with the function? If one listens to the PPPRA’s argument, it would be discovered that they are politically handicapped.

Many of those getting papers for imports do not have the capacity — they would get the papers and then sell them out. In a situation whereby the boss gives one certain instruction, the ability for efficiency is constrained. The Nigerian problem is already afflicting the PPPRA, such that they don’t do the work as it should be done.

There are a lot of people getting paid that shouldn’t be. The body is toothless. I think the best way government can attain sanity in that organisation is to bring in people who are committed. So how can government get a grip on the erratic subsidy figures? We need studies.

We have 774 local councils in Nigeria; they need to sample about 10 per cent of petrol stations in these places, which would give 7740. They would only need to go there without the knowledge of the station managers and buy fuel so as to know how much it is sold.

We can use that to determine the average price being paid. Then we can say what price is paid in what state. We can then ask those people, who took fuel from Nigerian National Petroleum Corporation (NNPC) at a subsidized rate, that claim they are supplying a particular state, where they took the fuel to? And why are people paying so much if they took the fuel to those places. Even if they cannot collect the one they’ve taken before, it can prevent further scheming.

You cannot start a policy without information; if this is done, there is bound to be a wrong result and everything would go the same way it has been going. The issue is not with the PPPRA; they can only work on the papers that have been submitted.

Based on what we get from the studies, we can advice the PPPRA on which companies have failed in the past and how to deal with them. Government has reduced the number of licences from 43 to 39. They should tell us why they reduced it. If they have done something wrong, they should let us know.

Some people might interpret it to be political and vindictive. If it is not political, let them let us know that the companies have done something wrong. If it was because they have been compromising in the subsidy scheme, it should be made public.

How can transparency and accountable be achieved in the subsidy regime? Nothing stops whoever is in charge from making whatever that is imported and verified, as well as, the amount of subsidy paid public. The states, where these companies supply fuel and stations, should be known.

With that, people can monitor things and report the prices at which they buy fuel to an online platform via Facebook, Twitter or other platforms. One can even snap the price at the pumps. This should be carried out randomly and unannounced. If this is adopted, everybody can be part of government’s transparency drive. We can then report to the authorities when the stations sell above the approved price.

Monitoring is beyond sending committees. Providing a platform for people to upload information using mobile phones can go a long way in getting information without people leaving their offices. For instance, a company imports fuel and is paid subsidy, it is expected that fuel can be gotten at the stations of the company at the right price.

People would just go and find out the rate at which the fuel sells and upload the figure online. Even when importers are selling to third parties, it would be indicated in the document they submit to government. That is transparency and would eventually bring about accountability on the part of government and the marketers.

But when everything is shrouded in secrecy, then it is easy to cheat the system. This has nothing to do with Department of Petroleum Resources (DPR); they cannot be everywhere. But everyone is everywhere. One cannot say a company is good because someone claims to be religious or is a high priest.

A Chief Executive Officer (CEO) of a company may be transparent, but the driver might not be. The driver may collect bribe in the name of the CEO. It takes more than one honest person to make things work; the entire structure must work. Government must try to carry the people along in governance.

Government can deploy the social media to reduce the cost of governance, as they can easily get information anywhere. I am not sure there is any local government in Nigeria, where someone does not have a mobile phone.

From the economic point of view, I want to disagree with the president that removing subsidy would affect the purchasing power of people. Government should do a study and find out how much people are actually paying at the pumps. It is only in few stations operated by big marketers that one gets fuel at N87. The price ranges between N100 to N110 elsewhere. So the people the government is trying to protect are already paying the full bill. Nobody in urban communities today buys kerosene at N50. Government should find out where the subsidy is going.

Against all economic arguments, should government retain subsidy? If it is established that the cost of importing fuel is extremely high, say around N140 to N150, government should retain it, because things are bad.

As the president said, it is going to affect the unemployed and the workers. But my argument is that those stations, which sell N97, have supplies only once a week.

If that were the case, if government can compensate the people in other ways, people would bear with a little increase in fuel price, that is, a slight removal of the subsidy. If domestic production resumes, at least at around 20 per cent, the total sum of subsidy required would fall and eventually ease out.

The cost of producing in Nigeria cannot be as high as N100 per litre. I am advocating for a little increase in the pump price and if the whole scene stabilises, it can come down. There’s no law that says what goes up must not come down. If exigencies require that we increase it to recoup cost or when the refineries are finally in order and other encumbrances are removed, then we can give more benefit to the people.

It would even make more political sense if the prices go up now and then is later reduced. But before this is done, government has issues of pipeline vandalism to deal with. Information management, accountability and transparency are important. While they are maintaining their political machinery, government should not forget the economic side.