President’s luck runs out on fuel gamble


By Xan Rice in Lagos


President Goodluck Jon­athan likes to stress his humble roots in Nigeria by recalling how he went to school barefoot. 

Now, as protests sweep the nation, his common-man narrative has bYeen turned against him.

 “Don’t trust the man without shoes,” one placard read during big demonstrations in Lagos this week.


Mr Jonathan’s perceived “betrayal” of the general population was to abolish fuel subsidies on January 1, causing petrol prices to more than double from 65 naira (40 US cents) a litre.

Sub-Saharan Africa’s second biggest economy has been paralysed since Monday and is losing $600m daily, according to Lamido Sanusi, Nigeria’s central bank governor. Shops, businesses, schools and banks remained closed on Friday.

By gambling that public anger would dissipate after a few days, Mr Jonathan placed and lost the biggest bet of his presidency. He has now opened talks with labour leaders that will resume on Saturday.

 If no solution is found, the main oil union says that, from Sunday, it will start shutting down crude production, which provides four-fifths or more of government revenues.

A backlash to the subsidy withdrawal was inevitable, since Nigerians see cheap fuel as the one benefit the government provides. 

By removing it without first putting in place policies to cushion the blow for the poor, Mr Jonathan miscalculated, say analysts.

“The government simply relied on the fact that they have the mandate to represent the people to push this through,” said Bismarck Rewane, managing director of Financial Derivatives, a Lagos-based consultancy. “The strategy has been a joke.”

Mr Jonathan is not the first Nigerian president to attempt to remove the subsidy. 

For more than 30 years, successive leaders have tussled with labour unions each time they tried to increase the regulated price of petrol.

But the president insists the subsidy has become unaffordable. Most economists agree, while noting that corruption has greatly swelled the cost of providing cheap fuel.

 Over the past four years, the government has spent more than 3.6tn naira ($22bn) on the subsidy. 

Last year alone, the cost doubled to over $8bn – more than the combined budgets for health, education and agriculture.
Indeed, the chronic mismanagement of oil sales and fuel imports in recent years has seriously damaged the country’s fiscal health. 

Public debt has climbed to more than 6tn naira – levels last seen before the country’s crippling external debt was written off in the mid-2000s.

Foreign reserves have tumbled from $62bn in 2008 to $33bn today. 

The excess crude account, where windfall savings above the budgeted price of oil are saved, now holds little over $3bn – down from $20bn.

In theory, no fuel subsidy should be necessary, since Nigeria produces more than 2m barrels of oil per day, the most in Africa, and should be able to refine it locally. In practice, the subsidy has discouraged investment in refining.

About 445,000 b/d are allocated for the country’s four refineries. This roughly equals their collective installed capacity and should meet more than two-thirds of Nigeria’s needs.

 But the local refineries are dilapidated, and only operate at 25 per cent capacity. Most of their allocation is sold abroad through multinationals and “briefcase companies” linked to the ruling elite.

To meet domestic needs, petrol must be imported, with transport costs and fees to middlemen greatly inflating the price. 

So, too, do interest and insurance charges, since the state-owned Nigerian National Petroleum Corporation has stopped paying the traders, with payment times now exceeding 400 days and more than $4bn owing, according to banking sources.

To keep the petrol flowing, the NNPC entered into crude-for-product swaps with several traders, whereby oil is exported, and an equivalent value of petrol and other refined products delivered to Nigeria, according to bankers. The deals generate no cash for NNPC to pay older debts.

The biggest cost of the subsidy may be graft, which has worsened in the oil sector since Mr Jonathan became president in 2010, say insiders. 

Methods of corruption include bribes, overcharging, presenting domestic fuel as imported, and smuggling to neighbouring countries where fuel prices are higher.

Once the petrol lands in Nigeria, well-connected oil marketers are paid the difference between the open market price of petrol and the official regulated price; with the subsidy typically amounting to 80 naira a litre last year.

The removal of the subsidy will not solve the problems in the short term, since fuel will still need to be imported. 

But deregulation will encourage investment in refineries, which should eventually bring prices down, said Samir Gadio, emerging markets strategist at Standard Bank.

“It’s a very difficult social context, and you can understand the opposition from the public who are losing out financially,” he said. “But if the subsidy stays, Nigeria will be stuck in the same cycle of exporting oil and importing petrol.”


Copyright The Financial Times Limited.



http://www.ft.com/intl/cms/s/0/ef8d08dc-3d2d-11e1-ae07-00144feabdc0.html#axzz1jMljgzTE

Even 'Goodluck' sef go get limit now.

If you squander your political Capital the same way you waste Government money, you are bound to run into badluck. 

Not so fast. Let's wait till the "negotiations" are concluded. I think FG already has us dancing to its tune.

^
I admire your "pessimism"

President Goodluck Jon­athan likes to stress his humble roots in Nigeria by recalling how he went to school barefoot. 

Now, as protests sweep the nation, his common-man narrative has bYeen turned against him.

 “Don’t trust the man without shoes,” one placard read during big demonstrations in Lagos this week.

The biggest cost of the subsidy may be graft, which has worsened in the oil sector since Mr Jonathan became president in 2010, say insiders.

Methods of corruption include bribes, overcharging, presenting domestic fuel as imported, and smuggling to neighbouring countries where fuel prices are higher.

Once the petrol lands in Nigeria, well-connected oil marketers are paid the difference between the open market price of petrol and the official regulated price; with the subsidy typically amounting to 80 naira a litre last year.

The removal of the subsidy will not solve the problems in the short term, since fuel will still need to be imported.

But deregulation will encourage investment in refineries, which should eventually bring prices down, said Samir Gadio, emerging markets strategist at Standard Bank.

“It’s a very difficult social context, and you can understand the opposition from the public who are losing out financially,” he said. “But i[b]f the subsidy stays, Nigeria will be stuck in the same cycle of exporting oil and importing petrol.”
[/b]

There were the most interesting parts. On the one hand you have a corrupt Govt with no credibility, on the other you have the subsidy on fuel consumption which is economic suicide by stealth.

Lmao @ Don't trust the man without shoes . . .

The problem of Nigeria preceded Goodluck Ebele Jonathan , Please Dont be deceived , Aguiyi Ironsi was once accused of being the problem of Nigeria and was sacrificed yet the Unitary system he promulgated has been the sing songn of the Northern Cabal that assasinated him. if Jonathan is sacrificed the Problem will still be there .

Nigerians should look deeper and the will see the problem of the Country.

Such a brilliant article; these oyinbo writers just know how to make seemingly complex things simple with so much finesse and competence. The article so easily clarifies the key issues in the subsidy debate, vis-a-vis why it is not so much a problem of subsidy itself, but a problem of corruption within the subsidy management regime. The mantra of the Ojota protesters makes overwhelming sense, then: Kill Corruption, NOT Nigerians!

Don't trust the man without shoes. He probably sold it to buy Ogogoro.

Don't trust the man without shoes, he probably gambled it away.

The drunken fisherman definitely sold his shoes for alcohol

If the govt compromises, labour shld, if they insist on reverting, then it cld be that the oil thieves hv overly bribed them to continue their foolish agitation at the exp of the poor masses, who of cus, alwaz bear d brunt.

I will definitely bet against the president winning this one. Power to the people

Fûck Goodluck, I want what I can see!

If the FG reverts back to previous price, then I'll know that we Nigerians are indeed very stupid. Reason? Rather than close an avenue of corruption and open a possible business oppourtunity to attract investors to that sector, we wouldve gladly handed over trillions of Naira to the very same cabal we claim to fight, and everything goes back to square one. Boy, the cabal members will be heading to the banks with big smiles on their face while the country continues to suffer.

4 Play:

There were the most interesting parts. On the one hand you have a corrupt Govt with no credibility, on the other you have the subsidy on fuel consumption which is economic suicide by stealth.

No doubt both corruption and fuel subsidy would bring the country to its knees, and both have to go.

Regrettably, the govt seems committed to the subsidy removal only, which is what Nigerians find unacceptable.

Moreover, and this is where i believe most of our fears lie, if the corruption issue is not tackled, it could make nonsense of the funds that will be saved from the subsidy removal.

Jonathan acted as if he never lived in Nigeria before.

ocelot2006:

If the FG reverts back to previous price, then I'll know that we Nigerians are indeed very silly. Reason? Rather than close an avenue of corruption and open a possible business oppourtunity to attract investors to that sector, we wouldve gladly handed over trillions of Naira to the very same cabal we claim to fight, and everything goes back to square one. Boy, the cabal members will be heading to the banks with big smiles on their face while the country continues to suffer.

I think you are the silly person here. So you want us to trust our corrupt government. If gej is not silly how does he think or expect a man with the minimum wage to survive when everything around him must have increased by 100% or more.

As it has been said, fuel subsidy is the only thing Nigerians are benefiting from. So let's enjoy that please.

ocelot2006:

If the FG reverts back to previous price, then I'll know that we Nigerians are indeed very silly. Reason? Rather than close an avenue of corruption and open a possible business oppourtunity to attract investors to that sector, we wouldve gladly handed over trillions of Naira to the very same cabal we claim to fight, and everything goes back to square one. Boy, the cabal members will be heading to the banks with big smiles on their face while the country continues to suffer.

Easier to say while you live in the UK abi?

[flash=500,300]
https://www.youtube.com/watch?v=kj-IUQprNO8[/flash]

It beats my imagination how people are making joke of such brillant article by referring to GEJ's shoes. We have a chance to clean the oil sector of sham and shame but we so concerned about our immediate needs. Such a selfish Nigerians. Yet you want jobs.

This is a chance to have more than 10 oil refineries in Nigeria as importation will so much look unattractive. Right now, we are building industrial growth for other countries. Govt subsidizes production not consumption! Nigeria will go down. Just look at debt!

Easier to say while you live in the UK abi?

It not about being in the UK. Is about our sacrifice to our nation for ourselves. GEJ can survives his tenure without removing subsidies and get a pat on his back.

Let me tell you, Any increase of fuel price with N1 will change the cost of Goods in the market. That is Nigeians for you. Always taking advantage and clad with greed. So why not faceit once to stimulate the economy.

'Goofy' Goodluck does it again   How can any leader with common sense, apply the stick without providing any carrot.  It is just a catalogue of errors and amateurish political moves by our bungling president.   The best one for me is his warning through his now discredited Attorney General Bello Adoke that Labour leaders would be disobeying a court injunction and breaking the law if they go on strike.  What happens a week later?  The President is holding a meeting with the same 'lawbreakers'    This man has no principles, no credibility, and no shame.

Brilliant article,while we run around here spewning lies left,right& centre,a whiteman sees d nitty gritty& tells us d way it is:corruption down d line& one fisherman thinks removal alone will cure d ills,a true fisherman

ocelot2006:

If the FG reverts back to previous price, then I'll know that we Nigerians are indeed very silly. Reason? Rather than close an avenue of corruption and open a possible business oppourtunity to attract investors to that sector, we wouldve gladly handed over trillions of Naira to the very same cabal we claim to fight, and everything goes back to square one. Boy, the cabal members will be heading to the banks with big smiles on their face while the country continues to suffer.

Of course we are very silly.
Otherwise, we would not
1) close Lagos-Ibadan expressway permanently because of high rate of armed robbery incidents on the road or
2) disband the Nigerian Army because it has been infiltrated by Boko Haram or
3) stop importation of essential drugs to be distributed to the poor at subsidised rates because some staff are stealing it to resell it market rates or
4) Stop making babies in Nigeria because most of our children are being trafficked out of the country

@ babseg

It's time we forget about the subsidy and focus on the main problems that have plagued this great nation of ours. The ongoing strike must now place immense pressure on the FG to fight corruption, poor leadership, and wastage in government. We must also fight for a considerable reduction in the cost of governance, and push the govt to fast track a number of projects that will help in easing the negative effects of the subsidy removal, these being transportation facilities (particularly rail), investment in alternative sources of fuels like ethanol (ask the Brazilians), building of all four greenfield refineries, ethanol plants, and fertilizer plants, more power stations to increase the amount of power generated from its current level, full repairs of the nation's transmission and distribution systems (the grid must also be segmented/broken down), fasttrack the gas revolution.

@ Dankan0
I live here in Nigeria. 'left the UK 3 years ago. So it's quite easy for me to comment on the current issue.

to think that the president could so soon earn himself such disgrace within so short a period is indeed baffling. Power to the People!

Sadly, CORRUPTION which has been the root of all evil in Nigeria isnt discussed by the Government but only subsidy removal which will help in the elimination corruption only in the Petroleum Industry is the only one discussed. Dont you think that the corruption that exists in other sectors and areas of life in Nigeria will eat up the proceeds gained from subsidy removal??

CuteTj:

Sadly, CORRUPTION which has been the root of all evil in Nigeria isnt discussed by the Government but only subsidy removal which will help in the elimination corruption only in the Petroleum Industry is the only one discussed. Dont you think that the corruption that exists in other sectors and areas of life in Nigeria will eat up the proceeds gained from subsidy removal??

WORD!!!

As if we are not all Nigerians. As if we purged corruption from NITEL before deregulating the sector or we deregulated the sector partly to fight the corruption and waste in it.
Many argue that you can't trust FG with extra money because it MAY be stolen. Well, if we accuse GEJ of running the country on luck, we should be accused of running our future with presumptions. And by the way, people have argued that more money should not go to states and LGs because they could be stolen, is it a way of saying that we trust FG that is far from us with money more than we trust our closer governments. I sense that Nigerians are allowing emotions to get the better part of them in this issue.
My take is if the only thing that this subsidy removal achieves is to get people ask questions about how our commonwealth has been used, then we have achieved something. If GEJ really is wicked, he will just roll back, revoke 2/3 of marketers licence in the name of cleaning up the sector which we will myopically applause and watch you and i beg him to deregulate the damn thing. I think he came too clean initially, he should have come that way!!

So many Ignoramuses still talking about how reverting subsidy to N65 would bring Naija to its knees, Wake up dummies NAiJA has been on its knees 4 several years and you know what caused it? CORRUPTION and MISMANAGEMENT of Nigeria's funds by successive greedy and senseless Govts of which GEJ's administration is one of the worst!!!

In less dan 2 yrears in power GEJ's government squandered all our foreign reserves saved up by previous Govt. worth $33billion and has nothing to show 4 it. Yet promises that they will put the $8billion to be saved from fuel subsidy removal to infrastructural development. My people how can someone achieve something with $8BN that he could not achieve with $33BN? All we hear is increase in govt spending 4 demselves, 1billion 4 food, 45.8million on news papers, 290million per senators etc and u guys say d ideot knows what he's doing?? Dem use jaZz for u?