SUBSIDY AND THE STATUS QUO:



Nigerian citizens have always insisted on and clamoured for the right to enjoy certain basic benefits from the nation’s oil wealth - a privilege which the government which had often failed to act in the best interest of the people, sees as burdensome! The revolving and perennial problems of corruption and putrid leadership when added to the latent and insidious problems created by the actions or the inactions of such corrupt governments over the years had left citizens with much despondency and considerable disenfranchisement in the face of extreme social deprivation! Therefore the people, who have never known or had the benefit of a good social infrastructure or a social safety net to rely on, as is done in other countries, have maintained a subconscious resolve to make the benefit of cheap oil a worthy cause! It has hence become a natural imperative for the embattled citizens to fight and resist any and every attempt to deny or rob them of the only benefit which they could perceive and enjoy as Nigerian citizens. To truly understand the anger, frustration and absolute mistrust that the citizens have for their government in this regard, a revision of the history of oil prices in the last 30 years is in order. In 1986, the military administration of General Ibrahim Babangida declared that due to the devaluation of the Naira, the domestic price of fuel had become unreasonably cheap and was therefore burdensome to the federal government’s purse! The price of petroleum products was thus raised from 23 kobo per litre through a negotiation process, eventually settling at 70 kobo per litre! Chief Ernest Shonekan, the brief successor to the Babangida regime, cried out in dismay at the fiscal state of affairs upon taking over. The price of fuel was identified as one of the primary budgetary burdens based on the fact that the currency had further been acutely devalued. In 1993, the price of gasoline (petrol) was therefore increased to N5/litre! Shortly after General Abacha grabbed power from the tethering administration of Ernest Shonekan, he would reduce the price of petroleum products slightly to gain public support. With gasoline (petrol) now priced at N3.25/litre, fuel price adjustment had become a tool in the hands of the government for manipulating the support and mood of the people! Just over a year later in 1994, the government announced a sharp increase in the price of petroleum products. PMS (petrol) would now cost a fearsome N11 per litre! Upon the death of Abacha and the ascension of General Abdulsalami, the price was once again reviewed and increased to N25/litre! An outcry by the public and resistance from the labour congress forced the administration to reduce the price to a ‘paltry’ N20/litre in January of1999.
As democracy was ushered in, the newly rebranded President – General (rtd) Olusegun Obasanjo, soon found enough reason to want to remove the subsidy on oil product prices! Obasanjo would become the president who increased and inflated the price of petroleum products three times within a period of 8 years! Alongside some other economic indices, this action would bring about a hyper-inflationary trend that remains unresolved even today! Phrases such as subsidy removal; eliminate waste; ‘to free government funds and encourage foreign and local investment in upstream sector were thrown around with reckless abandon! Does that sound familiar??
In the space of 8 years, the price of petrol went from N20/L to N30/L in 1999 but was reduced to N22/L because of public resistance in 2000. In 2002 prices went to N26/L, however, in 2003 it was increased to N40/L but reviewed back to N34/L because of another stiff resistance from the public. In 2006 however, the price was revised up to N40/L again and finally as a parting gift in 2007, the reprobate president would foist a criminal and sudden increase to N75/litre on the citizens! For his part, the feeble and morbid President Yar’dua who succeeded Obasanjo, showed some compassion and reduced the official price of petrol to N65/litre! After a mere 18 months in Aso Rock, the incumbent president, Goodluck Ebele Jonathan declared that the Federal Government of Nigeria could no longer afford to keep paying for the subsidy of oil products (by this stage diesel had already been surreptitiously deregulated!). It was disclosed that the FGN was expending an inordinate amount of money, a sum that totalled a whopping N1.3 trillion for the fiscal year of 2010!
The president further alleged that the status quo and current arrangement was a painful and debilitating burden on the federal budget and thus is unsustainable! He further iterated that the FGN had made a decision to do away with all subsidies and deregulate the domestic petroleum product market –hence opening fuel supply and prices up to capitalistic endeavours and free market forces! In 2010, Nigerian domestic market consumed approximately 280,000Bpd according to official NNPC figures. Under the current dispensation, upwards of 92% of Nigeria’s domestic demand for finished petroleum products is imported by ‘independent marketers’ through the implementation of contract and license based arrangements with NNPC. The hand-picked importers (cabal??) are allocated a proportion of the domestic demand which is expressed in weight/volume, upon which the allotted quantity of petroleum product is imported to the nation. The difference in the cost accrued for importation in comparison to the official domestic price of N65/litre (PMS), along with an agreed profit margin for the marketer, is thus calculated and paid out - called a reimbursement, , these essentially is what is being referred to today as a ‘Subsidy’! This Fuel Subsidy cost has increased dramatically over the years, especially as world crude oil price has risen! Other factors that may have contributed significantly to the rising cost are the devaluation of the Naira and the increasing cost of transportation. However, the primary component of the cost that has caused the greatest uproar is the inordinate ‘Depot’ (dock and jetty) charges which is best described as very high and unnecessary demurrage charges at the port!

According to information derived from the website of Petroleum Products Pricing Regulatory Agency (PPPRA) - the agency charged with the control and regulation of domestic fuel consumption, Petroleum Product Pricing templates are being used – a formatted and standardized formula for calculating the final landed cost of petroleum products. It is indicated that as of July 2011 the landed cost of PMS (petrol) was calculated to be N142.40/litre! This suggests that N77.40 will have to be subsidized by the FGN in other to sell that fuel for N65/litres! A closer study of the underlying component of the cost reveals that Depot related costs are separately charged to federal government account, which amounts to almost N50/litre –this fuzzy charge is said to be the cost of port demurrage alone without adding the landed cost of the imported fuel! In essence, the actual and total cost of a litre of PMS fuel (Petrol) to the FGN was a whopping N191.91/litre!!! In 2006, Nigeria spent N261.1 billion (US$2.03 billion) on fuel subsidy’. In 2007, this figure rose to N278.9 billion (US$2.3 billion). By 2008, the amount expended nearly tripled to N633.2 billion (US$5.37 billion)!! The drastic increase in cost was partly attributed to a depreciation of currency and the very high global prices of oil products. However, there was also the incessant issue of massive graft and fraud which was opportune by the unfortunate and sordid chain of events that led up to the death of the former president! Once this precedence had been set in 2008, the stage was primed for inordinate fraud and for annual increases in the cost to the FGN that would eventually culminate in the whopping cost estimate for the fiscal year 2011!
It comes as no surprise however, to note that despite the exponential increase in the cost of importing and subsidizing fuel for domestic consumption, there has only been a marginal increase in the total volume of domestic fuel consumption over the last few years! (2006 -2010). In 2006, the official figure for domestic consumption acquired from PPMC indicated a consumption rate of 237,000Bpd. For 2010, PPMC data reflects domestic consumption rate of 280,000Bpd for the year. Most of PPMC data is however based on the figures for Domestic Supply Obligation (DSO), however, it is a well known fact that the actual figures for the import of petroleum products may not necessarily equate to this figure!
An unspoken and often overlooked but critical factor to consider is that NNPC is mandated to set apart a certain amount of crude oil to fulfil the allocation for Domestic Supply Obligation (DSO). This particular allocation of crude oil is supposed to be supplied to the local refinery companies at a hugely discounted and commiserate local price! In the past years such discounted prices have been as low as US$18 per barrel however, it is nearly impossible to verify the current discounted price! The entire premise surrounding this DSO debacle is deliberately hushed and remains a well kept secret!

In the original bureaucratic process, the standard arrangement was for NNPC to allocate the approved DSO to the local refinery companies through its subsidiary - Products and Pipelines Marketing Company (PPMC), for refining and then re-distributed for domestic consumption! However, since all the refineries have been rendered impotent and are incapacitated - being unable to meet domestic obligations, the allotted crude supply (DSO) is re-diverted by NNPC through a shady and dark process that is not remotely transparent! This arrangement involves the issuance of ‘oil lifting rights’ to private marketers, lobbyists and powerful brokers (Oil Cartel??), who act on behalf of NNPC and sell the crude supply at astronomical profits in the international export market!! In this way, much of the nation’s wealth is siphoned into private confers through illicit back-deals and corrupt practices! For the year 2010, the DSO crude supply amounted to 280,000Bpd which the FGN had heavily discounted, however the profit accrued from the sale remains unaccounted for and goes into private pockets without any return to the people!

According to data available from Transparency for Nigeria, a NGO and watchdog, Nigerian domestic consumption and demand for the key petroleum products in Nigeria is as follows:

PMS: Premium Motor Spirit (popularly known as Petrol) – 30 to 34 million litres per day

AGO: Automotive Gas Oil (popularly known as Diesel) – 12 million litres per day

DPK: Dual Purpose Kerosene (popularly known as kerosene) – 8 million litres per day

ATK: Aviation Turbine Kerosene (Known as Aviation fuel) – 2 million litres per day

LPG: Liquefied Petroleum Gas (known as cooking gas or propane) – 192,000kg per day (15,360 cylinders of 12.5kg each)



SUMMATION & VERDICT:

In conclusion, one must wonder what has been done to mitigate and resolve this cyclical problem of ‘fuel subsidy’ that seems to have been a bone of contention for every administration for the past 26 years! It is also interesting to note that the beginning of this perennial problem was set at the onset of the devaluation of Naira in 1986 when the Babangida administration adopted and implemented the Structural Adjustment Program (SAP). It was apparently not so long after this moment that the nation’s refineries started experiencing operational and maintenance issues! It goes without saying that the nation’s journey from that moment on, especially with regards to Energy and Power, became a quick downward spiral! In more recent years however, there was a glimmer of hope – not because of improvement in the leadership profile or improvement in management skill of the government, but rather because of a fortunate and fantastic global phenomenon that inordinately increased and multiplied the nation’s earnings through a steady and consistent stream of high crude oil prices! A Bloomberg report revealed that Nigeria has earned $196 billion in the past 4 years alone (2006 – 2010)! As a matter of fact, it is important to point out that Nigeria’s earnings in the last 10 years has exceeded the total earnings of the nation for a period of 29 years dating from 1970 – 1999!!
The question must therefore be asked of our government and leadership, what has been done with all the money earned recently in the face of the nations numerous problems, chief among them, the perennial issue of domestic fuel supply?? Why are the refineries still in a state of disrepair and neglect even after more than 20 years of epileptic performance and under-performance?? Knowing the strategic importance of the refineries and the importance of reducing governmental deficits and pay-outs, especially with regards to the ‘fuel subsidy issue’, should the government not have made the overhaul and re-alignment of these refineries a national priority??
With the amount of money earned and with a recent high in our foreign reserve that exceeded the $56 billion, can it be said that the funds to overhaul, build, expand, restructure and realign the nation’s critical infrastructure to adequately accommodate the domestic needs, was unavailable?? What did the government do with the $23 billion that was recently depleted from the Excess Crude Account (ECA) in a short period of less than two years?? Why should the people be asked again to pay more for gasoline when similar and previous promises to prudently expend the funds realized on improved infrastructure have never been fulfilled?? What happened to Babangida’s (DIFFRI) program, Abacha’s (PTF) program and Obasanjo’s (Vision 2020) promises?? Most importantly, what did the Goodluck Jonathan administration do with the funds in the Excess Crude Account (ECA)??
A sincere, cogent and prudent assessment of these questions will reveal the answer, the true nature and intent of Nigerian leaders and government! For us to find a true and lasting solution to the domestic energy needs and the fuel supply problems in Nigeria, we will have to effect and mobilize a critical overhaul of current practises, restructure our institutions and get rid of gaping loopholes and the inherent culture of corruption and graft that is prevalent in the oil industry and the national government as a whole! For true and effectual results to be realized, the government must steadfastly implement a total reform of its rules, policies and practices while maintaining a high degree of common sense measures in delivering and attaining the worthy aspiration of the people for Power and Energy sufficiency, independence and affordability.

Daniel Aremuforyouths and masses not 4 government