Fuelling controversy over subsidy removal

The recommendation for total removal of fuel subsidy by the National Conference Committee on Public Finance and Revenue generated controversy. CLEMENT IDOKO traces the history of fuel subsidy removal in the country…

THE furore that always trails government’s attempt to remove subsidy on petroleum products was reignited at the ongoing National Conference when delegates broke into opposing camps, arguing for and against the proposal to remove fuel subsidy.

The issue came alive during the debate on the recommendation of the conference Committee on Public Finance and Revenue, chaired Senator Adamu Aliero, which recommended total removal of fuel subsidy.

The last time the issue of subsidy removal was mooted was in January 2012, when the Federal Government announced the total removal of subsidy on petroleum with effect from January 1. That decision had raised the price of a litre of the commodity to N141 from N65, a development that sparked off a week-long mass demonstration in the country.

Following the mass protest and intervention from the National Assembly, government resorted to partial removal and reduced petrol price from N141 to N97 a litre.

According to a Petroleum Product Pricing Regulatory Agency (PPPRA) template, if the government eventually removes fuel subsidy, Nigerians will be paying a minimum of N146.59 per litre of petrol at filling stations. This, it said, will cover the landing cost of a litre of petrol, which is about N131.10 and total distribution margins of N15.49.

Over the years, there had been removal of fuel subsidy by previous governments. For instance, during the Yakubu Gowon regime in 1973, government raised the price of fuel from 6k to 8.45k, which represented 40.8 per cent increase while the government of the late Murtala Mohammed, in 1976, increased it from 8.45k to 9k, representing 0.59 per cent.

Former Head of State, Olusegun Obasanjo, on October 1, 1978, raised the pump price from 9k to 15.3k, representing 70 per cent while the Sheu Shagari administration, on April 20, 1982, raised it from 15.3k to 20k, which represented 30.71 per cent. During the regime of Ibrahim Babangida, on March 31, 1986, the price went up from 20k to 39.5k, representing a 97.5 per cent; Babangida again, on April 10, 1988, increased it from 39.5k to 42k, representing 6.33 per cent increase. His administration also increased pump price in 1989, 42k to 60k for private vehicles and later for all vehicles, as well as 1991, when he raised the price from 60k to 70k.

Also, during the Ernest Shonekan administration on November 8, 1993, the price of fuel was increased from 70k to N5, representing a 614 per cent increase.

In a surprising twist, however, Sani Abacha on November 22, 1993, reduced petroleum pump price from N5 to N3.25k representing a 35 per cent decrease before raising it N15.36 on October 2, 1994. Abacha again reduced the price to N11 on October 4.

On December, 20, 1998, Abdusalami Abubakar took the price from N11 to N25 before reducing it to N20 on January 6, 1999.

During Obasanjo’s second coming as a civilian president between 1999 and 2007, he increased the pump price six times. On June 1, 2000, the fuel pump price was raised from N20 to N30, representing a 50 per cent increase but following widespread criticisms, it was on June 8, 2000, reduced to N22. The pump price was again increased on January 1, 2002 from N22 to N26 while it was again jacked up in October, 2003 from N26 to N42. On May 29, 2004, pump price was again increased to N50 and later N65.30 on August 25, 2004. Before leaving office, Obasanjo finally increased petroleum pump price to N75.15 on May 27, 2007.

When the late President Umaru Musa Yar’Adua assumed office, he reduced the price from N75 to N65 in June 2007, representing a 15.38 per cent reduction, with the latest change in pump price being the one carried out by the incumbent administration of Goodluck Jonathan on January 1, 2012.

While some of the delegates blamed the problem of fuel subsidy on corrupt officials in the sector, others heaped the blame on the lack of monitoring on the implementation of the subsidy regime. The argument of some of the delegates was that despite the subsidy on petroleum, petroleum pump price is still as exorbitant as N150 per litre in some localities across the country. According to those in this group, removing the subsidy would make no difference.

Nonetheless, those who kicked against the removal of the subsidy also argued that there is always the multiplier effect of such government policy. They reasoned that once the fuel subsidy is removed, prices of other commodities in the market would automatically skyrocket, thereby adversely affecting the pocket of the fixed income earners. They were also of the opinion that if the existing refineries are refurbished and new ones established, exporting crude oil would stop and that there would be no need for subsidy.

However, the chairman of the committee on Public Finance and Revenue, Senator Aliero, while opening debate on the report, noted that subsidy on petroleum products has been a major financial burden the nation has been made to bear. According to him, for the period of 2006 to 2011, subsidy accounted for 30 per cent of government expenditure, which translated to 118 per cent of capital budget and 4.18 per cent of GDP.

He said: “Subsidy payment of N2.527 trillion in 2012 and 2013 averaged N1.263 trillion. This is a burden too heavy to bear.” The committee also noted that Nigeria has the lowest fuel pump price compared with other countries in sub-Saharan Africa, saying “this is in spite of the fact that the per capita income of Nigeria is one of the highest in Sub-Saharan Africa”. The committee also revealed that this “anomalous” situation encourages smuggling and that government resource, which should have been used to undertake more developmental projects programmes, are being utilised to pay subsidy.

But a delegate under the platform of the Civil Society Organisation, Barrister Festus Okoye, stunned the delegates at the National Conference with his contribution, when he said those calling for fuel subsidy removal were enemies of President Goodluck Jonathan. He argued that with the 2015 general election around the corner, the proponents of total removal of fuel subsidy intended to ignite the anger of Nigerians against Jonathan. Okoye recalled that the mass protest that followed attempt by President Jonathan’s administration to remove the fuel subsidy in 2012. His emotive speech attracted rousing applause from the delegates.

However, the leader of the South-West delegation to the conference and former Secretary to the Government of the Federation, Chief Olu Falae, did not believe that there is fuel subsidy if the country fails to refine its crude oil in the country. He said: “My own personal view is that the answer lies in refining our crude oil at home. We should refine our crude at home using the domestic crude price plus cost of refining and normal profit and we will have the price lower than what we are paying now”.

A former Minister of State for Defence and a delegate to the conference, Chief Olusola Obada, in her contributions, said she was not against the removal of fuel subsidy but noted that it was not the right time to talk about total removal of petroleum subsidy. She noted that efforts should be made to put the nation’s refineries back to work while the public is properly educated on the gains of removal of the subsidy. She said: “There are conflicting opinions of course. Some are for the removal and some are against the removal. When you think about the fact that we do not have the social welfare package in Nigeria, one may say no; that we should not remove the subsidy on the petroleum. However, the country needs the money going for subsidy to provide so many things for Nigerians in terms of infrastructure development.

“However, if we can put our refineries to work, the one in Warri, two in Port Harcourt and in Kaduna, the issue of subsidy will eventually be a thing of the past. What I think is that even if there is going to be subsidy removal, it should not be now. The time is not ripe for it. We should wait. Even when it is going to be removed, it has to be gradual until the government achieves the total removal. The people should be properly educated and should be made to understand why a gradual removal of oil subsidy is good for the country,” she said.

A Federal Government delegate, Chief Mike Ozekhome, also opposed the recommendations of the committee on the removal of fuel subsidy, saying: “I have always argued in the last 25 years when we were still selling a litre of fuel for about 25 kobo, that we cannot talk about removing subsidy from a product that we own. God has given us oil in his infinite wisdom and surprisingly, we are exploiting this oil in the form of crude and exporting the crude and buying the refined product back to Nigeria.

Another delegate from Cross River State, Orok Duke, expressed support for the removal of oil subsidy, saying nobody in Cross River will protest against its removal since they have never bought fuel at the subsidised rate. He said it was understandable that those who were benefiting from the subsidy scheme would always mobilise against removal of the subsidy. “If you are removing subsidy, let us also remove the monopoly from the importation of kerosene and liberalise it for all to participate”.

King Alfred Diette-Spiff also spoke in support of the removal of subsidy, saying the corruption in the subsidy regime is growing bigger by the day. He charged former top government functionaries who are delegates at the conference to use the opportunity they have now to correct the ills of the past by voting for the removal of fuel subsidy.

Opposing the move, however, a Nigerian Labour Congress (NLC) delegate, Comrade Isah Aremu, said when compared with other oil producing countries, Nigerians pay outrageous prices on fuel, adding that the issue of proposal for subsidy removal should be dropped from the report of the conference.

Finally, the controversy was resolved with the recommendations that removal of subsidy on petroleum products within the next three years should be preceded by building of new refineries and repair of existing ones to full capacity.

The conference unanimously resolved that “private sector investors granted licenses to build new refineries shall, within a period of three years, build such refineries or automatically forfeit such licenses to enable other participants who are ready and willing to build such refineries to do so,” while it also observed that the issue of total subsidy removal on petroleum products has been a recurring decimal on the programmes of successive governments over the years; and that there are merits in the arguments of both the protagonists and the antagonists.