THE anxiety over possible fresh increases in the
prices of refined petroleum products and
official denials are all too familiar. Nigerians
have since 1986 been subjected to frequent
increases in the pump head prices and
bombarded with the same official rationale for
the endless cycle of pain, poverty and anguish.
But the subsidy quagmire is the result of
incompetence, corruption and the failure of the
government to let go of the downstream sector
of the oil industry. No economic reform agenda
can work in a general environment of
permissive corruption and the rent-seeking
behaviour of political leadership. While strict
enforcement of existing laws can mitigate the
former, only a President that has a date with
history can change the latter. Regrettably,
Nigeria lacks both today.
Indications that the Federal Government has
learnt nothing from the sorry past came from
President Goodluck Jonathan himself in late
March when he restated his intention to end the
controversial subsidy on petrol. Though he did
not announce a definite date, he said the
subsidy removal - the official euphemism for
price increases - would be preceded by "wide
consultation." The howls of protest from labour
leaders elicited a clarification from the
Presidency that increases would not be
implemented immediately.
If the government's line should be bought, the
almost N1trillion earmarked for subsidy in a
national budget of N4.9 trillion is certainly
unsustainable. The N888 billion voted for it in
2012 was followed with a supplementary vote
of N162 billion. Nigerians and a bemused world
audience are still reeling from the spectacular
unauthorised drawdown of about N2.3 trillion
from the national treasury in 2011 when only
N248 billion was budgeted for subsidy.
Considering that the Federal Government's
capital budget for this year is N1.5 trillion, the
recklessness implied in the petrol subsidy is
palpable. We cannot continue with this
profligacy. It was revealed in January that the
state-owned Nigerian National Petroleum
Corporation had borrowed $1.5 billion to
finance petroleum products importation. Yet,
this is a company that preside over the
production of an average of 2.4 million barrels
of crude oil per day that makes Nigeria the
world's sixth largest oil producer.
From 1986, the government has implemented
numerous "subsidy removals" that have moved
the pump head price of premium motor spirit
(petrol) from 20 kobo per litre to its current
price of N97 per litre. Each new price increase
has been accompanied by claims from the
government that it would free the money spent
on subsidising fuel prices to fund critical
infrastructure, attract investors to build
refineries and boost the economy. But the
reverse has always been the case. Whereas
there has been an astronomical increase in
petrol prices since 1986, unemployment has
risen from a single digit to over 21 per cent
across the board and over 40 per cent among
graduates of tertiary educational institutions.
Within the same period, Nigeria has lost her
self-sufficiency in refined petroleum products
to rely on over 70 per cent imports to meet
domestic demand. No new refinery has been
built by private investors to add to or replace
the four moribund state-owned ones in Warri,
Port Harcourt and Kaduna. Only one private
refinery is under way, though beset by delays,
cost overrun and bureaucratic encumbrance.
Jonathan has obviously bought the deceitful
argument that "total" subsidy removal will
magically attract investors into refining, a
fallacy that fails to factor in the prevailing
restrictive regulatory framework that confers
awesome power on the corrupt, and inefficient
NNPC and on the Petroleum Resources
Minister. Nor do our policymakers seem to
remember that capital goes to where it is safe.
No investor will move in here as long as the
NNPC enjoys its current sway and the
government continues to prove itself as
incapable of guaranteeing the safety of
investments and of the people. To attract
investment to the downstream, the Presidency
and the National Assembly should overcome
their endless bickering and plots of vested
interests and pass the Petroleum Industry Bill
in its original form to spell out the rules for all
stakeholders in the oil and gas sector.
There is, of course, no end to price increases
until we refine our crude oil locally, since oil
market prices are volatile. Each price increase
leads to inflation and higher production cost,
squeezes lending and provokes job losses that
have created an unemployment time bomb.
Local self-sufficiency will however, enable the
government to sell crude directly at
concessional prices to local refiners when crude
prices rise, facilitate the maximisation of end
products derivable from hydrocarbons and
make Nigeria a net exporter of both crude and
refined petroleum products. The savings will be
enormous. What should engage the energy of
the President and his economic team is an
emergency programme to achieve refining self-
sufficiency in a remarkably short time through
granting extraordinary incentives to private
investors.
Continuing to hold on to the four refineries, for
which the NNPC is borrowing another $1.6
billion for corruption-driven turnaround
maintenance, is a cruel disservice to the nation.
The refineries can, and should, be sold as they
are within six months to investors who should
then be given tax holidays and other incentives
and be made to enter firm agreements to
plough money, expertise and equipment into
their acquisitions. As long as we fail to achieve
self-sufficiency in refined petroleum products,
the country is condemned to the vicious cycle of
frequent price increases and the concomitant
negative effects of these on the economy and
the public treasury.