Nigeria’s already bad fiscal position is worsening every day on account of the unsustainable petrol subsidy regime which now has a monthly price tag of one hundred and twenty billion Naira!
And the president’s own economic advisory council says the rot must stop before more damage is done to the financial health of Nigeria.
Some have said there is a clear chance that if the government fails to act fast, the national oil corporation, NNPC will run out of cash to fund this subsidy and thereafter resort to borrowing to cover the subsidy bill.
Perhaps at this point of inflection we may no longer afford to play politics with petrol price any longer. Some experts say this point may not be more than three months away and the question to ask is this, do we have to wait for this unmitigated disaster to be brought upon us and our unborn children?
NNPC’S dire warning in its letter to the accountant general of the federation was clear enough and the prognosis of Professor Doyin Salami led PEAC to take action by the government urgent.
It is interesting that the states and the local governments have been rather quiet, perhaps out of the shock that the NNPC letter caused. The truth is Nigeria’s economy is haemorrhaging relentlessly.
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So, what should Nigeria do? Let us examine this by first looking at the issues and their full ramifications. The subsidy question manifests in a huge revenue drain as well as in the massive economic banditry that the skewed pricing of petrol in Nigeria has occasioned whether by way of smuggling across the border or the likelihood that Nigeria is not getting full value for all its petrol imports.
For instance, Nigeria’s actual domestic consumption of petrol cannot be far from 35m-45m litres a day given the size of some of the country’s economic activities. So, anything above this figure is taken abroad or worse still unaccounted for.
It is instructive that two full years after Cameroon’s only refinery broke down, they only imported one cargo of petrol, and yet the country has never been demonstrably short of petrol.
True, our borders are expansive and porous and cannot be effectively manned by security agencies. Even the United States of America with all its resources endowments is struggling to secure its much shorter border with Mexico.
Some experts who have examined the smuggling portion of this matter speak of mindboggling numbers in relation to the headcount of trucks that the smugglers would need to deploy daily.
The rated capacity of most petrol trucks is 33,000 litres each. So, to smuggle one million litres, the smugglers would need 30 trucks and it as is estimated, smuggling accounts for up to 30m-40m litres daily, multiply that number by 30 or 40 and given that the turn-around time is usually three days, you must further multiply the figure by three.
What you get is near 3,600 trucks. Add to this the number of trucks deployed to carrying the petrol that you and I consume daily, and you have almost 8,000 trucks, just for petrol alone! The sheer logistical demand of this suggests that there is more to this than meets the eye.
One estimate says perhaps no more than 20% of the excess petrol over actual consumption is really smuggled and that the balance can be accounted for by economic banditry or systemic contrivances!
The only sensible solution is to scrap the subsidy regime. Unfortunately, the government has let so much time pass without having to make the crucial decision required and is now a harder call to make in the precarious socioeconomic situation.
Removing the subsidy will no doubt fuel inflation and worsen poverty in the short term. Nigeria now finds itself in a perfect catch-22 situation, especially given the capacity and willingness of labour to feast on it and with a government that has no more political capital left to spend! The intervention by the presidential economic advisory council means that those in government know what they must do.
In March last year, this government actually announced deregulation of the entire downstream of the petroleum section, with a framework for market-based pricing of petrol.
That was why the price fell to N123 a litre at a point. The two key drivers of petrol pricing are crude oil price and the local exchange rate. The interplay of these two factors saw prices of petrol climbing back up to N162 per litre.
And once the price rose past the N145 a litre pre-deregulation level, Labour and civil society groups started mobilising for protest and the Minister of State for Petroleum had to step in to overrule the regulator PPRA when the pricing framework meant a rise to N212 a litre.
Some have said that was why security agencies claimed that riots worse than #Endsars would be mounted in opposition against petrol price deregulation. In the circumstance the government.
This government like many before it suffers from a severe trust deficit and given that its leaders mocked the Jonathan administration when it attempted to deregulate petrol price, it will be naïve to expect the opposition PDP to ease the path for the current government. Simple.
The political class in Nigeria does not see it as a duty to help the government navigate out of the mess and religious leaders have slipped away from the moral pedestal so they too are pleasing the people by saying removing subsidy on petrol will harm the people.
Lacking the will and courage to take the matter head-on, the government is skirting around it. The policy now is to provide a cheaper alternative to petrol, being LNG/LPG with the hope that the infrastructure for the conversion of vehicles to use LNG/LPG, and dispense same would be developed around the country but this takes time.
In the meantime, negotiations are ongoing with Labour for some palliatives to soften their opposition, including free conversion of mass transportation vehicles. A new gas pricing framework to incentivize additional investment in domestic gas supply is also being worked out. It is good that the government says it is engaging with the different stakeholders including the National Assembly to get them to support deregulation.
However, it is also true that there are people invested in the current system and who profit from it. No one should expect them to just roll over and let you change because there is a lot of money to be lost and they have a large war-chest to mobilize resistance against the proposed change.
By the way, this is not peculiar to Nigeria. The so-called big pharma in the US offers a parallel. So, the government must have the courage and the will to act decisively and with the creativity or innovation that is required.
Because some in government already understand this dilemma, it is important to point out that Nigerians are unlikely to accept mere promises at this time. There has to be a clear acknowledgement by the government of this trust deficit and the government has to promise that it will be transparent this time around and that whatever scheme it puts in place to replace the subsidy regime will be backed by law, not mere words.
For instance, in its advance communication, the government should state the amount to be saved and how this will accrue to the tiers of government. If Nigerians will be asked to bear the brunt of the expected petrol price increase, it will be good to set up a body similar to the highly successful
Nigeria Extractive Industries Transparency Initiative (NEITI) to provide regular accounting and oversight for what money is received and by what tier of government under this subsidy savings scheme.
Secondly, there must be an acceptance by the tiers of government that savings from subsidy removal will be dedicated to capital expenditure on health, education, and infrastructure development across the country.
The best hospital in Nigeria today is said to be Evercare in Lagos and it cost no more than $125 million or around N52bn.
If the government will commit to building one such world-class hospital in each of the six geo-political zones over a two-year period, this will require a monthly outlay of just N12.812bn of the more than N60bn which will accrue to the federal government monthly from subsidy removal.
This also presents for the central government an opportunity to enact a more progressive revenue allocation formula for Nigeria.
For the states and local governments, there must be a commitment to clear up all outstanding arrears of salaries, allowances, as well as pension payments within a period of 3-6 months following the removal of petrol subsidy and thereafter, a vigorous public works programme, must be mounted by each of the states with independent monitoring of the spending built into it.
