Should Buhari Maintain Subsidy Regime? | Independent Newspapers Limited
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Should Buhari Maintain Subsidy Regime?

Posted: May 18, 2015 at 12:30 am   /   by   /   comments (0)

The continuation of payment of subsidies to oil importers by the federal government is generating a lot of heat, moreso when it is claimed to be responsible for the lingering fuel scarcity being experienced whether in every part of the country. There are, therefore, different schools of thought on whether incoming administration should continue to support subsidy regime; so as to avert the sufferings which removal could cause Nigerians. In this special report, our reporters, Sylvester Enoghase, Phillip Oladunjoye, Emma Okwuke, Abel Orupke, Saheed Bakare, and Judith Eshemitan examine the subsidy regime of the Federal Government.

Based on the huge amount of money being paid as subsidy for importation of petroleum products and the hardship being experienced by Nigerians during fuel scarcity, stakeholders in the oil and gas, and the economy, have called for total deregulation of the downstream sector of the oil and gas industry. This, they argued will eliminate the need for subsidy and will make the product readily available and at a reasonable cost.

Daily Independent gathered that the amount spent on fuel subsidy over the years has been enormous.

For instance, an analysis of subsidy spent from 2010 showed that N673 billion was spent in 2010, and N1.3 trillion spent in 2011, which was revised up to 2.19 by the Ministry of Finance, after arrears were paid in 2012 for petrol consumption in 2011.

In 2012, the sum of N888 billion was allocated for subsidy payments for petroleum product importers in the budget, but in December a supplementary budget of N161.6 billion for payment of arrears of fuel subsidy was submitted by the president and later approved by the National Assembly.

For 2013, the government earmarked N971 billion for petroleum subsidy.

For 2014, the Federal Government budgeted N971.1 billion for payments of subsidy, keeping it at the same level with that of 2013.

Though, despite insinuations and reports that there was no provision for fuel subsidy in the 2015 budget, the Senate Committee Chairman on Finance, Senator Ahmed Makarfi, cleared the air on the issue when he said a total sum of N100 billion was provided for as subsidy for Premium Motor Spirit, otherwise known as petrol, while N43 billion was approved for Dual Purpose Kerosene for the 2015 fiscal period.

“For you to see them, you have to go through the revenue profile. In this year budget, N100bn was provided for Premium Motor Spirit, N43bn for DPK.

“The federal government in 2013, budgeted the sum of N970bn for fuel subsidy out of which N515bn was released to oil marketers.

“In the 2014 fiscal period, the same N970bn was budgeted for fuel subsidy while N414bn was released,” he said, noting that while the amount budgeted for this year may not be enough to subsidised petroleum products, the law allows for a request of additional funding when the need arises.

Based on the huge amount spent on subsidizing the importation of petroleum products, stakeholders in the oil and gas industry as well as economists have condemned the continued payment of subsidy, advising that government should deregulate the downstream oil sector and the market forces to determine the prices of petroleum products in the country.

For instance, Minister of Petroleum, Diezani Alison-Madueke, said the payment of subsidy on petrol ‘cannot be sustained any longer.’

She said the continued regulation of the downstream sector has its positive and negative impact on the economy, but noted that the negative effect is more than the positive.

“The subsidy policy cannot be sustained any longer. This is because the subsidy payment did not benefit the poor it was targeting, but rather it is benefiting the rich,” the minister said.

She said there was the need to deregulate the downstream oil sector to attract investors, adding that in considering the deregulation of the downstream sector, government must strike a balance in implementing some of its policies to meet the needs of Nigerians.

Also, President, Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, Comrade Francis Johnson, said the payment of subsidy on petroleum products, especially petrol, is not to the advantage of the Nigerian masses, but only favours few individuals who have constituted themselves into a cabal.

“It is high time labour unions stopped saying no to the removal of subsidy, and look beyond ordinary reasoning to support the government against a policy and process that has been bleeding the country dry as well as stunting the growth of the nation’s downstream sector of the oil and gas industry.

“The money being used in payment of subsidy to these few individuals who are enriching themselves at the expense of Nigeria can be channeled towards other developmental projects, especially the nation’s ailing and dilapidated infrastructures,” he said.

Speaking in the same vein, PENGASSAN’s National Public Relations Officer, Comrade Emmanuel Ojugbana, said the union had always opposed to the issue of fuel subsidy because the money that would have been used to build more refineries and maintain the old ones was being spent on fuel importation.

He said it was shameful for Nigeria, with its huge crude oil resource, to be importing fuel from abroad, adding that the sector should be opened up to more investors.

Ojugbana said: “Fuel subsidy has never at any time been of benefit to Nigerians; we, as workers’ union, we have always and will continue to oppose the issue of fuel importation.

“Because at the end of the day, the money that would have been used to develop new refineries, to maintain the current ones, will have been moved into importation of fuel and it does not help us at the end of the day.”

According to him, since the government issued private marketers the licence to import fuel, it is its responsibility to meet their demand.

“We are taking on the marketers but when permission is given for importers to import fuel, government gave them licence to import fuel, it is for government to pay whatever is due to them,” he said.


Ojugbana stressed that if more investors were attracted into the sector, more refineries would be built to meet the fuel needs of Nigerians.

He said that the workers union had always opposed any issue that would bring hardship to Nigerians, like the current fuel scarcity and had always made its suggestions to government for quick intervention.

An analyst, Mr. Eniwoareke Egbeme, also called for the removal of subsidy.

“The fact is that the Nigerian economy cannot continue to sustain the subsidy on petroleum products. For instance, in 2013, Nigeria spent N832 billion on petroleum subsidy, which is 16.7 percent of the 2013 budget.

“According to the Central Bank of Nigeria, about US$8.46 billion (or N1.35 trillion) was spent on kerosene subsidy between January 2012 and July 2013; amounting to about 153 per cent of the combined allocation to education, health, and agriculture in the 2013 budget,” he said.

President of Lagos Chamber of Commerce and Industry (LCCI), Alhaji Remi Bello, noted that the Chamber appreciated the enormity and dimensions of the potential short term impacts of subsidy removal on the economy and the citizens.

Bello said a review of the subsidy regime would result in increased private investment in the downstream oil sector with a corresponding impact on the creation of quality jobs, reduction in the pressures on foreign reserves, a huge chunk of which is currently being used to fund fuel importation, and better fiscal space to ensure macroeconomic stability with a resultant positive effect on the economy.

Also, oil marketers under the aegis of the Depot and Petroleum Products Marketers Association (DAPPMA) called for the deregulation of the downstream subsector of the country’s oil and gas industry.

DAPPMA Chairman, Mr. Dapo Abiodun, said the downstream sector deregulation would lead to a complete removal of subsidy for refined petroleum products, including kerosene.

He said oil marketing companies had the capacity to import and sell kerosene at reasonable and competitive prices if deregulated.

He said, “Our association has closely been following the Senate proceedings on the issue that touches, among others, on the kerosene subsidy controversy.

“Generally, DAPPMA has for the past 10 years actively canvassed for a complete deregulation of the downstream sector of the Nigerian oil and gas industry with its attendant benefits for the sustenance and growth of that vital sector of the economy.

“If indeed implemented, one of the key features would have been the complete removal of subsidy on refined petroleum products including kerosene.

“We strongly assert that based on our experience with diesel, which was completely deregulated years ago, Nigerian oil marketing companies have the capacity to import kerosene and sell same at reasonable and competitive prices if also deregulated,” he said.

Former President-General, Trade Union Congress (TUC), Comrade Peter Esele, said Nigeria’s fuel subsidy regime is riddled with inconsistencies.

“The issues we need to address are what should be the actual amount of fuel and what is the actual consumption at any point in time? There is no clear cut data to support subsidy approvals. For example, what is the actual consumption of fuel in the country? Consumption level is supposed to differ at certain periods of the year. For instance, consumption level is supposed to be higher in December than in other periods of the year because large numbers of people are moving around, travelling from one point to the other.

“But in Nigeria, especially on subsidy, the consumption pattern is flat, same figure is allocated for December and January, in fact, same figure is allocated throughout the year, without recourse to changes in consumption pattern at certain periods in time. We also need to ask, how much is the actual cost so we can know how much the country is to pay? They said the Federal Government owes oil marketers about N350 billion; how come about this debt? How come we owe this much?

From all this, we can see that there is a lot of scam around the subsidy issue and this should be addressed quickly before it hurts the country. The incoming administration can do a supplementary budget for subsidy if they feel differently about it.”

Also, the Executive Secretary, Major Oil Marketers Association of Nigeria (MOMAN), Mr. Femi Olawore, said deregulation is the answer to the problems associated with the downstream sub-sector. According to him, “The removal of fuel subsidy and introduction of full deregulation of the downstream sector will bring efficiency to the sector and end the perennial fuel crisis,” he said, adding that the perennial cycle of fuel scarcity could be blamed on discrepancies in subsidy payments and delay in the passage of the Petroleum Industry Bill (PIB) by the National Assembly.


Cabal In Subsidy Sharing

The Senate joint Committee on Petroleum (Downstream), Appropriation and Finance recently reeled out the names of oil companies that shared over N3.655 trillion between 2006 and September 2011 in pursuit of importation of refined petroleum products.

The chairman of the committee, Senator Magnus Ibe, also disclosed that some 100 companies in the downstream sector and in construction, shared over N1.426 trillion between January and August 2011 alone.

Oando Oil, Conoil, African Petroleum and MRS Oil are among the powerful players in the petroleum sector that were part of the names given by the committee.

Oando Oil is owned by Wale Tinubu; Mike Adenuga owns CONOIL, Femi Otedola owns AP, while MRS Oil is run by Aliko Dangote’s brother, Sayyu Dantata.  Other key players named include Pinaccle Construction Limited, as well as Integrated Oil and Gas, which is owned by a former Interior Minister, Capt. Emmanuel Iheanacho.

The full list, and their individual haul, as read out by Senator Abe, included Oando Nigerian Plc. – N228.506 billion; MRS –N224.818 billion; Pinnacle Construction-N300 billion; Enak Oil & Gas –N19.684 billion; CONOIl – N37.960 billion; Bovas & Co. Nig. Limited. – N5.685 billion; Obat N85 billion and AP; N104.5billion; and Folawiyo Oil – N113.3 billion.

Others include IPMAN Investment Limited – N10.9billion; ACON – N24.1billion; Atio Oil-N64.4billion; AMP- N11.4billion; Honeywell-N12.2billion; Emac Oil- N19.2billion; D.Jones Oil-N14.8billion; Capital Oil – N22.4 billion; AZ Oil- N18.613billion; Eterna oil- N5.57 billion; and Dozil oil- N3.375 billion.

According to the committee, Forte oil – N8.582 billion; and Integrated Oil and Gas- N30.777 billion were also part of the cabal.

With reference to 2011, the companies named by the Senate and the amount of money they have received this year alone include Otedola’s African Petroleum, N104.58 billion; A.A. Rano, N1.14 billion;  A.S.B, N3.16 billion; Arcon Plc, N24.116 billion;  Aminu Resources, N2.3 billion; Avante Guard, N1.14 billion; Avido, N3.64 billion; Boffas and Company, N3.67 billion; and Brilla Energy, N960.3 million.