Corruption, Impunity, Failed Governance And The booby Trap Of Fuel Subsidy. By jaye gaskia
There is a severe immediate crisis presently unfolding in the country at the moment. It is the latest manifestation of a perennial long standing crisis; and one that is very symptomatic of the grandiose scale of the corruption that has characterized the last sixteen years, and the share scope of the impunity that drives the catastrophic steep increase in the treasury looting, or public theft rate of the last six years.
The crisis being referred to here is that associated with the current biting and creeping scale and scope of fuel scarcity across the country.
This crisis within a crisis [because it is occurring at a period of dwindling national revenue triggered by the global precipitate crash in crude oil prices, but enhanced by crass mismanagement of the national economy over the preceding years and decade and a half] has thrown up again the debate about fuel subsidy and fuel price increase.
I will proceed by asking and attempting to respond to a series of questions in the hope that by so doing one can expose the umbilical cord between fuel scarcity, fuel subsidy, corruption, impunity and failed governance in our country.
Now to the set of questions; Why has the challenge of subsidizing the pump price of fuel remained with us over the last three decades? What is the basis of this subsidy? What is the role of corruption in ensuring the permanence of a subsidy regime? How is impunity in governance linked to all of these? Is the fuel subsidy in its current context a subsidy on consumption or a subsidy on production? Is a permanent subsidy regime sustainable, and particularly under present circumstances? Should the response to the subsidy challenge another increase in pump price of petrol? Is an increase in the pump price of fuel at this period sustainable or a call to chaos?
Let me begin by isolating the three most significant immediate questions that the incoming administration will need to urgently respond to.
First is the subsidy regime, particularly in the present context of scarce national revenue sustainable? The clear response to this must be an emphatic No.
Second is the process of doing away with the unsustainable and corruption powered subsidy regime equal to the process of increasing the pump price of fuel? Again the emphatic answer must be a resounding No.
And thirdly is raising the pump price of fuel as a response to tackling the subsidy crisis a politically and economically sustainable option? Absolutely Not.
For the avoidance of doubt let us restate very clearly now the reasons necessitating, underlying and driving the subsidy regime.
These most significant of these reasons are: the gross, unpardonable and inexplicable inadequacy in domestic refining capacity for crude oil; the consequent overwhelming odd near total dependence on imported refined products to meet domestic needs of the economy; the instability, and often constant decline of the value of the Naira against the value of the Dollar, which compounds our dependence on imported refined products given that these are denominated in Dollars.
For instance despite the more than $20bn that have been spent on Turn Around Maintenances of the Four Domestic Refineries, the average capacity utilization for these refineries as at the first quarter of 2015 stood at a shameful 11%.
The obvious and immediate implication and fall out of this is that we depend on imported refined products to meet more than 80% of our domestic needs. To put this in its proper context we are the only OPEC member to be so dependent on imported refined petroleum products. The average for the OPEC countries is that 80% of domestic needs in refined petroleum products are met by domestic refining capacity, ensuring that across OPEC countries on the average only 20% of domestic needs is serviced by imported refined products.
So despite the huge investments on Turn Around Maintenances of our refineries; despite the issuing of dozens of refining licenses, and despite the very robust assertions made in the aftermath of the January Uprising; why are three years later in 2015 still more than 80% dependent on imported refined products? Let us particularly not forget that in the during the January Uprising of 2012, the government had stated categorically that it was going to bring capacity utilization levels at the domestic refineries up to 90% on the average by the second quarter of 2013. Yet 3 years since the government pronouncement, and nearly two years after the second quarter of 2013 deadline given by government average capacity utilization of the refineries hovers around 11%
What has happened to the billions of dollars?
Why is adequate domestic refining capacity significant? Because without it we would continue to depend on imported refined products, the cost of which will continue to be dependent on the changing value of the Naira against the Dollar, with the implication being that unless you leave the pump price to be determined by the value of the Naira, there will always be a continuing necessity to subsidise the pump price.
The subsidy here arises because of the difference in the landing cost of the imported fuel and the pump price. As long as you have an interest in ensuring accessibility of the product at a cost that will not collapse the local economy, then no matter how many times you remove subsidy, as long as the Naira continues to decline in value against the dollar, new subsidies will keep emerging.
But why should any government have an interest in ensuring cheap, affordable and accessible fuel? Because of the level of poverty in the country which stands at 69%; because of the unsustainable level of general and youth unemployment which stands at 24% and 45% respectively; because fuel in our economy where public energy supply is grossly inadequate, and 80% of economic and domestic processes run on power generated by generators, big and small; because of the preponderance of small and medium scale enterprises in the economy and the disproportionate impact of the cost of fuel on their businesses; and because a significant component of the high cost of doing business even among big business is due to the need to generate their own power for which they require refined petroleum products to fuel their generators. In fact it is estimated that more than 30% of the high cost of doing business in Nigeria is due to the cost of fuel for generators.
In very simple terms because of the parlous state of power generation in the country which currently hovers around 3,000MWs against the backdrop of current peak power demand of and average of 13,000MWs; and because the transmission capacity of the National Grid is less than 5,000MW; fuel for generators is a factor of production and not a factor of consumption. As such this undermines the logic of differentiating between subsidy on production and subsidy on consumption with respect to refined fuel in our own economic context.
Against we must emphasise the place of corruption and treasury looting in the emergence of this situation where after nearly $40bn investment in the power sector over the last 16 years, we have found ourselves in this sorry state.
To put this in proper context, inherited power generation and national grid transmission capacity as at 1999 were about 2,500MWs [generation capacity] and 4,500MWs [transmission capacity] respectively. 16 years down the line, and $40bn investment later, we are still saddled with actual power generation capacity that fluctuates between 2,700MWs and 3,900MWs on the average; while the transmission capacity of the National grid has remained unchanged, and even declined due to dilapidation over the same period.
Again what happened to the billions of dollars?
Let us illustrate the umbilical relationship between corruption, impunity, and failed governance further with the specific lucrative fuel subsidy regime. This is the reason why over the last 16 years there has been a deliberate attempt and policy to ensure that the refineries do not work, and that we shall for ever be dependent on importation of refined products.
So for instance daily consumption rate for petrol and annual subsidy for the product have varied grossly and without any rational explanation over the years; In 2010 Daily Consumption Rate [DCR] and annual subsidy was put at 30 million liters per day and N600bn respectively. In 2011, the most significant year of the locusts; these were put at 60 million liters per day and N2,7tn respectively. After the January Uprising of 2012, these figures declined to roughly 40 million liters per day and N1.3tn for 2012; and has since hovered around 38 million liters per day and an annual bill of about N1,2tn for 2013 and 2014.
Inspite of these very obvious discrepancies suggesting a grand scale of public theft [which stood at about a Public Theft Rate/Treasury Looting Rate of N220bn monthly in 2012]; and regardless of the numerous public probes of the fraud, no one has been convicted, no public funds recovered, and no public official disciplined.
It is in view of the forgoing that the fuel subsidy conundrum presents a booby trap for the incoming government.
It is crisis that must be addressed, at both economic and political levels. Any government that does not want to be engulfed by a life threatening crisis, will not address this challenge simply be raising prices. The subsidy regime must be done away with without affecting prices, and as soon as possible.
Any government worth its salt, and if the incoming government is to fulfill its electoral promises, it can not present the masses with a decision that will equate the change that was promised with increase in fuel prices, increased inflation, increased cost of living, and declining condition of living. This was not the reason people voted change in their millions.
What must be done must be such that the government will develop an implementable plan that will ensure that within 18 months or so, we can have optimal if not adequate domestic refining capacity. It must ensure that in the interim looted funds are recovered, corporate and individual culprits in public and private sectors are prosecuted and punished exemplarily, and that the average capacity utilization for the four public refineries get upto 80 to 90% within the shortest possible time, say within six months.
In the short term it must explore the options of swapping crude for refined products to meet domestic needs without having to raise pump price, while also exploring the possibility of paying for some of the needed infrastructure development in the sector [renovate existing refineries and build new refineries] are mostly paid for in crude oil.
JAYE GASKIA IS NATIONAL COORDINATOR OF PROTEST TO POWER MOVEMENT [P2PM] AND A CO-CONVENER OF SAY NO CAMPAIGN [SNC]