Only insane people do insane things and are consistent in their abnormal behaviour. So we thought. Until Nigeria invented its own version of insanity that defies any rational definition.
What can celebrate idiocy more than a country that burns humongous amounts of money on a policy that’s vastly unproductive, and then goes borrowing billions to fill the sea-size hole in its financial regime? Nigeria is broke. And that’s beyond any contention. Yet the federal government continues to waste money, subsidizing the price of petrol. The justification for this irrational policy that’s been in place for decades, is that it’s good for the public.
The irrefutable evidence shows the contrary. The subsidy regime has been a gold mine that keeps giving to the army of corrupt public officials, who administer it, and their collaborators in the private sector, who have been gorging on the limitless opportunities for arbitrage and rent. They all smile to the banks while the ignorant public continues to believe that the policy is in its best interest.
We all have been duped for so long that most of us reflexively defend the policy that has impoverished us and detained the country in a state of stunted development. We’ve become complicit in our own needless deprivation. Our traducers are happy to keep us that way so that their bank accounts can get more and more fattened.
Petrol subsidy throws up numbers that are mind-bending, especially given the dire state of the country and the governments’ acute financial challenges. The latest of such numbers were revealed recently by Mele Kyari, the affable group managing director of NNPC, the state oil corporation that’s more of a dinosaur and, therefore, useless.
Kyari said, at the weekly ministerial press briefing in Abuja, that NNPC had been spending between N100 and N120 billion monthly on petrol subsidy since January. He moaned that such financial burden was no longer sustainable, and must be ended.
Of course, he spoke bluntly and cried his heart out. But it all sounded so familiar. We’ve seen and heard it all so many times. Nothing changes, and this time won’t be different.
So, if we take the lower figure of N100 billion monthly subsidy spend, that would be N1.2 trillion in one year. If we go by the higher figure of N120 billion, that would cost the country N1.440 trillion a year. Apart from the recurrent and debt-servicing expenditures, these figures dwarf all the other budgetary provisions, including capital projects and defense. Yet the government persists in indulging in this financial vandalism while pretending that it wants to make the people happy.
The estimated annual total spend on subsidy would only remain at these levels if the prices of crude oil are stable. With the global economy gradually gearing up for a full recovery from the ravages of the COVID-19 pandemic, oil prices are expected to continue rising. Which would inevitably impact the pump price of petrol. And that means more money for subsidy. This is the big dilemma confronting the government, one it has to resolve without further damaging its already fragile finances and triggering another social upheaval in the mode of the ENDSARS protests.
In the last 9 years, it’s estimated that the government has spent about N10 trillion naira on subsidy. That’s about $25 billion. Yet the government has borrowed more than that since 2015, justifying its addiction to all kinds of borrowing by the need to invest in infrastructure development and fund social programmes to reduce poverty in the country. But Nigeria remains the world’s poverty capital with nearly half of the population living in extreme want.
It was the same Kyari who had declared last year that the subsidy regime was ended for good. That’s when crude oil prices were still down in a deep valley. He assured that, henceforth, pump prices of petrol would be market-driven. Those who had been railing against the sheer idiocy of the policy for years, celebrated Kyari’s pronouncement. He was hailed as the breath of fresh air needed to save the government from its self-inflicted injury and revive the amorphous and obsolescent NNPC.
It later turned out that the celebration was premature and the end of subsidy a farce. As crude oil prices began to rise steadily in the world market, the government lost its nerve when the Nigeria Labour Congress and its affiliates threatened to call for mass strikes if pump prices were adjusted to reflect the market reality. In no time the federal government was back to the asylum of subsidy payments. It readily assumed its sorry status as a helpless hostage to its own grand folly of wasting scarce resources on a policy that’s economically destructive and benefits just an infinitesimal proportion of the population.
The major enabler of the government gluing itself to this indefensibly wasteful policy, is the Labour movement that desperately seeks to maintain its relevance by its uncritical embrace of populism. Their modus operandi: Posture as the defenders of the poor masses while ignoring the corruption engendered by the subsidy regime and the desultory effects on the country’s economic growth and development. Their position is static, insular and unproductive. But do they care?
The four oil refineries run by NNPC have been dead for so long that virtually all the country’s petroleum-product needs are imported at a cost of tens of billions of dollars annually. This accounts for the highest foreign exchange expenditure and has become a drain on the country’s foreign reserves and, coupled with the subsidy payments, a huge drag on public finances at all levels and the economy.
No matter. Labour keeps up its pretense of being the last hope of the common man and woman, all the forgotten Nigerians who have no one to attend to their most basic, desperate needs. Again, it has served notice that it would resist the latest farcical attempt by the government to end subsidy. This was in reaction to Kyari’s declaration that NNPC could no longer bear the burden of spending trillions of naira to fund subsidy while borrowing to try fix its decrepit refineries.
Is it surprising that Labour has never called for a strike to force the government to fix the refineries? Even though the refineries haven’t been working, they have kept the full complements of all the staff who are paid without fail. After all they’re privileged public servants, and Labour gets huge amounts of money from their dues that are remitted to its coffers.
And Labour has kept silent following the announcement of NNPC’s $1.5 billion plan to “revamp” the 210,000-barrel-capacity Port Harcourt refinery. A huge chunk of the money is going to be borrowed, and given the four-year timeline for getting the job done, the plan is already dead on the drawing board. It’s only those, who’re willfully in denial about NNPC’s capacity to revive the refineries, that believe in this latest embarrassing theatric that it’s serious about fixing the refineries.
It’s common knowledge that the corporation’s global financial rating is poor. And this is primarily because of the opaqueness of its operations and financial dealings, plus being the federal government’s ATM. Hence, it’s going to have a hard time raising the funds from the global financial market or through bilateral arrangements to implement its plan.
And who will give NNPC’s loan request any serious look against the background of the Dangote Group’s multi-billion-dollars refinery that’s scheduled to commence operation early near year? Its 650,000-barrel capacity per day is more than enough to take care of local demands for all types of fuel, including aviation fuel. NNPC has been left in the dust, and the government’s best option is to sell the refineries at attractive prices to private investors to revive them and help make the country a major petroleum products exporter.
One clear evidence of the wastefulness and corruption of the subsidy regime is the highly improbable daily petrol consumption figure. Kyari says it’s between 50 and 60 million liters. Which literally beggars belief.
In 2014, the estimated daily consumption was between 30 and 35 million liters. That was when the economy was still doing well. But even these figures were pooh-poohed in 2016 by Dr. Ibe Kachikwu, then NNPC’s GMD and minister of state for petroleum. He claimed that forensic analysis showed that the maximum daily consumption was 25 million liters. Implying that the official figures in the corporation’s books were cooked.
Five years later and with the economy still struggling for lift-off after two severe recessions, the daily consumption has skyrocketed. The only rational explanation is that something very fishy is going on, and much of the fuel is smuggled out through our very porous borders.
The country is spending billions of dollars to import fuel and billions more to subsidize the price. Then nearly half of what we import and subsidize is taken out to our neighboring countries by big-time cartels who make huge profits from the arbitrage. These cartels have public officials, including officers of the security agencies, Customs and Immigration Service as major stakeholders.
This large-scale illegal operations of smuggling fuel across the borders will never stop until the mindless subsidy policy is ended for good. If petrol prices are determined by the market as are food products and pharmaceuticals, which are vital to our wellbeing, then the incentive to smuggle it out would inevitably evaporate. This is because it would be unprofitable to do so.
There’s no doubt that paying higher petrol prices would be tough for Nigerians who are already suffering. But the cost-benefit analysis of subsidy doesn’t favour the public at all. And the country has been badly served by it, as funds needed for investments in other vital areas of the economy and social programmes that would impact the poverty level more are wasted on it.
Despite Kyari’s lamentation that subsidy has become unsustainable and should be finally done away with, we know this won’t happen. Politics will always trump sound economic judgment in a country where the top echelons of all arms of government are peopled by mad men and women and specialists in failure. Those who continue to ignore the classic definition of insanity as “doing the same thing over and over again and expecting a different result”, are incapable of igniting some imagination and mustering the will to promote policy options that could drive the country’s economic revival and ensure its steady growth and development.
