• Wednesday, May 29, 2024
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Separating politics from economics – the subsidy question

petroleum subsidy

For an average student of political economy the above seems impossible, especially in an economy where the state plays a pivotal role in major economic decisions. However, what is being advocated here is not the absence of the state in playing the role expected of it but in taking pure economic decisions devoid of partisan politics.

The last sentence obviously is apt for many third world countries usually classified as developing economies, the majority of which are in Africa (Nigeria inclusive). Let’s take Nigeria as a case study considering what has happened there just recently regarding removal of subsidies in premium motor spirit (petrol) and electricity which has been described as hikes in the two items.

No issue has been as emotive as that of petrol subsidy; the other petroleum products, namely Diesel and Kerosene having been successfully and completely deregulated.

That many successive governments in Nigeria have had to battle with the issue is a truism. From the days of Gowon administration to date, over twenty six petrol price reviews have been carried out. Save for the Military governments that were able to carry out some hikes without much resentment, the same can’t be said of Civilian administrations. That is hardly surprising given that in democratic dispensations, policies are scrutinised and debated. Superior arguments grounded on hard facts usually triumph, even though politics has sometimes been thrown into the mix.

It was to largely tackle the issue of petroleum subsidy that the Obasanjo administration set up the Petroleum Products Pricing Regulatory Agency (PPPRA) in June 2003. Its mandate was to tackle, among others; scarcity of petroleum products leading to long queues at the service stations; low capacity utilisation and refining activities at the nation’s refineries (poor state of the refineries); large scale smuggling due to unfavourable economic products borders’ prices with the neighbouring countries; and low investment opportunities in the sector.

The above are laudable objectives but how much of them have been effectively communicated to the citizens and what have successive governments done to actualise them? In my serialised article (see BusinessDay of January 17 & 18, 2012, p.14 respectively) entitled “Fuel subsidy removal, matter of redefining trust”, trust deficit was highlighted amongst other issues on why many successive governments in Nigeria have been finding it difficult pushing through with the policy. Governments after governments have usually canvassed the same lines of argument to justify the need for removal of subsidy and this is what politicians on the other side of government have usually capitalised on.

Starting with the Obasanjo administration that inaugurated the PPPRA, not much opposition came from political opponents but largely the labour wing in its attempt at petrol subsidy removal. The administration through the PPPRA did not achieve much in the set objectives. Not much, for example, was achieved at revamping the nation’s refineries despite turn around maintenance (TAM) activities carried out, neither were new refineries built. Smuggling of petrol to neighbouring countries was not halted. Before leaving office, the administration recognised the shortcomings of the government in effectively managing the nation’s refineries and succeeded in privatising them.

Though the succeeding administration of late President Yar’adua didn’t last long in the saddle, the issue of subsidy persisted, albeit with little or no opposition from political opponents. Instructively, the administration took a major step backward by revoking the privatisation of the refineries instituted by the preceding administration. The move was seen as yielding to pressure from some interest groups against the privatisation rather than on sound economic reasoning.

The full politicisation of the petrol subsidy was to be unleashed during the administration of President Goodluck Jonathan – an offshoot of the Yar’adua administration. Though the administration came up with the same worn out lines of the raison d’etre for subsidy removal, it tried to engage the relevant stakeholders on the need for the removal. Town hall meetings were held with the then coordinating minister of the economy, Dr (Mrs) Ngozi Okonjo-Iweala, at the head of government delegation. Statistics were provided by the government to buttress the fact that continued subsidisation of petrol prices was no longer sustainable.

That government’s resolve at going full throttle with the subsidy removal was tested on January 1, 2012 when the administration jerked the price of the product from N65 to N141 per litre to reflect market realities. All hell was let loose! For about two weeks there was the “occupy Nigeria” demonstration at the Gani Fawehinmi Park at Ojota, Lagos. Politicians in power today were the arrow heads. Nobody was talking of the soundness or desirability of the policy but hid under the cover of the “timeliness” of it. Some even questioned the existence of any subsidy. Economic activities were practically grounded in Lagos and some states. The government was forced to backtrack and slashed the price to N97 per litre. The subsidy thus continued!

Today the opponents of the subsidy removal then are in power as proponents and the subsidy has been effectively removed after many price reviews. PMS today sells between N159.90 – N162. Yet the opposition to it today is akin to what was obtained in the past: the nebulous “timeliness”.

As for the hike in the electricity tariff, the argument against it is subsumed with that of petrol.

Empirically, it is very evident that more often than not, opposition to certain government policies in Nigeria is rooted in partisan politics rather than on hard economic facts. For example, opposition to subsidy removal is not anchored on such issues as insisting on the working/building of refineries (thus stopping fuel importation with the vagaries of international oil prices in an era of FX scarcity) and stemming fuel smuggling. A situation where the last refined fuel in Nigeria was in 2017 – undertaken by Port Harcourt Refinery – speaks volume. For the electricity tariff, the narrative should be focused on whether to first hike tariff or improve on output with robust arguments.

Dr. Okolo is a Chartered Stockbroker and Management Consultant based in Lagos.