By JOSEF OMOROTIOMWAN
In their daily lives, Nigerians must cope with this open
ambivalence – they have oil but they can’t see oil; they have
petroleum, but they have no petrol; they pay for light but they
get darkness. There is no better way to explain what we
mean here than by telling our usual story of the so-called
subsidy on petroleum products in its most elemental form.
Nigeria is said to be the sixth largest producer of oil in the
world. But with mismanagement, what was originally
supposed to be a blessing from God has virtually turned a
curse. At every point, we are either fighting because of the
poor allocation of this resource, or we are crying that some
dubious elements have stolen the total proceeds.
The original arrangement was that as soon as the crude oil
came out from the ground, Nigeria would sell 90 percent at
the spot market, in hard currency. The remaining 10 percent
was meant to be refined for local consumption.
At various times, Nigeria had built four refineries – two in
Port-Harcourt and one each in Warri and Kaduna, intended to
refine different products. These refineries were run aground;
and they are now old and practically comatose.
Because of our lack of refineries, foreign concerns that had
refineries began to pick up, at rock-bottom prices, the 10
percent crude reserved for local consumption. They would
refine the products in their countries and export the refined
products to us at their own prices. By the time the product
returns to Nigeria after its triangular journey, the price has hit
the ceiling and it is no longer within the reach of many. This
is where government steps in to bring in what it calls
subsidy.
Under this scheme, a country like the Netherlands, which
does not have a single drop of oil, is in the Organisation of
Petroleum Exporting Countries, OPEC, as a net exporter of
oil.
The subsidy regime in Nigeria reminds us of two issues –
first, subsidy would have been absolutely unnecessary if we
were doing our own refining in Nigeria. Secondly, the subsidy
regime has been fraught with fraud and dishonesty.
Between 2006 and 2014, Nigeria paid over N7.5 trillion as
subsidy claims. Yet, we are still where we are – the
subsidised products are not available and where they are
available, they sell for prices much higher than the
unsubsidised products. Put differently, we have been
subsidizing fraud.
The subsidy game has been a political one and has not been
played on the rings of economic data; and rather than being
fact-driven, it has been emotion-driven and politically played
by those who use it as a political tool.
Subsidy in itself is not a bad idea. In fact, it is defined in
economics as money paid by government or an organisation
to reduce the cost of producing goods so that their prices
can be kept low. It seeks to reduce the market price of an
item below the cost of production. Government intervenes to
support desirable activities to keep the prices of staple low;
maintain the income of producers of critical or strategic
products; induce investment while reducing unemployment.
Everywhere, subsidy is supposed to be a cushion to enhance
the welfare and well-being of the people. It is an acceptable
practice the world-over.
This writer was in Germany in the winter of 1973, when the
price of oil increased astronomically because of some major
adjustments by OPEC. Many companies would have just gone
under but government quickly intervened with a serious
subsidy package. Among other things, industry workers –
including those of us arbiters who were “pulling gburu” –
were made to work two days a week (eight days a month)
for full month’s pay. That’s subsidy.
If all American farmers were to be allowed to produce at
their optimum levels, food would be surplus and totally
useless everywhere. The American government has had the
practice over the years of paying some selected farmers to
stay at home, not producing anything during the year. That’s
subsidy.
In these places, the subsidy scheme is well managed and it
gets to the target population – the poor. But in Nigeria, the
exact opposite is the case: the real beneficiaries are not the
poor but the middlemen and the rent seekers, contrary to the
argument usually advanced and which has been at the heart
of subsidy’s continuation, that it is pro-poor.
As long as there are long queues in our filling stations, we
are merely compounding the problems of the poor. When
people queue and sleep at petrol stations like refugees,
besides the human degradation involved, you have also
effectively reduced from their sources of livelihood because
the time spent at the stations are wasted. Funds for
infrastructural and human capital development are frittered
away on dubious subsidy claims and payments to about 40
corporate citizens of Nigeria, to the utter neglect of the rest
of us.
Truly, petrol can sell for N40 a litre but things must get
worse before they get better. Subsidy is strangulating us! We
must take the tough decision NOW – tighten our belts and
let subsidy go!
Those middlemen in the current supply chain must go.
Subsidy removal must be approached through what we call
“the blind man and his yam”. If you have to pill the blind
man’s yam, you must keep whistling while you do so as a
sign that you are not introducing the yam into your own
mouth.
Similarly, any substantial subsidy removal must be
immediately accompanied with the rehabilitation and
upgrading of the refineries so the people can see what you
are doing with theirmoney. Once we meet our local needs,
importation will stop. When importation stops, subsidy ends.
The darkest part of the night is just before dawn.
Let’s give ourselves one year to work on the refineries during
which period, as a way of choosing the lesser of two evils,
we shall allow only the NNPC to import petroleum products
directly so that we can know exactly what we are
consuming.
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