Wednesday, 18 January 2012

Fuel Subsidy: Process, Abuses and Removal

The emotions the fuel subsidy removal have been fierce and had further fueled the misinformation that has characterized its misunderstanding. Nigerians believe that the fuel subsidy is only the benefit they enjoy in the absence of a structured social security system. The removal as announced at the beginning of the month is argued to be an act of government’s insensitivity to the plight of its people.
On the other hand, the Federal Government has been trying hard to convince the very angry populace, including me, that the subsidy is unsustainable and not a judicious utilization of resources, especially when infrastructure and other developments are yearning for the same limited revenue. I returned to the country early last year after 4 years to pursue a post-graduate to realize that we are still we are still at the same level of infrastructural development, if not worse.
Govt says subsidy has also encouraged corruption by certain group of individuals tagged ‘Cartel’ or ‘Cabal’ to cheat the system to the detriment of the people. Nigerians, let’s look at how fuel subsidy works for a moment. It is the difference that the FG pays for the cost of imported petrol and the price of N65 sold at the pump to Nigerians. This also includes the cost of transportation to various parts of the country. The cost of imported petrol is guided by the global market and the volatile international cost of crude oil. As a result, the landing price of the product is monitored by the Petroleum Products Pricing Regulatory Agency (PPPRA) template to ensure parity, while an agreed profit margin is marked up to ensure comfort for the importers.
To help NNPC meet consumption demand, major marketers such OANDO, MRS, AP, Total and others are invited to help with importation as the refining capacity cannot satisfy domestic consumption. The process of allocation and licensing is solely guided by PPPRA. These fuel importers are simply reimbursed for the importation and transportation expenses incurred on petrol imported and sold in their various filling stations. From a contextual premise, the beneficiary of fuel subsidy is any Nigerian who had patronized any service station to purchase petrol at N65. Hence, when the price of international crude oil climbed beyond N100 the Nigeria consumer was unaware.
But the government continues to pay the difference between costs of importation and the pump price which continues to widen as the crude oil prices continued on the ascendancy. While the country enjoyed excess crude revenue, it was using it to fund the growing cost of petrol instead of investing on social and economic infrastructure.
Unfortunately, the process has been abused by a few individuals in partnership with corrupt government officials (who unfortunately are in the majority). A lot of people took advantage of the loopholes to make abnormal profits. However, labeling all major marketers as ‘Cabal’ for claiming what they are due under the subsidy policy is a fallacy of generalization.  This is even an unfair appellation as these companies have had to import with their own monies, pay huge interest rate at the banks prior to government reimbursement.  On its part, government do not pay make the reimbursement on time and this has resorted to a situation in the past where marketers stopped the importation until their outstanding debts were paid. To forestall similar occurrence government then introduced the Sovereign Debt Note (SDN). This misinformation is not only unfair and misleading; it also leaves the companies exposed to public anger. If there are cabals, then the importers that PPPRA granted license and locations without meeting criteria should be unveiled. The NNPC, in the bid to shift attention from its corruption charges, went to town with a list of containing leading oil marketers are beneficiaries of subsidy.  The word beneficiary in this instance almost sound like the over-inflated allowances that the GMD of NNPC was used to, when in actually fact it was a reimbursement of funds that has been incurred on behalf of the FG.
Government needs to adopt a strategic story telling to win the populace and not engaged in unsustainable propaganda messaging. It should be democratic in the commencement of the removal policy. The palliatives should have introduced before removing the subsidy.. The adoption of the above recommendations will reduce the negative perception and rating of this administration. Only government can put its own house in order. 

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