Fuel Subsidy: What we must not lose sight of (1)

Process, Abuses and Removal

Emotions over fuel subsidy removal have been understandably fierce. This has been fueled by crass deliberate misinformation from people shifting attention from themselves and government’s ineptitude. Nigerians believe that the fuel subsidy is only the benefit they enjoy in the absence of a structured social security system. The removal is argued to be an act of government’s insensitivity to the plight of its people. On the other hand, the Federal Government has been trying hard to convince the very angry populace, including me, that the subsidy is unsustainable and not a judicious utilisation of resources, especially when infrastructure and other developments are yearning for the same limited revenue. I returned to the country early last year after 5 years of post-graduate studies to realise that we are still we are still at the same level of infrastructural development, or the lack thereof. This country has failed us in some many ways that it is depressing to compare us with other developing countries. I had to move to Ghana a few weeks ago to join my sister in trying setting up a small business due to the near impossibility of doing same in Nigeria.

The vexed issue of Cabal

Govt says subsidy has encouraged corruption by a certain group of individuals tagged ‘Cartel’ or ‘Cabal’; such as Oando , MRS, Conoil, AP and others ,circumventing the system to the detriment of the people. Nigerians, can you imagine this monumental admittance of failure? For a federal government to insinuate that it is helpless in its reining in this so ‘cabal’ whilst the EFCC goes after the odd celebrity political opponent from time to time is totally abominable. I read two days ago in a leading Ghanaian media about Nigerians urging their people to visit violence on individuals like Oando’s Wale Tinubu, Conoil’s Adenuga, Sahara oil etc. This is interesting as Ghana also towed this path on Christmas day – we bought fuel at an equivalent of about N185 three days ago . I will never subscribe to violence whether directly at individuals or government. The former because they are not the root cause (and will give the ever-trigger happy policeman opportunity to shoot us) and the latter because it will be destroying our own assets. Ebele Jonathan will not feel any pain irrespective of the number of NNPC stations we burn down, neither will the jewelry chest of Diezani diminish.  However, I believe in the power of protests, I have seen it work effectively whilst overseas. So my conscience did not let me rest until I joined the struggle. However, I believe we should redirect our energies at activities that will deliver true change and not go through the usual fanfare that leaves no permanent change. In consonance with Ben Bruce, we must keep our focus on eliminating wasteful indices that make our government big, wasteful and ineffective.

How it works

Back to the subsidy issue. Let’s look at how fuel subsidy works for a moment. It is the differential between the actual cost of imported petrol and the price of N65 sold at the pump to Nigerians. This also includes the cost of transportation to various parts of the country, fees, margins etc by many indigenous oil traders and marketers such as  AP, Conoil, Capital Oil , Integrated oil and gas  and Oando PLC. The cost of imported petrol is subject to the vagaries of the global market and the volatile international crude oil prices. As a result, the landing price of the product is monitored by the Petroleum Products Pricing Regulatory Agency (PPPRA) template to ensure parity, while an agreed profit margin is in place to ensure margins for the importers.
Historically, to help NNPC meet local consumption demands, major marketers such Oando, MRS, AP, Total and others (and recently, several faceless businessmen) are invited to help with importation as the refining capacity cannot satisfy domestic consumption. The process of allocation and licensing is solely guided by PPPRA. The importers are simply reimbursed for the importation and transportation expenses incurred and sold. From a contextual premise, the beneficiary of fuel subsidy is any Nigerian who had patronized any service station to purchase petrol at N65. Hence, when the price of international crude oil climbed beyond N100 the Nigeria consumer was unaware. But the government continued to pay the difference between costs of importation and the pump price, an elasticity that continues to widen as the crude oil prices persisted on the ascendancy. Sadly, as the country enjoyed excess crude revenue, it was using it to fund the growing cost of petrol instead of investing on social and economic infrastructure.

The Real Cabal

Unfortunately, the aforementioned process has been abused by a few individuals in partnership with corrupt government officials (who unfortunately are in the majority) -folks who took advantage of the loopholes to pillage our coffers. That said, labeling all major marketers ‘Cabal’ for claiming what they are due under the subsidy policy is a fallacy of generalization.  NNPC sold us this dummy so that we can leave them alone and not face facts. This is even an unfair appellation as these companies have had to import with their own monies, pay huge interest rate at the banks prior to government reimbursement.  On its part, government did not make the reimbursement on time which led to a situation where marketers stopped the importation until their outstanding debts were paid. When I say marketers, I mean the major ones, the ones who are overseen by strict ethics and corporate governance codes, the ones who have been at the vanguard of deregulation since 2005, the ones who had the guts to take on NNPC when others were cowed.
Recall that the Sanusi Lamido made reference to the fact many oil companies who could not meet their obligations contributed to the collapse of the capital market, I am not referring to questionable characters like Femi Otedola of AP, who deliberately did not repay his loans to Access Bank and used his closeness to Jonathan to muscle them in, or MRS’s Sayyu Dantata who took large sums from Bank PHB and used Unions to shamelessly fend his creditors off.  We will discuss this in detail at a later date. This misinformation is not only unfair and misleading; it also leaves the companies exposed to public anger. If there are cabals, then the importers that PPPRA granted license and allocations without meeting the stipulated criteria should be unveiled. The NNPC, in the bid to shift attention from corruption charges, went to the Senate with a list of leading oil marketers claiming they are beneficiaries of subsidy.  The word beneficiary in this instance almost sounds like the over-inflated and bogus allowances that the GMD of NNPC and Senators are used to and do not deserve. When in actual fact, it was a reimbursement of funds that has been incurred on behalf of the FG, largely due to its own incapacity in the first place.
My brothers and sisters, the true cabals do not have offices, they are briefcase businessmen and politicians.  They are the Chris Aires of this world, who as an international jeweler and “friend” of the petroleum minister got the largest crude oil allocation in Q3 of last year. Can you imagine the effrontery? Please Google Businessday’s story about the number of ‘importers’ that came on-stream just before the elections. Also don’t forget Next on Sunday, whose serialisation of these events reads like modern day Nostradamus. Yet our people dem dey follow follow, dem nor open eye, as Fela would have reminded us.   

Way forward

Government needs to adopt a strategic storytelling to win the populace and not engaged in unsustainable propaganda. The fact that we have a shameless, clueless govt became evident when the bickering between Okonji-Nwela and Diezani over who should handle the subsidy enlightenment became public, I recall reading the president’s directive that the responsibility resides with the petroleum minister instead of the traditional ministry of finance. Little wonder the awareness effort was a colossal disaster. Govt should have been democratic in the commencement of the removal policy. On one hand, the president says he has been slow due to consultations, but one this occasion he was quick to jump to remove subsidy without adequate stakeholder engagement. Just when it mattered most! The palliatives should have been introduced before removing the subsidy. although Aunty Ngozi gave an interesting supposition on channels online about how the gains of subsidy is only realisable going forward (more on this later).
Government has to demonstrate probity, by investigating the registration of fuel importers, unveil their directors, check out their pedigree in the oil and gas industry, verify claims on subsidy payments thus far, evolve a new framework for registration of fuel importers, and a payment regime that eliminates kickback and compromise. These will reduce the negative perception and rating of this administration. Only government can put its own house in order. Folks let us target our anger at the right direction so that we can get sustainable results. The blood of the fallen heroes of this struggle must be spilled in vain.

Hmmm, interesting piece. Why did this stupid government just come clean and stop the whole chicanery. It was exciting watching Femi Falana on Channels TV today where he elucidated on the ways government was cheating the nation by registering non pre-qulaified companies to import fuel, delaying payments upto 220 days so that their cronies can be paid intrerests, fixing exchnage rate below what CBN approves. 2012 budget is already a deficit. Why didnt government just comne cleant to say we are broke, we dont suffer but we want you the citizens to bear the brunt. This indeed is a sad time for our nation. We have seen poor leadership, this adminsitration is the worst.

Good insight. We need more of this so that Nigerians cannot be fooled anymore by the propangada machinery of the Abuja feed-fats.

This is an interesting piece. The Nigerian masses cannot be made to pay for the monumental corruption and ineptitude of the GEJ and past governments. We say enough is enough. Let the belt tightening start from GEJ, his cohorts and the national assesmbly and only then will Nigerians be prepared to make sacrifices. Why should the masses be made to pay for the roundtripping of our crude oil when we have refineries? We are not prepared to keep playing the fools.

Fans I keep saying that we have achieved something from this protest.
At least Nigerian voice their resentment on the huge Pays of Government
The Executive and House of Assembly.

Let us face the Government with these issues than remaining on the street.
Yes hold the Government on this and give them time to effect it.

There is some thing that pain me this afternoon, Wednesday as I was watching
Television, Imagine the former Military of Kaduna State leading protest against
Fuel subsidy. What moral right does he have to fight a Government meant well
to some extent to the people if not completely.

We are talking about accountability, the people of Kaduna state ought ask him
to give account of his leadership in the state before they follow him to blame
Mr President for the Woos, of past Government including his Mess,

Nigerians should be able to know when some people are pursuing their
interest. Lab our, Nigerians should realize that C awards and Rich Applicant at the
Corridors of power are the ones winning in situations like this. I therefore
advise Labour Leaders, Trad Unionist, and Great Nigerians not to hit Hard
on our president but tamper justice with mercy, call off the strike and work
with our their President to work on his promises. The more we insist on
continuing with protest the more we groan in pain. In a bad situations
like this "ATTITUDE" makes the difference, John Maxwel.

At least a compnay is eligiblefor subsidy payments as far as import permit was duly issued to the company from the PPPRA. Question is who is fooling on the cabal tag for legitimate companies

government should not make hasty generalisations, it should tell us the portfolio fuel importers. mschewwwww

Nice write up, OP.

Thank you for your kind comment

This article provides fresh perspective, tells us the real cabal and answers our critical questions. Government needs to tell us honestly - What is the local daily consumption? How much fuel is refined locally? How much is in reality paid for imports?

I think Mr Jonathan will have to change his name or will need vast amounts of good luck. This is the only enjoyment of the common man in nigeria that he wants to remove when he can’t deal with the fats cats.

Before one begins to crucify all those oil companies, we should put into consideration that most of these companies like Oando, Mrs, AP etc. are paid the variance of what it cost to bring it into the country since we dont have refineries in our country; and they are employers of labour in our country.
I sincerly believe that the FG should be the cabal.

You all dont seem to understand the issue here. These guys are like wolfs. They fight each other for businesses. They have shared the nation. Dont worry, we shall soon see a revolution like the banking sector in the oil and gas sector. It will happen soon. EFCC is already on the case.

The idea of fuel subsidy removal is a welcome one but the timing is wrong because not too many Nigeria where carried along and now it has been N97. It is hoped that the subsidy will be properly diverted to the development of the economy and common man in general.

The problem is has a result of fraudulent act of government not being prepared infrastructural i.e building of refineries and repairing the existing ones, increasing workers minimum wage to adjust when inflation sets in cutting down on government unnecessary expenditures

On January 1st 2012 the Federal Government finally made good its promise of removing the fuel subsidy on Premium Motor Spirit (Petrol). Due to the importance of this fuel to Nigerians, the organized labour and Nigerians embarked on a nationwide strike to protest the removal. As things stand, no major solution has been found to the impasse with Government and labour maintaining their positions.

Without doubt, government handling of the issue has been far from commendable. Why remove subsidy? Government claimed that it had expended over N600billion on fuel subsidy in 2009 and over N1.2trillion between 2006 and 2008. To save the nation therefore the subsidy must be removed. Many analysts have argued about the unconstitutionality of the removal or payment of fuel subsidy. One school of thought holds the view that there is no longer backing for the payment of the subsidy from the excress crude account. Perhaps that gave government the fillip to stop it. Another school of thought again posits that the action of the government to remove the subsidy is an act of illegality itself. Even if it will remove the subsidy it cannot do so until the commencement of the 2012 budget in March as the nation is currently running on the 2011 budget.

From the argument posited on the benefits of the removal to the citizenry, there is a wide pool of people who believe that subsidy removal will only benefits government, its patrons and cabals. But who are these cabals and how will the new pricing benefits them further?

To begin with, it is only a government and media propaganda to refer to oil companies as cabals. Who is a cabal? According to Dictionary.com a cabal “is a small group of secret plotters, as against a government or person in authority; the plots and schemes of such a group; intrigue”. The list of beneficiaries of the fuel subsidy, who import fuel and legitimately distributes cannot generically labeled a cabal. It is very possible that a few of those companies are not playing by the rules and the government therefore owes its people a duty to fish out those few and deal with them appropriately. What should Nigerians expect from a government that openly admits it cannot unravel the Boko Haram sect and that they may have infiltrated his government?

Pre-subsidy regime of N65 per litre, PPRA Product Pricing template for PMS published on its website, the pre-subsidy margins built into the cost of PMS at N65 per litre wallows only a margin of N4.60 while dealers were allowed a margin of N1.75 respectively. This margin remained unchanged with the pricing template of N141. If the masses are not happy with the subsidy removal and there is not margin improvement to oil marketers it stand to reason that government is the only and actual cabal to enjoy the benefits of this removal.
Many do not even know the challenges of the oil marketers in claiming their subsidy. When an oil marketer brings fuel it takes averagely about 90 days in some lucky instances to get paid. With the high interest rate from the banks, a marketer’s margin would almost have been wiped out. The notoriety in delayed subsidy payment led many major marketers not to import fuel and created a scarcity some years backs. It is this same problem that led to the introduction of the Sovereign Debt Note to ameliorate the plight of the marketers. Many mono trade energy companies licked a lot of wounds before the introduction of the SDN.

Is the government not creating further problems for the unemployed youth with this shortsighted plan? It will be recalled that the nation was plunged into massive unemployment when the wave of retrenchment greeted the CBN intervention in the banking sector. The nation is yet to recover from that ill though out intervention. The oil sector as a strong employer of labour should not be allowed to be plunged into another crisis.

In conclusion, if the government is certain and convinced about its intentions, let explain its position to the people in a coherent manner. It should be democratic in the commencement of the removal policy. The palliatives should have been seen to be working and effective before removing the subsidy. As a government portraying itself as honest, it should mandate the attorney general to set up a committee to review the list of oil marketers, unveil their directors, their pedigree in the oil and gas industry, verification of claims on subsidy payments made to them and evolve a new framework for registration of fuel importers, verification of fuel to check round tripping and a payment regime that eliminates kickback and compromise. Till these steps are taking, many will negatively perceive the fuel removal and see this government as a joker. It is time for the cabal to confront the cabal within its administration. There is no process or system that can be abused without the connivance of the insider.