Fuel Subsidy as Buhari’s Baptism of Fire By Kayode Komolafe
In the spirit of a debate that has lasted for over three decades on one aspect of Nigeria’s political economy, the House of Representatives voted yesterday against the total removal of fuel subsidy. Instead, the lawmakers would like the President-elect, General Muhammadu Buhari, to continue with the subsidy regime. As the lawmakers pondered what to do with subsidy, Finance Minister Ngozi Okonjo-Iweala was busy having the usual dialogue with fuel marketers so as to arrest the fuel scarcity already plaguing the economy. The Coordinating Minister for Economy met with marketers to sort out their claims for subsidy payment. Similar meetings to reconcile subsidy figures had been held in the last few years. So nothing new is happening on the fuel subsidy front. But for the next administration something new has to be done to solve the problem.
The debate on fuel subsidy has generated more heat than light over the years. Obfuscation| is deliberately introduced into the debate by vested interests. This is probably why the heated debates have not resulted in policy breakthroughs all these years. The facts are not always in the public sphere for informed discussions of the problem. Technocrats revel in talking of the illogic of fuel subsidy. But in the streets the phrase, “removal of fuel subsidy”, has a less technical translation called “increase in fuel price”. What ultimately registers in popular imagination is the cost of fuel with its multidimensional consequences. So the emergent issues from it are not only technical; they are also social, political and even legitimately emotive.
The debate has been conducted in over 30 years in this country with blood and tears. In the 1980s, labour leaders used to warn the regime of President Ibrahim Babangida that the “issue of fuel subsidy is as inflammable as the substance itself.” And so it has been with the country. During the administration of President Olusegun Obasanjo, Edo State Governor Adams Oshiomhole was the President of the Nigeria Labour Congress (NLC). Oshiomhole heroically led people’s protests against increase in fuel price. Ironically, Oshiomhole is now a leader of the All Progressives Congress (APC), the party that will come into power at the centre on May 29 to find solution to the problem among others.
To be charitable to Obasanjo, his administration deepened the debate insisting 15 years ago that the issue was the liberalisation of the downstream sector of the petroleum industry. Nevertheless, the policy itself suffered from serious disarticulation. The stages for the liberalisation process with timelines were never spelt out. The point of consummation of the process was not clearly defined. However, the Petroleum Products Pricing Regulatory Agency (PPPRA) itself is a product of that stage of the long-running debate. The PPPRA has only been “regulating” the problematic subsidy since its birth.
In retrospect, the mass protests against fuel price hike of January 2012 were more against the mismanagement of the subsidy regime than the actual price increases that the “removal of subsidy” engendered. In fact, no rational person would believe that the hundreds of billions of naira bandied in official circles are used legitimately to subsidise fuel consumption in this country. In 2011 the figures shot up to trillions of Naira! Unfortunately, in the campaigns towards the last presidential elections issues were submerged in hate speech. Otherwise it should have been possible to know in specific terms what a new administration would do to solve the problem in view of the financial hemorrhage caused by the subsidy regime.
Now, not a few concerned Nigerians would like to suggest to Buhari that he should announce the obituary of fuel subsidy in his eagerly awaited inaugural speech on May 29. What with the unmitigated wastes and gross mismanagement associated with the subsidy regime! Those who are exasperated enough to hold this rather radical view in the course of the debate have legitimate reasons to insist that the policy is not sustainable economically. Come to think of it, Professor Tam David-West, who is now a member of the Buhari Transition Committee, had been telling anybody who cared to listen to him over the years that “there is no fuel subsidy” in the first place. David-West, a close associate of Buhari, is a former Minister of Petroleum. Will he make the radical suggestion to Buhari to bury fuel subsidy on May 29?
Meanwhile history should teach us the lesson that what could be technically feasible may also be politically inexpedient and socially insensitive.
After all, it was considered politically incorrect for a president seeking re-election to promise that there would be removal of subsidy on the first day of his second term. Similarly, without a mitigating policy framework firmly in place, it might not be a wise step in socio-political and economic terms for a president to announce removal of fuel subsidy in his inaugural speech knowing full well that it would mean instant increase in fuel price. The shocks that such a policy step would cause in the system may be too much for an administration that is about to settle down to handle.
Nonetheless, the change that Buhari promised with so much passion would be put to a severe test in the manner in which he unties the fuel subsidy knot. The nation cannot simply pretend to be subsidising the consumption of fuel with trillions of Naira. The subsidy regime is only enriching a handful of persons. This is one mismanaged policy that should tax the creativity of the Buhari administration in generating fresh ideas to solve old problems. No matter what those who make a fetish of age may say Buhari is not a strange person to the petroleum sector. He was oil minister when two refineries were built and they began operation in less than four years. Nowadays, building of refineries is presented as a rocket science. A lot of technical myths have to be exploded in the policy process. Refineries have been built in less than two years elsewhere while the policy process is mystified here for selfish reasons.
As part of Obasanjo’s liberalisation efforts, licences were issued for private refineries. More than a decade later not one private refinery is operating. The standard explanation from our experts is that no businessman would invest in private refineries unless the pricing is deregulated. Yet a few businessmen are actively involved in the trillion-Naira business of fuel importation. It does not seem to occur to those on the importation side of the debate that the trillion Naira allegedly spent on subsidy would build more than enough refineries. Remarkably, Alhaji Aliko Dangote is not waiting for this elusive deregulation as his refinery project is proceeding well. Hopefully, when the Dangote refinery begins operation one segment of the debate will be concluded. While Nigeria continues playing its subsidy game, new refineries have been built in Chad and Niger.
The products from these refineries are shamelessly consumed across the borders in Nigeria. The element of change that Buhari can bring to the matter is to illuminate the subsidy regime and indeed the whole sector. Nigeria has carried on for over two decades as if nothing is amiss with the national shame of a crude oil exporting country that imports fuel for domestic consumption. Observers around the world baffle at this policy absurdity while our own experts rationalise here it eloquently. If Buhari cannot end the fuel subsidy on May 29, its administration should be able to come up with a timeline to end this shame called fuel importation. Prohibitive cost of fuel is largely due to importation. The moment you stop fuel importation, the end of fuel subsidy would be in sight. And you cannot seriously be talking of liberalisation and deregulation while there are no refineries operating to fuel the economy.
This is not a policy step that could wait for eternity. To start with, Buhari will urgently need to free the huge funds trapped in the subsidy regime to finance his proposed social sector programmes to bring about the promise change. With greater illumination the leakages could be reduced before eventually blocking it. At least, Buhari should aspire to be the President to block the fuel subsidy leakage. To achieve this the fuel subsidy debate will have to be reframed with a greater honesty of purpose. Labour, employers and other economic players should come up with workable ideas on how to solve the fuel subsidy question, which is central to the economy. It is no more enough to kick against subsidy removal. It is also important to prevent leakages associated with the management of subsidy through a wholesale policy review.
The question of the moment is not if the opaque subsidy regime should be stopped; the point at issue is when and how the failed policy should end. This is one of the great challenges before Buhari.