When in January 2016, the then Managing Director of the International Monetary Fund (IMF), Christine Lagarde, who was on a four-day official visit to Nigeria, urged the Federal Government to cancel its petrol subsidy programme, saying, “..Not only do they harm the planet, but also rarely help the poor,” she knew exactly what she was saying about the ultimate beneficiaries of what can only be described as the greatest scam in Nigeria’s history.
As with many other well-intentioned relief programmes in the country, the ambitious attempt to ameliorate the effect of rising prices of crude oil and by extension, fuel products, through a subsidy regime, has metamorphosed into what is today a ridiculous absurdity that is draining the national coffers of trillions of naira.
It is an unsustainable regime that has gone on far longer than necessary and the twin issues of nonfunctional refineries and contaminated fuel in circulation only serve to bring this vexatious debate on the removal of the oil subsidy back to the front burner of national discourse. Well, it should because as the country begins to engage in a conversation on where to pitch the tent of political leadership for the coming years through next year’s election, it must be made abundantly obvious where the front liners stand in this debate.
Any candidate(s) wishing to perpetuate this mindless hemorrhaging of the nation’s scarce finances through these continuous subsidies must be given neither audience nor votes. Anyone who will not hit the brakes on a regime that siphons upwards of N 3 trillion of monies which could have been used to improve the welfare of the average Nigerian must be an enemy of the state.
As to how we arrived at such a bloated subsidy regime, we need to briefly take a look at oil revenue history. In the 1970s, global oil supply chains suffered the knock-on effect of two specific events in the Middle East, namely the Yom-Kippur War of 1973 and the Iranian Revolution of 1979. These two events effectively disrupted oil supplies from the region, thereby creating difficulties for the nations that relied on energy exports from the Middle East. The immediate consequence was that across wide swathes of geographical space and across the borders of Canada, Australia, New Zealand, the US, Western Europe and Japan, there were large shortages in petroleum supplies. As a result, the prices of the commodity rose astronomically.
Nigeria was not exempt. As the costs of petroleum products continued to rise, the strain on the common man’s pocket only worsened. The continued use of international rates for petrol, as was the common practice in the majority of countries around the world, left Nigerians having to increasingly pay more with the rising international rates.
To offset the impact on the finances of the average Nigerian, the government felt compelled to discard the international rates and regulate local prices for all energy products. This was officially made formal with the enactment of a decree in 1977, by the General Olusegun Obasanjo military regime, which effectively institutionalised the oil subsidy regime in Nigeria. It was nobly intended to lessen the burden or cost of refined petroleum products, on the one hand, and to offer citizens some level of financial support from the government, on the other.
It seemed to have achieved these lofty ideals for a period of time. As a form of indirect subsidy, it saw petroleum products being bought below market rates and the government paying the difference to maintain a fixed rate, regardless of fluctuating international rates of oil prices. Yet, acute lack of openness in the very vague modus operandi of Nigeria’s oil company, the NNPC, meant that it was relatively easy for corrupt officials to seize the opportunity to fleece the country under the aegis of a subsidy regime, in collusion with certain elements on the corridors of power.
Stealthily and steadily, the figures were cooked to require more millions to keep the subsidy going to the point of absurdity. It was not long before questions began to be asked about the wisdom of continuing with the scheme.
At the turn of the millennium, we were told that taxpayers needed to cough out about $2 billion annually to keep operating this wasteful subsidy scheme.
Yet, when the then Olusegun Obasanjo administration (1999-2007) removed oil subsidies, there was such hue and cry from activists, labour and trade union leaders and a large section of the Nigerian population whipped into a frenzy by the immediate consequences that the removal would undoubtedly evoke. President Umaru Yar’Adua, Obasanjo’s successor, reinstated the subsidy regime, following protests by labour unions and civil society groups. These and similar protests have effectively delayed what appears to be an inevitable move in the near or remote future.
Dr Goodluck Ebele Jonathan, who became president after Yar’Adua’s death in office, also faced widespread protests for daring to remove the subsidy based on international market realities in 2012. Instead he was forced to settle for a marginal increase of pump prices from NGN65 to NGN141.
Then, the incumbent administration made a bold move by removing the subsidy on petrol from the 2016 budget, only to restore it even without appropriation for it by the National Assembly.
Except for a brief period in 2016 and 2020, from March to November, when the worldwide price of crude oil fell and pump prices were reduced from N145 to N125 per litre, Nigerians have had to pay more for fuel. The price again rose to N165 in 2021 as a result of a rise in the price of crude oil in the international market. The real amount spent on the wasteful petrol import subsidies in 2021, which was not appropriated by the National Assembly, is unknown to the general public.
What is known, however, is that between February and September, the government spent an estimated N864 billion. This “financial flow” is incompatible with the realities of an economically distressed country and a federal government with an ever-increasing debt profile (N29.46 trillion as of June 2021), as well as a snowballing budget deficit (N5.6 trillion in 2020 and N6.62 trillion in 2022, as envisaged).
It is clear that we cannot continue to protest against the cancellation of this subsidy scheme, especially after Finance Minister, Zainab Ahmed, accurately labeled it “unsustainable” in the summer of 2021, based on the fact that the subsidy scheme cost USD7 billion to operate.
I believe that the government must come to terms with the widespread corruption that has bedevilled the subsidy regime, where its own 2019 audit of the NNPC’s books by the Accountant-General and Auditor-General of the Federation discovered that in the year under review, NNPC lifted a total of 107.24 million barrels as domestic crude, out of which it could only account for 2.76 million barrels, with as much as 97.4 per cent (104.48 million barrels valued at NGN2.112 trillion) of the total domestic crude lifted and paid for were unaccounted for.
Without delving too far and regurgitating other instances of the scam that is oil subsidy in Nigeria, like the Malabu scandal and the USD 26 billion that were sunk into the nonfunctional oil refineries in the country, what should be completely unambiguous now is that only the ignorant will back any instance of this subsidy regime as it presently operates. If the majority, who protest politically-calculated moves to remove subsidies, had an inkling of the overwhelmingly corrupt background and inner workings of the subsidy scam, they would be leading a campaign to get it scrapped and removed entirely. Yet, who can blame them? The average man is the one who feels the pain anytime there is a fuel crisis, just as it is currently the case across the country.
That is why, in my opinion, a more direct course of alleviation for the masses must be charted so that those who are going to be most affected by any impact from the removal of oil subsidy will benefit, instead of cartels, shady government officials and cloaked vested interests. For a more focussed alleviation project, the government should unburden the taxation of those who pay payroll tax. This will go directly to the pockets of the common man in a way that will be felt. Similarly, by reducing Value Added Tax (VAT) from 7.5 per cent to 7 or 6 per cent, the government will be putting money back into the pockets of Nigerians.
Providing effective, yet cheaper means of mass transit, is another way to ease the effect of the removal of oil subsidy. These are viable options for the government to reach those who need its attention most. By removing crippling stumps like road tax and offering tax holidays, while reducing or eliminating taxes on goods and services that the average man was struggling to afford, the government will definitely demonstrate that it is serious about lifting the burden of oil subsidy removal from the shoulders of those who will bear the most brunt.
An enlightening programme of why this is necessary to end the oil subsidy scam, will bring the light of knowledge to the majority of Nigerians to keep them from returning to the streets in protest while clear plans are made for the trillions of naira freed up with the removal to be ploughed back into the economy to facilitate economic growth and provide employment.
