Nigerians have expressed their displeasure with the withdrawal of subsidy on PMS. At this point the pros and the cons have been discussed extensively.

The purpose of this thread is to seek ways in which we can get the benefits of subsidy removal (as currently practiced) without necessarily removing subsidy! Twisted as it may sound, this may be one way out of the situation.

The two key benefits subsidy removal brings with it are:
1. Elimination of cross - border smuggling by rendering the business unprofitable.
2. Stimulation of private sector participation especially in refining.

The major drawback is the sharp increase in prices of goods / services. If we must get the benefits of both policies therefore, a total reform of the system is necessary. The new system will involve:

1. Importers / Marketers should not be paid subsidies directly.
2. A new metering system which is monitored centrally should be installed at ports / loading points in order to accurately measure crude delivered directly to the country.
3. Individuals will have to operate "fuel accounts" with a valid card issued to operate such accounts.
4. Subsidy payments would only be made directly to citizens who hold a valid document (ID or Passport as determined) and such payments shall not be in monetary form but in form of "fuel credits"
5. Subsidy will be graded according to earning power. I.e. Higher earners enjoy less subsidy per liter while lower income earners enjoy more.

The basic idea behind this is that the actual value of fuel remains at international prices but individuals will then be entitled to more volumes (corresponding to subsidy and quantity paid for). This will help to check smuggling and prevent marketers from inflating volumes. Also, government will not need to make any cash payments to anyone other than to fund the "fuel credit" accounts.

How can this distinction be made? You may ask. One way is to tie subsidy to volume of purchase. E.g. Buy 1-10 litres and you are entitled to 60% fuel credit. Buy 11-100litres and you get 40%. Say above 1000 litres, you get 0% etc. Another way is to tie it to workers' salaries and tax data.

I must admit that such a system will need quite some time to build and implement. In the mean time, FG can consider paying fuel allowance for those who earn less than N100,000 monthly. I honestly think not everyone (including me) needs / deserves this subsidy. It should target the poor. FG can also liaise with labor to see how such can be implemented in the private sector.

Like every other system, this will fail woefully if we cannot maintain an accurate database of our citizens. This will mean computerization of our population data with biometric controls. This skeletal write-up may be an idea for the next 100 years but I think it's worth mentioning.

What do you think?

Sorry, point number 2 should read:

2. A new metering system which is monitored centrally should be installed at ports / loading points in order to accurately measure PMS delivered directly to the country.

Let me digest it well first.

@efisher: good ideas, but I think they need to be separated and really simplified.

The
federal government should revert the fuel subsidy removal and first provide mass transit in such a way that even the least person can afford it. when all these are done then he can gently remove the subsidy so that nobody will be affected. we should be developed but first we should start from where we are to go where we want to be. we should stop comparing ourselves with other developed nations. this is democracy . they can't just do what they like.

Like every other system, this will fail woefully if we cannot maintain an accurate database of our citizens. This will mean computerization of our population data with biometric controls. This skeletal write-up may be an idea for the next 100 years but I think it's worth mentioning.

What do you think?

_{Despite repeated annual budget and/or pronoucement regarding having a national database, the FG have failed woefully on this, its never been delivered, money wasted even with people of repute they always claim to appoint to head this- together with driving and motor vehicle license- if the FG cannot achieve this rather 'simple' task, why should nigerians trust them with their second budget-sure p?}


nice suggestions by the way

5. Subsidy will be graded according to earning power. I.e. Higher earners enjoy less subsidy per liter while lower income earners enjoy more.

Oga efisher will send his 3 under age housegirls to buy petrol with their cards and his security guard to buy petrol for his kids with their token

Lol. There are so many holes with the system. I've resolved that it's better we do away with this structure entirely. Let's focus on production, export, job creation etc. That's where our future can be guaranteed, not cheap oil.

You don't need a biometric data for that, KNowing how much barrels Nigeria consumes a day is easy, Get ppl to go every gas station in the country study their sales for a week and you can come about how much we consume daily, You don't need my thumbprint for that,

Seriously, if this government is any serious, it will get things done easily. Collecting biometric data is easy but ensuring it isn't hacked by foreign agencies, used for unconstitutional reasons is very very very hard and cost more than collecting the data itself,


Fix power (24/7 availability), subsidize public transport, remove subsidy entirely if it actually exists because I think we are been scammed into believing there is subsidy in the first place, IMF just wants us to buy fuel at a global rate,

If you understand's IMF mission as an international body, you won't hate IMF but just avoid them entirely as a nation that wants development rapidly not at a controlled and dictated rate, IMF's mission is to bring global currencies together so that the price of commodities are equal or close to equal everywhere. To do that, they need free market (bad), inter-currency dependency (bad), capitalism (not good for developing countries, good for developed ones). All these are only possible if they can get nations to deregulate core or all sectors of their economies,

On a different thread, 9jaganja while trying to debate ekt _Bear said something along the lines of customized solution for specific problems, IMF is trying to help world economies but they are making the huge mistake of prescribing kidney drug for a patience with broken toe nails from playing soccer. They prescribe a solution for some developed nations, it works for them, they automatically assume same will work for other nations hence why we see their policies benefit developed nations more than it does developing nations.

If IMF really want to be relevant, it should invest in nations directly no giving loans, Invest in say refinery in Nigeria, manage and monitor the refinery themselves (that is, employ a reputable firm to manage it). Localize their investment so the locals are 80% involved while IMF is helping their own investment and making profit while creating employment, This is the only way IMF can help developing nations otherwise, it'll remain economic assasin to the developing nations they claim they want to help,

0lumide:


If you understand's IMF mission as an international body, you won't hate IMF but just avoid them entirely as a nation that wants development rapidly not at a controlled and dictated rate, IMF's mission is to bring global currencies together so that the price of commodities are equal or close to equal everywhere. To do that, they need free market (bad), inter-currency dependency (bad), capitalism (not good for developing countries, good for developed ones). All these are only possible if they can get nations to deregulate core or all sectors of their economies,

On a different thread, 9jaganja while trying to debate ekt _Bear said something along the lines of customized solution for specific problems, IMF is trying to help world economies but they are making the huge mistake of prescribing kidney drug for a patience with broken toe nails from playing soccer. They prescribe a solution for some developed nations, it works for them, they automatically assume same will work for other nations hence why we see their policies benefit developed nations more than it does developing nations.

If IMF really want to be relevant, it should invest in nations directly no giving loans, Invest in say refinery in Nigeria, manage and monitor the refinery themselves (that is, employ a reputable firm to manage it). Localize their investment so the locals are 80% involved while IMF is helping their own investment and making profit while creating employment, This is the only way IMF can help developing nations otherwise, it'll remain economic assasin to the developing nations they claim they want to help,

I must confess this is the best comment i have seen on Nairaland. I am quite sure that Olumide is not a professor of Economics neither are you the Vice President of World bank. Really how hard is it to see that IMF's policies just can work in the developing economies. It pains me that all our leaders seem to have failed us despite acquiring free education. I can only imagine what the ppresent generation will offer in an eduction system warped in corruption.

In conclusion, I think it is high time we started to chart our own history and our own course. After 50years of independence we should have enough think tank team to come up with a Nigerian Solution to a Nigerian Problem. Period. Neva will a slave master set his slave free if the slave refuses to think independent of the master, A word is enough for the wise

Thinkers! Great Thinkers!! Thats what we need. And we have one in Efisher!!
Nice Prescription. Sadly the average Nigerian and his fellow corrupt government workers would not allow for its functionality.
Corruption is a killer and it would terminate a great idea of this sort.

Many other great ideas like the one Seun raised on another thread! Same with the one Ben Bruce raised.
But naah, The trust levels have been destroyed by past Governments, so peeps would refuse change of any sort!!

@Point 1

What if the price of fuel goes up to #200 in neighboring countries, will there still not be an incentive to smuggle? Please tell us something else, the only way to stop smuggling is to guard your borders, these things move in trailers that are easy to track.

hercules07:

@Point 1

What if the price of fuel goes up to #200 in neighboring countries, will there still not be an incentive to smuggle? Please tell us something else, the only way to stop smuggling is to guard your borders, these things move in trailers that are easy to track.

One Question.
Why hasn't the USA, the most advanced country on earth been able to guard its borders against drugs??
As long as Drugs keep providing a massive economic incentive for dealers, they would keep passing through the borders into the US!!
SIC for Nigeria and fuel. If the incentive is there, no amount of border protection would stop smuggling. Take away the incentive and it vanishes in a second.

You are comparing drugs and petrol? What kind of comparison is that? Do you get Cocaine and heroin from the government? Abeg look for something else jare, controlling smuggling of these things is very easy abeg, you can track all those tankers one by one or what is the purpose of technology, are they not leaving from your loading bay, there are IT systems that will track usage of these things and will let the NNPC or whoever know if the products are smuggled or not.

@ hercules, a simple answer to your question is this: There is a difference between export and smuggling. The prescription I have here makes the market price of the product to be un-subsidized. Anyone who moves products thro d borders would only succeed in helping us "export" since he / she is not taking our subsidy with the product. That is the key difference. The subsidized part of it CANNOT be transferred.

As I said, it's a difficult task to accomplish and I would prefer a complete removal of subsidy. It is better in the long run.

@Papabrowne, thanks for d complements.

hercules07:

You are comparing drugs and petrol? What kind of comparison is that? Do you get Cocaine and heroin from the government? Abeg look for something else jare, controlling smuggling of these things is very easy abeg, you can track all those tankers one by one or what is the purpose of technology, are they not leaving from your loading bay, there are IT systems that will track usage of these things and will let the NNPC or whoever know if the products are smuggled or not.

You are proffering simplistic solutions to endemic problems. This  is the sordid detachment syndrome affecting many Nigerians. We need to be better thinkers.
Think for a moment. Who will do the tracking?? Who will work at the loading bays?? Who will man the IT systems?? Who works at NNPC??
Are these not Nigerians?? Are they not bribable?? Would the boss be there when the bribery is taking place??
$8 Billion(the size of the incentive) is enough money to bribe the whole chain of command even if the pope is the boss!!
Think. Don't be detached. Practicalize scenarios before you proffer solutions!!

@efisher

You do not get my drift, as long as fuel is sold at a higher price in neighboring countries, there will always be smuggling, the only difference is you and I will be paying for the cost of smuggling not the FG, I do not see how that is a good solution, the government needs to secure our borders.

@Papabrowne

Who will build the roads, who will stop maternal mortality, who will utilize the subsidy money, are these not Nigerians, so why do you trust GEJ and his goons to do these and yet do not trust him to clean up the system. Nigeria can not and will never work until the government does the right thing (fight corruption and do the right things with all their might), if they like let them outsource everything to capitalist, the country will still not work, Nitel was privatised, where is it today?

hercules07:

You are comparing drugs and petrol? What kind of comparison is that? Do you get Cocaine and heroin from the government? Abeg look for something else jare, controlling smuggling of these things is very easy abeg, you can track all those tankers one by one or what is the purpose of technology, are they not leaving from your loading bay, there are IT systems that will track usage of these things and will let the NNPC or whoever know if the products are smuggled or not.

walahi, you took these very words from my mouth, The truth is the same ppl who claim a nation of 160million is their birth right will probably not all this work. Having said that, I blv that is something that we can look into. Technology will always lead the way only if we are willing to allow it.

Interesting proposal.

@ hercules, I got your point. It's very clear. What u mean is that if our pump price is N140 and that of Niger is N160, there will still be reason to smuggle. Agreed. But the correction I am making is that it will not be at any cost to us. Rather, it helps us indirectly the way exports help.

Let me break it down:
Assume 20 million litres of PMS gets delivered to us daily. We sell at N140 (no subsidy). Someone takes out 2 million litres of it and sells in Niger at N200. But guess what? It was bought from us at pump price.

Now where does subsidy come in? The subsidy is no longer attached to the pump price but to an individual! It is now like part of your salary. Or like a loyalty credit system which entitles you to more volumes (as an individual). This system succeeds in decoupling the pump price from the subsidy. If you decide to sell of your credit to a smuggler, its your personal loss and not a national loss. Besides, as I suggested, only small volumes get the subsidy. A smuggler will need up to 1000 persons to sell him subsidized fuel b4 it can make any sense to him.

Why did I say it's a gain even if there is still a price differential? The pump price has in it some value added over landing cost. That value is internalized so at the pump, it has already provided jobs for the marketer and for the transporters. It has already provided returns for the govt. Wherever it is taken to be consumed is no longer important. I hope u get my point? I'm mobile so can't really type much even as I have so much to say on this.

The effects of the fuel subsidy removal might end up not being as bad as we think. Metinks the fuel subsidy will only affect people who are strictly salary earners. The rest will simply markup their products to adjust for the new standard of living. While the salary earners will have to go back to pre-salary increase habits or hope NLC can negotiate a new minimum wage.