The 7 Hardliners behind Fuel Subsidy Removal

Eonomic Confidential on Fuel Subsidy Removal
The issue of removing fuel subsidy arising from total deregulation of the downstream petroleum sub-sector may have created a serious challenge for the initiators and promoters who have engaged the wide adamant views of the public in series of fights using every available means of information dissemination.

While Labour Unions and Nigerian masses are threatening massive protests against fuel subsidy removal, the proponents of the policy are unperturbed in their campaigns to win more supports from the populace. The Economic Confidential gathered that various statistics are used to buttress different argument. For instance it was alleged that a sum of N3.7trillion was used to fund fuel subsidy between 2006 and 2011, and N1.35trillion between January and October, 2011, which amounted to 30 per cent of total budget, 118 per cent of capital project and 4.18 per cent of the Gross Domestic Product, GDP.
 
The Economic Confidential, in this report, presents the fallouts of the investigations carried out by its reporters on subsidy removal. Here are arguments of the major campaigners and hardliners who are promoting and supporting the removal of the fuel subsidy.
 
Sanusi Lamido Sanusi, Governor of Central Bank of Nigeria (CBN)
One man who has consistently backed the calls for the removal of the subsidy is the governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi. He always restates his argument that Subsidies should be subsidies for production and not for consumption and that “subsidies should be paid from savings and not from borrowings and subsidies should not degenerate into an avenue for rent seeking.”
 
His major official comment on the issue of removal of fuel subsidy was made at the Third Annual Bankers’ Retreat in Calabar, Cross River State on December 10, 2011. He argued that “In the short-term, there would be a slight increase in inflation. Inflation is now at 10.5 per cent, we think it will go up to 12 or 13 per cent if the subsidy is removed. We think a lot of the concerns about inflation are a bit exaggerated. A lot of our transportation and significant part of production is driven by diesel, which has been deregulated for a long time. Kerosene has also been deregulated for a very long time. PMS is something that goes to vehicle of a lot of people and the subsidised price of N65 per litre is not available to everyone. So, when the numbers actually come out, people will find out that the inflation fears are exaggerated. We are estimating an increase of up to 200 basis points. But what happens in the medium to long term?”
 
On the private investment, Sanusi said: “The liberalisation and deregulation of the sector is to get private sector investors into the sector, you will get players who import at competitive prices and not rent seeking and investors whose profits will be dependent on their business model and not on rent seeking. It will also reduce the amount that is spent on importing petroleum products that do not get into the country, but are smuggled across the borders because of the cheap fuel in the country. All the fuel that is consumed in Benin Republic, Cameroun, you find out that they are from Nigeria. So, the point I am making is that while these concerns are genuine, a lot of the concerns are exaggerated because the actual amount of petrol that comes into Nigeria and is consumed by Nigerians, is in my view, less.
 
“So removal of subsidy will have a lot of medium to long-term benefits. Forex reserves will improve because we spend so much money importing petroleum products. If our reserves don’t go up, then everybody believes that the naira is going to be weaker and we will have pressure on the currency. So, the savings from fuel subsidy will increase reserves, reduce the pressure on the currency and improve our ability to contain inflation. We may even have enough reserves to strengthen the naira.
 
Ngozi Okonjo Iweala, Coordinator of the Economy and Finance Minister
Though Finance Minister, Dr. Ngozi Okonjo-Iweala, whom the Economic Confidential gathered was one of the initiators of the policy, has explained that ‘Fuel Subsidy Removal’ was not an accurate description because what government was doing was subsidy reallocation into areas that would have the most impact on Nigerians and the future generations, she nevertheless restated that Nigerians would derive clear and measurable benefits from the deregulation of the downstream sector of the petroleum industry, saying their “sufferings will not be in vain.” According to her “Some of the benefits from the removal of fuel subsidy include the construction, completion and rehabilitation of rail, refineries, key federal highways, hydro stations, information technology and water projects.”
 
She said the Subsidy Reinvestment and Empowerment Programme under which the projects would be executed also provided for the implementation of short term social welfare programmes to alleviate the impact of subsidy removal on Nigerians. These programmes will comprise mass transit, public works, including training in artisanship for unskilled youth and social services to reduce high maternal and infant mortality rates. According to her: “The projects will be funded from the Federal Government share of the savings derived from the removal of fuel subsidies which will be about N478bn is estimated to accrue to the Federal Government in 2012 from the policy.”
 
She also appealed to Nigerians to bear with the government’s policy over the removal of the subsidy. “I want to urge the citizens of this country not to despair but to have trust in the Federal Government believing that they will deliver this time in spite of past broken promises. This policy (subsidy removal) will bring about a significant reduction in government’s borrowing and save the country N1.12trillion, next year. But if retained, the Federal Government would borrow heavily to fund subsidy and recurrent budget next year.”
 
Diezani Allison-Madueke, Petroleum Minister
The Petroleum Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, like her counterpart in the Federal Ministry of Finance has also enumerated the benefits of subsidy removal to Nigerians and the economy. She said the discontinuation of fuel subsidy is because it poses a huge financial burden on the government, disproportionately benefits the wealthy encourages inefficiency, corruption and diversion of scarce public resources away from investment in critical infrastructure.
 
She said subsidy removal will save additional resources for investing in programmes targeted at mitigating poverty and spurring economic growth, adding that the deregulation of the downstream sector of the petroleum industry will lead to rapid private sector investment in refineries and petrochemicals, which will generate millions of jobs and lead to increased prosperity for Nigerians. She also reeled out statistics saying that: “The total projected subsidy reinvestible fund per annum is N1.134 trillion based on average crude oil price of US90 per barrel. Out of this, N478.49 billion, accrues to the Federal Government, N41.03 billion to state government, N203.23 billion to local governments, N9.86 billion to the Federal Capital Territory (FCT) and N31.37 billion as transfers to derivation and ecology, development of natural resources and stabilisation funds.”
 
She also added that: “The entire project will be overseen by a Board to be constituted by Mr. President, consulti
ng firms with international reputation will be appointed to provide technical assistance to the Board in financial and project management. Relevant ministries, departments and agencies (MDAs) would set up project Implementation units to drive the implementation. An independent body will be responsible for monitoring and evaluating the implementation and will report directly to the Board”
 
Emeka Wogu, Labour Minister
The Labour and Productivity Minister, Chief Emeka Wogu has continued to defend the fuel subsidy removal, because of his position, saying the deregulation had already been in place in practical term before its announcement on January 1. He said the fact that the National Assembly did not extend the lifespan of the implementation of the 2011 budget was an indication that subsidy had commenced.
 
The minister said the issue of subsidy was not a constitutional matter, but an economic issue, which only the President is empowered to decide. He however noted that the resultant increase in the cost of transportation across the country due to the withdrawal of subsidy was unjustifiable.
 
He said the Federal Government would cushion the effect of the subsidy removal as it had put in place a transportation system to carter for the cost of transportation. He said: “The uniqueness of the transport scheme is not only in the fact that it will be managed by the organised labour, it also provides avenue for cheap financing for transporters. To cushion the effect of transportation, government, through its subsidy reinvestment programme, has made provision for ameliorating the transport cost by providing transportation system that will be managed by the people and for the people.”
 
“By this, I mean that the transport scheme will be managed by both the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC). Apart from this, there will be cheap financing for transporters.”
 
Labaran Maku, Information Minister
The Minister of Information, Mr. Labaran Maku, as recently reported by the Economic Confidential was a student activist in the University of Jos who led mass protest against the Ibrahim Badamasi Babangida’s administration for increasing fuel prices. But today, he insists that government would not budge on the deregulation of the downstream oil sector and the removal of subsidy. He warned that reversing the decision would cripple the economy.
 
Maku said, “Having gone this far in the deregulation process, there is no going back. To roll back is to cripple the economy and cause greater discomfort. In no time, the prices will come down unlike in the past where marketers used to hoard fuel because government was subsidising, that would no longer be the case. I can assure you that fuel stations will soon be begging Nigerians to come and patronise them. The burden will disappear and customers will be kings.”
 
He said measures had been taken to ease the burden of the subsidy removal which includes a programme to bring down the cost of transportation by investing massively in mass transit. He said the government would take delivery of 1,600 buses which would be operated by private companies.
 
“The intervention in mass transportation would go on for two years and government would sustain the tempo to ensure that by end of February this year, significant stabilisation would have been achieved.”
 
“The Federal Executive Council (FEC) also emphasised the expeditious completion of the renovation and the rehabilitation of the rail system between Lagos and Kano as well as between Port Harcourt through North East, right down to North Central up to Maiduguri. President Jonathan also directed that salaries in the public service be paid by 20th of every month just as he also directed that lingering debts owed contractors by MDAs should be quickly processed and ensure that payment is made as soon as possible to stablise public works and ensure that we address some of the discomforts that citizens are facing.
 
“Also, Mr. President directed that all MDAs and parastatals that have outstanding vacancies should expedite action and ensure the positions are filled as soon as possible to offer more opportunities to qualified unemployed Nigerians.” 
 
Reuben Abati, Presidential Spokesperson
Dr. Reuben Abati, as chairman and editorial board of The Guardian Newspaper has written various articles against increment of fuel prices, upon his appointment as the spokesperson to President Goodluck Jonathan has been reaching out to the editors to be fair in the reportage and coverage of debates over subsidy removal. When he was asked about the safety nets that government promised to put in place before the removal of the subsidy, Abati said the government did not say it will put the safety nets before removing the subsidy. According to him: “What government said was that the N1.4 trillion that will be rescued from the budget will reduce borrowing, create revenue and that money when rescued will be used in the areas stated in the source documents and it is also stated that a committee made up of stakeholders in the civil society will be mandated to monitor how that money is used and this is to address the issue of trust on the part of many Nigerians who are saying that even if they save money, the money will be wasted. One thing that baffles me is that the media has been placing too much emphasis on removal of subsidy but what government is doing actually is deregulation of the downstream sector.”
 
He also explained that: “By deregulation the emphasis is on  efficiency, the emphasis is on competition, the emphasis is on opening up the market so that  global sector players can come in  and make  that market more effective and you know of course because of subsidy a lot of sharp practices have been going on , inefficiency, corruption , smuggling, once you remove that you remove the incentives for all of these ills and you create an open market and that is why repeatedly it has been compared to what happened in the telecom sector and once you deregulate you create an open field and the long term effect is that prices will crash. When we started with this deregulation in the telecoms sector, simcard was being sold for as much as N20,000 but today  people are given simcards almost free of charge. Now, let me ask you, how many refineries were licenced? For all the refineries that were licensed I don’t know of anybody who has taken up the license and put it into operation because the price regime is not good for the business since some other people will either lift oil or  not lift  oil and then collect subsidy and then go and sell it in neighbouring countries or  engage in some other illicit practices. Deregulation is in the interest of the public and I think we should place the emphasis on deregulation.”
 
Being an academic and former Chairman, Editorial Board of the Guardian Newspapers, he was asked what could be the implication of the threat by Labour to go on strike. He responded that: “I hope Labour will hold on to its promise that it will support whatever government does in the interest of the Nigerian people because Labour was consulted. I attended those meetings with Labour and I know there were some understandings reached.”
 
Adams Aliyu Oshiomole, Governor of Edo State
Adams Oshiomole was formerly president of the Nigeria Labour Congress (NLC), and was prominent as the campaign leader of industrial action against high oil prices in Nigeria, but has now changed his position since he became the Governor of Edo State. He has continued to express his full support for the removal of fuel subsidies. At a Town Hall Meeting organised by the Newspapers Proprietors Association of Nigeria (NPAN), he said the prevailing condition warrants that the subsidy be removed in order to pave way for the requisite growth in the sector. He also praised the President for the dialogue he had employed so far on the iss
ue.
 
Oshiomhole asked the labour unions to allow the Federal Government to continue with the push for petroleum subsidy removal, warning that the country’s economy faces imminent collapse in the face of the huge irregularities and inefficiencies associated with financing the subsidy. He said: “Don’t push the people to do what they are not capable to sustain. Allow the Federal Government to move forward in the direction it has chosen. If President Jonathan does not take the decision to do the right thing now, Nigeria will crash in no distant future.”
 
He nevertheless implored the government to create room for Nigerians to trust them on the safety nets they proposed if the subsidy is removed. He also bemoaned the ills in the nation’s oil and gas and said the indigenous audit firms in the country also collaborate with some operators to concoct dubious figures on revenues.

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