Experts divided over FG’s move to remove fuel subsidy

A former top member of the Independent Petroleum Marketers Association of Nigeria (IPMAN) has said that should the Federal Government heed the advice by the International Monetary Fund (IMF) on removal of subsidy from petroleum products, a litre of petrol will be sold for over N200.

The IPMAN top notch, who spoke to Saturday Tribune on condition of anonymity, however, said competition could force down the price if the Department of Petroleum Resources and other regulatory bodies properly monitor operators in the downstream sector.

He spoke against the background of IMF’s advice to the Federal Government to remove subsidy from petroleum products as such payment could be deployed to critical sectors of the economy.

“Talking as a business man or someone in the industry, I will say let government remove subsidy and allow the market forces to determine prices. This will remove the huge corruption in the system.

“But again, Nigerians will bear the brunt by paying more at the pumps and we know what the economic situation is today. So, it is dicey.

“I don’t want to sound like a prophet of doom. Minister of State, Ibe Kachikwu said the NNPC was subsiding the products with N17 on a litre. That was before the international oil price jumped up to about $60 a barrel. But now that it is hovering over $70 a barrel, figure out how it will be.

“If subsidy is removed today, a litre of petrol will sell for over N200. But by the time the regulatory agencies do proper monitoring, competition can force down the price,” he said.

The industry player offered what he termed a lasting solution to the problem of petroleum products, calling for the establishment of modular refineries and entrenchment of transparency in the oil sector.

“Going forward, we a need a holistic approach to actually find out how much is spent on importation of petroleum products. You will recall that the IMF said Nigeria is subsidizing inflated products, paying for inflated subsidy.

“I agree with the IMF on this position. If you look at what is happening in the oil sector, partiucalry as it relates to the Nigeria National Petroleum Corporation (NNPC), which is acting as the regulator and the auditor of itself, this does not really go down well with any country.

“As we speak, the NNPC is the only body importing petroleum products. The major marketers and independent marketers and tank farm owners are not importing. Only NNPC does importation and distributes to the major marketers, independent marketers and tank farm owners.

“The cost of landing of all petroleum products is determined by the NNPC solely and it pays itself, calling it under-recovery. I don’t know whch economy can actually survive with that kind of arrangement.

“One would have expected the government of Muhammadu Buhari to take the bull by the horns and ensure the establishment of modular refineries which he promised they would do in his first term in office.

“Only when this is done that we can put a stop to the shady under-recovery or subsidy claim by the NNPC. IMF is sounding a note of warning, that all the money that ought to be used to service other sectors like health and education is being paid to unscrupulous elements under the guise of under-recovery. It is fraud.

“Let the government sit up. There is a lot of fraud going on in NNPC. Do we know the cost of crude production of a barrel of crude oil in Nigeria? I expected the IMF to look in that direction too. Probably because a number of Western countries are involved, IMF is not shinning its light in that angle. If indeed the IMF has the interest of Nigeria at heart, it should expose the rot in this regard too.

“The joint venture owners are mostly from the Western world and the percentage sharing between the FG and them is cloudy. I don’t know what those in government are doing so that this kind of things will not go on. A lot of questions need to be answered.

“There was a time we complained about the template of N145 per litre, the PPPRA template. AT that time, government removed N4 from the template. Nobody blinked an eye. Who was making that money before then?

“There ought to be an agency that will oversee this kind of things. Let it not be the NNPC alone. The powers given to the NNPC are enormous and that is why it can pay its so-called under-recovery without recourse to the National Assembly.

“There must be a body that will determine the true landing cost of petroleum products. If government is serious enough, it can build modular refineries within 18 to 24 months,” he said.

Speaking with reporters in Washington at the ongoing Spring Meetings of IMF/World Bank on Thursday, the Managing Director of IMF, Ms Christine Lagarde, urged Nigeria to establish Social Protection Safety Net to help the government meet the needs of people at the lower cadre of the society.

According to her, about $5.2 trillion has so far been spent on fuel subsidies.

In place of petroleum subsidies, Lagarde called for more public spending being made available to build hospitals, roads, schools and to support education and health for the people.

Minister of Finance, Zainab Ahmed, while responding to Lagarde’s counsel during an interaction with journalists in Washington, had said that “The advice from the IMF on fuel subsidy removal is good, but we have to implement it in a manner that is both successful and sustainable. We are not in a situation to wake up one day and just remove subsidy.

But Ahmed’s position runs contrary to the stand of the government which had at different times either insisted that it was not subsidizing PMS or insisted on not removing it.

In his reaction, Professor Festus Epetimehin of Joseph Ayo Babalola University, Ikeji Arakeji, Osun State, said, “What this shows is that there is so much opaqueness in the nation’s oil business. How can you in one breath say you are not paying subsidy and in another admit that you have to subsidise? If the government is not paying subsidy on fuel, why then did the minister say there would be gradual withdrawal? The government has to come clean on this matter.”

Epetimehin, who is the Dean of Faculty of Social Sciences in the university, opined that the best thing is for the government to allow market forces to determine the pump price of PMS, adding that while that may initially result in high pump price, with the liberalization of the sector, more importers would bring in more fuel and prices would come down.

In an email response to Saturday Tribune, Chief Economist for Africa with Standard Chartered Bank, Razia Khan, said the subsidy regime favours the rich more than the poor and should be removed.

Her words: “If you look at the reasons for fuel subsidy and its economic effects, the subsidy is very regressive because it is a cost on the whole economy. It takes resources away, especially from the poor, and rewards those who consume more fuel.”

The Executive Vice Chairman, Alpha African Advisory, Mr. Mustafa Chike-Obi, believes that subsidy removal is a must because that is the only way its availability and reasonable price can be guaranteed in future.

According to him, “Nigeria must cease fuel subsidy. It may not happen now, or in two years’ time but the citizens will pay higher for petrol in Nigeria like what Americans are facing, sooner or later.”

Another Economist and former banker, Mr. Duke Ohuakanwa, said the subsidy removal is a way of re- distributing income to the benefit of the poor.

He told Saturday Tribune that a visit to remote Nigerian villages will make it evident that this subsidy regime is not benefiting the poor.

“This set of Nigerians hardly travel, and they don’t have generators. What they need most is good road networks and agric subsidy. Their only business is kerosene which is still subsidized but sold at unsubsidized rate to them. No one is calling for mass protest or asking the government questions because the rich hardly use kerosene. When it is removed everyone will gradually adjust.”

Nigeria which produces about 2.3 million barrels of crude oil daily, imports 70 per cent of its PMS needs.

He adds, “America produces more oil than Nigeria. They are now exporting more oil than Nigeria and yet in America, the price of a litre of petrol the last time I checked was about three dollars and a dollar in the official window is three hundred and five naira and three hundred and sixty in the parallel market.”

Chike-Obi, who is pioneer Managing Director of the Assets Management Corporation of Nigeria, further said that Nigeria cannot afford to subsidize petroleum, neither can the country afford to subsidize electricity and “that’s why we don’t have them.

“We are subsidizing electricity and that’s why we won’t have it. If we allow electricity prices to be free, like we allowed GSM when it started, we would have it. We bought sim card for N20,000. Now it is almost free. The way to do these things is to let the rich people pay the high price and because they are paying high price they will get all the electricity they want.

“My point is that we must pay the actual price.  Let those who use petrol, electricity and all that pay the actual prices and we can make more in the long run. But that’s why you need leadership. You need a leader who people can follow in order to enforce this.