The state governments threatening to take the federal government to court over the fuel subsidy deductions from their monthly allocations from the Federation Account have been accused of trying to heat up social tension in the country at a time the central government is preparing to jettison the programme. Though they concede that the deductions, which started from military era, were unconstitutional because there is no law backing the subsidy issue and it has no provision in the budget, nevertheless the consensus is that the agitation by states would heat up the system, particularly as the federal government is already galvanising actions to do away with the subsidy issue.
“Where does this thought come from? It was not there a year or two ago. Why don’t they wait for the Petroleum Industry Bill, PIB, and the impending deregulation of the sector to come in as a lasting solution to the whole issue?” an oil industry insider, who was amused by the dynamics of the Nigerian society asked rhetorically. As far as oil industry insiders are concerned, the problem really centres on the fact that there is no long-term strategy for sustained availability of different types of fuels in the country. “Nigeria has the potential of tapping into other forms of energy, such as gas and coal. Why don’t they wait for the PIB to see how they can tap into it by either building their own refineries or promoting investments in areas that would make gas or other types of fuels available to their people?” Oliver Mordi, chief executive officer, Starways Energy, an oil and gas consultancy outfit, told the magazine.
Various kinds of fuels, apart from premium motor spirit, PMS, or petrol and automotive gas oil, AGO, otherwise known as diesel, are used to power automobiles elsewhere in the world. In the words of the Starways Energy chief executive: “In the United States, for instance, they use liquefied natural gas, LNG, as well as natural gas, rather than just diesel and PMS. If the states, particularly those in the Niger Delta, put structures in place to harness the abundant gas being flared within their domain in this way, then they would be in a position to tell the federal government not to use their money to fund the fuel subsidy programme.”
The federal government would be hard-pressed by the fact that this latest round of muscle-flexing over the fuel subsidy issue is coming from unusual quarters: from state governments, who are supposed to be its ally under the scheme. Pressure has been mounting on the federal government to do away with the programme since last year when the country was hit by the effects of the global financial and economic crisis. The government has said it loud and clear that the present subsidy regime encourages corruption. In the last four years, government is said to have spent N1.84 trillion to sustain the programme, with an outstanding amount of N650 billion yet to be paid out to beneficiaries under the scheme; bringing the total amount incurred under the programme in four years to N2.49 trillion. This is a tidy sum of money that could have been used to develop other sectors of the economy which needs attention, or order to improve the standard of living of Nigerians.
The argument of the proponents of the latest battle is that it is not only unfair the way states a are forced to contribute to the subsidy fund in a very disproportionate way, but despite contributing so much to the fund, their people never get to pay the actual price for the product. “This is double jeopardy,” a governor who pleaded for anonymity told the magazine. These states are arguing that the billions of naira spent on subsidy without much benefit to their citizens could be better spent on infrastructural development. “Can you imagine what a state like Akwa Ibom or Rivers could have done with over N100 billion if it was not forcefully deducted for subsidy? A state like Ekiti has contributed N21 billion. Imagine what that can do if it is in their budget for education or roads or health,” another source complained.
The past administration of President Olusegun Obasanjo had initiated the Petroleum Support Fund bill in 2006 to legitimise the deductions to fund the huge subsidy bill, but it is yet to be passed by the National Assembly. Also, because of the deregulation programme of the government, the bill is not likely to be pursued any longer as government will no longer be involved in the pricing of petroleum products. Oladele Solanke, a legal practitioner and consultant on transparency and corporate governance, believes such deductions without authorisation from them are unconstitutional. “Where they had given prior approval, they can withdraw it,” he explained, adding that everyday issues like this expose the pretence of the system the country is practising in the name of federalism.
Fuel subsidy was a well-thought out initiative to cushion the effect of the fluctuation of the price of petroleum on Nigerians. Acco According to industry insiders, what is generally known as petroleum subsidy in Nigeria comes in different forms. One form of it is the bridging expenses paid to marketers who transport petroleum products with their tankers from Lagos or Port Harcourt to other parts of the country. The idea is to make them sell petroleum products at the same price nationwide. For, if marketers were to transport the products without any intervention from government, they would most certainly sell at a higher price at various locations, to recoup their transport expenses. Secondly, marketers who import these products into the country also enjoy some sort of subsidy; in the sense that any additional expenses incurred that would make it impossible to sell at the official market price is absorbed by government. Besides, the government has said before now that they equally subsidise products that come out of our local refineries.
But owing to the fact that the demand for petroleum products far exceeds the supply in most parts of the country, noticeable malpractices have crept into the implementation of the programme. Industry insiders who spoke to the magazine insist that there are a lot of people who get involved in ad hoc lifting of petroleum products as a business. This category of petroleum products dealers is not entitled to get a refund of the bridging expenses because the dealers do not go through due process in obtaining the products. Given that the demand in various parts of the country can absorb all the products offered for sale at whatever price, the ad hoc dealer is primarily concerned with buying petroleum products from regular dealers in parts of the country where it is is readily available for the purpose of reselling in another part of the country for profit.
A petroleum marketer who does not want to be named puts it very succinctly: “Such a businessman may not go through all the processes that would entitle him to make claims for bridging. This implies that the marketer has spent more money to enable him lift petroleum products from places where they are readily available to places where they are urgently needed.” However, notwithstanding the bottlenecks in the supply chain, petroleum product find its way to every nook and cranny of this country. This is to the extent that they are even smuggled out of the country. Yet, there are numerous marketers who follow due process in securing petroleum products, but end up selling it at the same exorbitant rate, because there is an existing price structure in that part of the country as a result of scarcity.
The poor infrastructure base in the country has also contributed to the high cost of petroleum products beyond Lagos and Port Harcourt, the country’s major seaports. Marketers say there is a risk factor involved in transporting petroleum products to the far North, the East and other distant parts of the country. “You must have come across petroleum tankers that go up in flames in the course of meandering through the bad roads to make fuel available to parts of this country. Who is going to bear the loss? Most of those goods are not insured, and if they are insured, it usually does not cover the entire cost of the products and the truck itself that is moving the products from point A to B,” the marketer explained, adding that the business thrives only because the market is able to reward those who are prepared to take the risk.
Government has also contributed to this malaise by not expeditiously settling subsidy claims in good time. If the government takes its time in disbursing subsidy claims to marketers who are beneficiaries, then it would be very difficult for them to remain in business, particularly now that the banks are not coming to their aid. The bills verification system allows payments to accumulate for several months before they are settled. But the reality is that it is not only government that has helped the subsidy issue to fail; the individual Nigerian, from petrol attendants, managers of petrol stations, executives of the Nigerian National Petroleum Corporation, NNPC, to all manner of oil marketers, has equally added to the problem.
For the phenomenon usually known as the Nigerian factor is also an integral aspect of the problem. For instance, there has been an element of sabotage to prevent the existing refineries in the country from functioning. Even the Kaduna Refinery that is not located within the Niger Delta, has suffered a series of vandalism in the past that has up till now rendered it useless. “We’ve had several cases of the productive arm of the Kaduna Refinery going up in flames. What do we call that? Is it negligence on the part of the staff or outright sabotage? Whatever it is, it smacks of irresponsibility on the part of those in charge of that facility,” Mordi insisted. “Nobody is loyal anymore in this country; you hardly find people who are loyal to any office, be it managing director, local government chairman or governor, not to talk of people engaged in an activity that might fetch them more money if there is shortage,” he added.
Beyond the downstream sector, the situation upstream also suggests that a spectre of uncertainty hangs over the entire industry. Some of the oil majors operating in the country have become wary over Nigeria’s volatile political and economic landscape, and are relocating their rigs to other parts of the world, where conditions are more favourable for exploration and exploitation of oil. The major problems of the companies are insecurity in their areas of operation and funding. The Nigerian government has not been forthcoming in paying its cash calls, and this has stalled new investment drives.
From the foregoing, the solution seems to lie in getting the PIB passed. That would help to create a level playing field for everybody, in the sense that it is expected to galvanise Nigerians with entrepreneurial spirit into activity, which would in the long run bring a measure of stability into the industry; at least in terms of product delivery. But as far as prices are concerned, there would still be a high level of fluctuation. Prices are not likely to fall below what they are today, but it would make the country attractive to investors interested in building refineries. Besides, the estimated N600 billion expended annually on subsidy by government could be channelled to areas of critical needs, such as health care, education and infrastructure. Certainly, one of the ways to tackle the supply and distribution of petroleum products within the country is by strengthening the transportation system.
Aside from the subsidy issue, stakeholders believe a lot of t of things are wrong with the way the country’s oil industry is being managed. For instance, some say the NNPC, which implements the subsidy programme on behalf of the federal government, should not be funded with the taxpayers’ money; that it should be a money-spinning agency for the government rather than a drain pipe. In this vein, the Revenue Mobilisation, Fiscal Allocation Commission, RMFAC, has in recent times objected to government’s funding of the corporation’s joint venture cash calls. The point the RMFAC is making is that the country is bearing the entire funding burden and not getting maximum benefits from the venture.
The latest simmering battle over fuel subsidy is a serious national issue that may put more pressure on the federal government in the weeks and months to come. Though the central government may not be satisfied with the disbursement of subsidy at the moment, it would not want to be parochial about it, by jettisoning it without having any alternative in place. The position of labour and the generality of Nigerians on the issue would make it a difficult task for the government. But it must act fast to preserve its own sanity.
Obasanjo: Initiated bill to legitimise deductions
Solanke: Deductions without authorisation is unconstitutional
Bad roads contribute to high cost of petroleum products
Kaduna Refinery: Suffered series of vandalism
Mordi: Disappointed with how NNPC is managed |
