WHY FUEL SUBSIDY REMOVAL IS JUSTIFIED

The courageous termination of oil subsidy

By Sola Adeyeye

Economic realities do not change solely because of wishful thinking however ardent these wishes may be. Current realities dictate that Nigeria can no longer sustain pandering to the gallery of cheap populism. Elsewhere, a prominent member of the 8th National Assembly has countermanded the termination of subsidy by citing the subsidy that farmers enjoy in the USA. However, he completely missed the very significant difference in the purpose and mechanism of American subsidy to farmers versus the purpose and mechanism of so called oil subsidy in Nigeria.

For example, subsidizing dairy farmers in the USA is not done to keep prizes low; rather it is to prevent the prize of dairy products from falling too low! Such a fall would make farming unprofitable with farmers consequently choosing to abandon their farms. Hence, the US GOVERNMENT either pays farmers to produce less or buys excess agricultural products so as to decrease available supplies and thus increase price!

Second, the U.S. subsidy targets local agricultural production rather than subsidizing the price of imported foreign products. With regard to petrol price, an analogous subsidy in Nigeria would be to subsidize the cost of resuscitating our local refineries rather than giving free money to those claiming to be importing petrol. Yes, if we must, let us give tax breaks to Dangote and other investors who are willing to build new refineries. We are all witnesses to the decline of telephone costs after that sector was privatized and somewhat liberalized.

Nigeria has huge crude reserves but Crude oil is useless until it is extracted and refined! The USSR had extremely huge oil and gas reserve but lacked the technology to extract it! Consequently, the Soviet Union suffered energy crisis during the Cold War because the USA and NATO prevented Western Technology from being used to extract Soviet crude! Any lasting solution to Petrol price in Nigeria should focus on replacing our decrepit and obsolete local refineries.

Lastly, subsidy in Nigeria has always been about abracadabra! It is money for the Mafia who ensures that our refineries remain comatose so that their importation business might flourish.

We in the ACN played bad politics on this matter when President Jonathan first attempted to remove subsidy. We had robust in-house debate but eventually capitulated to the god of electoral politicking. Now the chicken has come to roost for all of us.

I have read a litany of articles on the price of petrol in many oil producing countries. These and other pungent facts should make us sad. Even so, these are far from being all the pertinent facts!

How many of the countries cited import refined products like Nigeria does? What are the external reserves of these countries per capita? What is the per capita external reserve of Nigeria? These are pertinent questions because we do not pay for imported petrol with naira; we pay in dollar. Flaunting data and statistics that compare Gulf countries with Nigeria is outrightly disingenuous. There are more people in Oyo State than in Norway. Yet, Norway annually produces double the petroleum of the entirety of Nigeria. A similar comparison with any of the Gulf States yields a sobering different perspective of our predicament.

In particular, President Buhari took over the country and met a looted and empty treasury. Two of the four refineries of Nigeria operate at about 40% capacity while the other two have zero capacity. All four have obsolete infrastructure that means they cannot be upgraded. We need new refineries but new ones take time to build. What abracadabra can Buhari perform within the circumference of these stark realities?

The pump price of petrol in the developed economies includes substantial taxes and business costs. In the UK, taxes account for 61% of the price paid at fuel pumps. For Nigeria, refined petrol should be sold at whatever price it costs to import it plus marginal taxes and margin of profit. Until our refineries begin to work well, we must stop the fantasy of easy solutions on the matter of petrol price in Nigeria! OPEC quota dictates volume and price of crude oil to be sold by member countries but gives total freedom on the production and price for internal consumption.

If we refine all that we need within Nigeria, not one penny of the revenues earned from the sale of crude oil will be used to import petrol! As such, this is our permanent and indispensable solution. Indeed, Nigeria’s goal should be to sell crude to the rest of the world but sell REFINED petrol to all ECOWAS countries that do not produce oil.