//
you're reading...
Uncategorized

THE FUEL SUBSIDY DEBATE: DOES PRESIDENT JONATHAN DESERVE TO CONTINUE TO RULE? By Femi Aborisade

The most fundamental question, which the discourse and widespread concerns within the poor strata of the Nigerian society over the issue of removal or non-removal of oil subsidy raises, is whether or not President Jonathan deserves to continue to rule? [In this paper, the expression, ‘President Jonathan’ is used as a symbol for both the parties and all public officers from the ruling parties who support removal of ‘petroleum subsidy’]. The question, in my opinion, has gone beyond merely demanding retention of ‘oil subsidy’. The options now are resignation by the President himself or constitutional impeachment by the National Assembly, if the President goes ahead to remove ‘oil subsidy’ without the sanction of the legislature. Where these two peaceful options fail and the President persists in removing ‘oil subsidy’, then the President will be provoking series of mass actions, strikes, protests and rallies that may likely remove him from power. Where the mass actions are temporarily suppressed, it may provide justification for undemocratic forces in the armed forces to seek to strike, no matter how detestable that scenario may appear. Only pro-people governance, which guarantees the welfare of the people can prevent the coming back of undemocratic military dictatorship. If military rule, which is an aberration, appears to be the only way to ensure the security of foreign investment and control of access to oil, in the face of social earthquakes, the so called international community will embrace it. This is the lesson of Nigeria’s history.  Thus, from whichever class’ point of view it is assessed, the continued rule of President Jonathan who is bent on removing ‘oil subsidy’ even in spite of opposition by the National Assembly is capable of endangering the survival of Nigerian bourgeois civil rule, just as it may be the harbinger for a welcome successful popular revolt by the downtrodden.

Any person, any party, any social class automatically loses the right to continue to rule the moment it cannot guarantee the welfare and security of the people. This is the implication of S. 14 (2) (b) of the Constitution of the Federal Republic of Nigeria, which states that the security and welfare of the people shall be the primary purpose of government. Section  16 (1) (b) goes further to prescribe that government shall control the (national) economy in such manner as to secure the maximum welfare, freedom and happiness of every citizen on the basis of social justice and equality of status and opportunity.

The kernel of the argument of President Jonathan is that he simply cannot govern Nigeria without removing ‘oil subsidy’. He is so pathologically committed to satisfying his foreign masters in the IMF and World Bank than serving the interests of ordinary Nigerian folks. He prefers a handshake from the IMF Managing Director, Ms. Lagarde, rather than the full embrace of Nigerian masses. The President acknowledges there will be pains for ordinary people in the event of removal of ‘oil subsidy’, but he throws up his hands in surrender that there is no alternative to removing ‘subsidy’. He declares he is prepared to take the revolt of Nigerian masses rather than retain ‘oil subsidy’. No mature, wise and cautious President of a nation anywhere in the world will so openly and brazenly declare policy war against the citizenry, if elections were truly determining who rules.

President Jonathan is perhaps unaware or prefers to ignore the provisions of Section 14 (2) (a) of the 1999 Constitution, which provides that ‘sovereignty belongs to the people of Nigeria from whom government derives all its powers and authority’.  Instead of listening to the voice of the downtrodden who constitute the majority, President Jonathan prefers to carry out the directive of the IMF and World Bank that ‘oil subsidy’ should be removed. Some undemocratic forces, including some Governors and a few members of the National Assembly are encouraging the President along the path of doom, that he has executive powers to implement removal of ‘oil subsidy’ if the National Assembly does not support it. We need to sound a note of warning: Nigeria is no longer under military dictatorship; Nigeria is under civil rule and no President or Governor has powers to implement a policy that runs counter to the appropriated budget by the legislature.

We contend that the ultimate measure for determining whether or not a policy subsists is not whether it emanates from Ngozi Okonjo iweala, the representative of the World Bank/IMF in the Nigerian Federal cabinet, but whether it promotes or ensures ‘the greatest happiness for the greatest number’. President Jonathan prefers the social Darwinist principle that there is no rationale for government supporting the poor and disadvantaged. If anyone cannot compete and survive, the person may die. The Nigerian masses should not allow the neo-liberal social Darwinist idea to take root in Nigeria. The purpose of government is the protection of the poor and the vulnerable members of the society. Beyond this, there is no justification for the existence of the social institution called ‘Government’. This protective function of government is in the nature of a trust, a contract. As long as this obligation is fulfilled by government, whatever law or policy made by government is binding. However, the moment government fails to protect the wellbeing of ordinary people, then the people have the right to oppose the government and its policies. Such policies automatically lose validity and lack legitimacy, worthy of being observed only in the breach. This is the essence of Section 40 of the 1999 Constitution – the right of association and peaceful action to protect interests. Section 40 of the Constitution is the only constitutional safeguard against governmental tyranny, state terrorism and despotism. It is therefore a constitutional right to protest peacefully. The Nigerian masses will need to reinvent and adopt the elements of the 1776 American Declaration of Independence when the revolting colonies which later on constituted the USA broke away from the suzerainty (hegemony) of Britain declared, inter alia, as follows:

“We hold these truths to be self evident that all men are created equal, that they are endowed by their creator with certain inalienable rights, that among these rights are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive of these aims, it is the right of the people to alter or abolish it, and to institute a new government, laying its foundation on such principles and organizing its powers on such form as to them shall seem most likely to effect their safety and happiness”

 

 

PETROLEUM PRODUCTS PRICING IN NIGERIA AND IMPLICATIONS ON COST OF LIVING

In the theory of taxation, expert scholars have theoretically and empirically found that subsidies on publicly supplied goods and services are ‘negative taxes’. (Newbery and Stern, 1987:531-532). A reduction in the rate of subsidy is an increase in the rate of tax while an increase in the rate of subsidy means a reduction in the rate of tax. Hughes (1987:533) also explains that taxes imposed on goods and services used as intermediate inputs into the production of other goods or services necessarily affect the prices of those other goods and services. These two perceptions of Newbery and Stern (1987) and Hughes (1987) are relevant in appreciating the effects of perennial increases in the prices of petroleum products on living standards, particularly because energy prices affect the prices or profitability of a wide range of goods and services. In other words, reduction or removal of subsidies on petroleum products is not just a tax on petroleum products; it is also an indirect tax on other goods and services. This explains why the conclusion that can be drawn from the continual increases in the prices of petroleum products is that it has undermined the quality of life of the people. It is therefore against all rationale thinking to conclude as the apostles of removal of petroleum subsidy (Mrs Ngozi Okonjo Iweala, Mr. Sanusi Lamido Sanusi, and Mrs Diezani Alison Madueke) asserted that increasing the prices of petroleum products would have little or no effect on pricing structure in the country.

Two tables below are on petroleum products pricing in Nigeria. Table 1 is on petroleum products price changes/litre, 1999 – 2005 (and till date). This table shows chronologically, price changes from 1999 to 2005. The significance of 1999 is that it was in May of that year that the military handed over power to a civilian regime. It could therefore be of interest to want to assess what changes have occurred, positive or negative, between the year of transition from military rule to civil rule and now, in the area of petroleum products pricing. This table is not interpreted in any way; but it could assist the reader to appreciate the momentum of price changes.

The second table (Table 2) is on petroleum products pricing per litre, 1966 to date. It might not be an exaggeration to say that the history of class struggle in Nigeria as from 1978 or 1986/88 till date is perhaps the history of struggles against hikes in the prices of petroleum products. This is because, depending on the amount of increase, it could be predicted that any major increase, would, sooner or later, be met with resistance in the form of mass actions. Though a trend of steady increase can be read from the table, all the price reductions were not effected willingly by the regimes; they were carried out under the heat of mass civil disobedience.

The influence of two variants of liberalism – developmental interventionist tendency and neoclassical liberal tendency – is eloquently reflected in Table 2. From 1966 to 1978, a period of 12 years, the price of petrol remained stable at about 8kobo. This period roughly represented the era of seeing the state as the engine of economic growth. The welfare of the people was, relatively speaking, the concern of the state. It was General Obasanjo who interrupted price stability of twelve years. As from 1978 till date, Table 2 appears to be saying that governance in Nigeria is about price increases on petroleum products. And the reasons successive regimes have been advancing, under the pressures of the IMF/World Bank to justify price hikes are neo-liberal, let the market take control, the need to remove subsidy, the need to cut expenses, the need to deregulate and let marketers import and determine prices, and so on. A key reason that is being used in recent time is that unless the supply, distribution and pricing of petroleum products are deregulated and liberalized, the private sector would be reluctant in investing in the building of private refineries or even buying the state-owned refineries. In the final analysis therefore, all the previous price increases serve to prepare a conducive, profitable ground for the promotion of privatization and private sector interest, regardless of the pains and pangs on the people. The late ‘70s up till date represent a period of neo-liberal induced crisis in petroleum products pricing.

From Table 2, it can be deduced that virtually all the regimes as from 1978, with the exception of the Buhari military regime (1 January 1984 to 27 August 1985) imposed price increases, regardless of type of regime, military or civilian. In other words, despite differences in regime type, they all served and are serving the interest of international capital. Imposition of price increases and ceding position fully to the private sector in the oil industry are also the means by which the international creditors want to be assured that resources would be sapped, not to attend to the welfare needs of the people but to pay external debts. Hence, the $18 billion Paris Club debt relief to Nigeria was predicated upon continuation of privatization and hikes in petroleum products prices, among other conditions.

 

 

Table 1: PETROLEUM PRODUCTS PRICE CHANGES/Litre, 1999 – 2005 (and till date)

DATE

PMS PRICE/LITRE

AGO PRICE/LITRE

DPK PRICE/LITRE
1999 N20.00 N19.00 N17.00
2000, JAN-APR. N20.00 N19.00 N17.00
2000, MAY-JUNE N30.00    
2000, JULY-DEC N22.00 N21.00  
2001, JAN-JUNE N22.00 N21.00 N17.00
2001, JULY-DEC 26.00 N26.00 N24.00
2003, AUG-DEC N34.00 N32.00 N32.00
2003 OCT-NOV N40.50 N38.50 N39.00
2003, NOV 15-DEC N41.00 N39.00 (NOV. 3-DEC)
2004, 4JAN-21 JAN N43.00 N41.00 N39.00
2004, 22-25JAN N41.50 N41.00 N39.00
2004, 26 JAN/30 APR. N41.70 N48.50 N45.00
2004, MAY 1-31 N49.90 N51.00 N49.00
2004, JUN. 11-AUG N42.90 N51.00 N49.00
2004, 1-17 SEPT N43.90 N51.00 N49.00
2004, 18-20 SEPT N43.90 N51.00 N50.00
2004, 21-24 SEPT N53.00 N60.00 N62.00
2004, 25 SEPT/22 OCT N49.80 N63.00 N59.00
2004, 23 OCT/30 OCT N49.80 N64.00 N59.00
2004, 1 NOV-14 DEC N49.80 N65.00 N59.00
2004, 15 DEC-31 DEC N48.80 N69.00 N64.00
2005, 1JAN-31 MARCH N48.80 N69.00 N64.00
2005, 1-5 APRIL N48.80 N60.00 N59.00
2005, 6-7 APRIL N51.40 N60.00 N61.00
2005, 8-15 N51.20 63.00 N61.00
2005, 16 APRIL-MAY N50.60 N63.00 N61.00
2005, JUNE N53.00 N66.00 N65.00
2005, JUNE/JULY N50.50 N64.00 N54.00
2005, August N65.00    

 

 

 

 

 

 

 

 

Table 6: PETROLEUM PRODUCTS PRICING/LITRE, 1966 – 2006 (and till date)

YEAR

PRODUCT

PRICE (AVERAGE)

% CHANGE

REGIME

1966 –Sept. 1978

 

P.M.S.

About 8kobo

Generals Aguiyi Ironsi (16 Jan 1966 – 29 July 1966); Yakubu Gowon (1st August 1966-29 July 1975); Murtala Mohammed (29 July 1975 -13 February 1976)

Oct 1, 1978

P.M.S.

About 15kobo

87.5(Between 1966 and 1978)

Gen. Olusegun Obasanjo (14 Feb. 1976 – 1st Oct. 1979)

April 20, 1982

P.M.S.

20kobo

33.3(Between 1978 and 1982)

Alhaji Sheu Shagari (1 Oct. – 31 December 1983)

1986

P.M.S.

About 40kobo

400(Between 1966 and 1986)

Gen, Ibrahim Babangida (27 August 1985 – 25 August 1993)

April 10, 1988

P.M.S.

42kobo

5(Between 1986 and 1988)

Gen, Ibrahim Babangida

1989

P.M.S.

60kobo

50(Between 1986 and 1989)

Gen, Ibrahim Babangida

March 6, 1991

P.M.S.

70kobo

75 (Between 1986 and 1991)

Gen, Ibrahim Babangida

1993

P.M.S.

N4.125

931.25(Between 1986 and 1993)

Chief Ernest Shonekan (26Aug. – 17 Nov. 17 1993); Gen Sani Abacha (17 Nov. 1993 – 8 June 1998)

1994

P.M.S.

N13.00

215(Between 1993 and 1994)

Gen Sani Abacha

1998 Dec

P.M.S.

N25.00

92.3(Between 1994 and 1998)

Gen. Abdulsalami Abubakar (8 June 1998 – 29 May 1999)

1999 May P. M. S (Petrol).

A. G. O.(Diesel)

D. P. K.(Kerosene)

N20.00

N19.00

N17.00

-20

 

Gen. Abdulsalami Abubakar
2000 P. M. S.

A. G. O.

D. P. K.

N24.00

N19.70

N17.00

20%

3.68

General/Chief Olusegun Obasanjo(29 May 1999 till date)
2001 P. M. S.

A. G. O.

D. P. K.

N24.00

N23.50

N20.50

20

23.68

20.59

Chief Olusegun Obasanjo
2002 P. M. S.

A. G. O.

D. P. K.

N26.00

N26.00

N24.00

30

36.82

41.18

Chief Olusegun Obasanjo
2003 P. M. S.

A. G. O.

D. P. K.

N35. 38

N33.88

N33.50

76.90

78.32

97.06

Chief Olusegun Obasanjo
2004 P. M. S.

A. G. O.

D. P. K.

N42. 79

N53.25

N50.79

113.95

180.30

198.76

Chief Olusegun Obasanjo
2005 P. M. S

A. G. O.

D. P. K.

N50.61

N63.57

N60.71

153.05

234.58

257.12

Chief Olusegun Obasanjo
2006 P.M.S

A.G.O.

D.P.K.

N65.00(since August 2005)

N90.00

N75.00

225.00

373.68

341.18

Chief Olusegun Obasanjo

The following should be noted as far as the tables are concerned.

1.      Percentage differences as from 2000 are calculated against 1999 rates.

2.      The rates for petrol from 1966 to 1998 are as detailed in the book by the late Chief Gani Fawehinmi (2002).

3.      In1989, from January 1 till December 18, two rates obtained – 42kobo for commercial vehicles and 60kobo for private vehicles. It was only in December that 60kobo was decreed for all.

4.      In November 8, 1993, Chief Ernest Shonekan raised the price to N5.00. General Sani Abacha reduced it to N3.25 on November 22, 1993, as aresult of a strike action against Shonekan, which crest Abacha came to power.

5.      On October 2, 1994, General Abacha hiked the price to N15.00 before reducing it to N11.00 on October 4, 1994, under the heat of strike actions.

6.      The price of petrol was increased in June 2007 from N65 to N70per litre but was later reduced to N65 under the heat of nation-wide strike actions.

 

IS THERE SUBSIDY ON PETROL?

President Jonathan claims that there is subsidy on petrol and that it is not sustainable to continue to subsidise domestic consumption of petrol. It is therefore necessary to examine whether or not petrol is actually subsidised.

Government’s claim for the existence of subsidy is as follows. That the selling price of petrol (PMS) per litre is below the cost of production, distribution and the allowable profit margins. Therefore, the subsidy element is the difference, which the government bears.

In order to determine the validity of government claim, we have to answer the following major question with facts and figures: Is the selling price of petrol (PMS) per litre below the cost of production, distribution and the allowable profit margins? To answer this major question, we have to consider the cost elements from the two sources through which petroleum products (and petrol in particular, for the purpose of this paper) are made available in Nigeria. The two sources of petroleum products (particularly petrol for the purpose of this paper) consumed in Nigeria are:

a)       the crude oil refined internally in Nigeria, and

b)      the imported products (petrol), on the basis of crude oil sold or exchanged in trade by barter.

 

On the basis of the two sources of petroleum products for Nigeria’s domestic market, our main question (Is the selling price of petrol (PMS) per litre below the cost of production, distribution and the allowable profit margins?) has to be subdivided into two secondary questions, as follows:

a)     Is the selling price of petrol (PMS) per litre below the cost of production, distribution and the allowable profit margins when we consider the crude oil refined internally in Nigeria?, and

b)      Is the selling price of petrol (PMS) per litre below the cost of production, distribution and the allowable profit margins when we consider imported petrol, on the basis of crude oil sold or exchanged in trade by barter?

 

An attempt will now be made to answer these two secondary questions. But certain facts have to be noted before we answer the two subsidiary questions. They are:

1.      At the Public Hearing conducted by the National Assembly, government officials reveal that 445, 000 barrels of crude oil per day are reserved for domestic consumption.

2.      The local refineries have capacity to refine only 170,000 barrels of crude oil per day out of the 445,000 barrels of crude oil. The Minister of information, Mr. Labaran Maku recently revealed that the 170,000 barrels of crude oil are refined daily as follows: Warri refinery refines 80,000 while the two refineries in Port Harcourt refine 90, 000 barrels of crude oil.

3.      The remaining balance of 275,000 barrels of crude oil (445,000 minus 170,000) are supposedly refined abroad (and products imported into the country), as follows:

a.       Duke oil refines 90,000 barrels of crude oil

b.      Trafigura (Puma Energy), 60,000 barrels of crude oil

c.       Societe Ivoirienne de Raffinage (SIR) in Abidjan, Ivory Coast, 60,000 barrels of crude oil

d.      Other sources (unaccounted for at the Public hearing) 65,000 barrels of crude oil.

4.      One barrel of crude oil gives, among other products, 19.5 gallons or 78 litres of petrol. This implies that the 170,000 barrels of crude refined internally will give 13. 26 million litres of petrol per day (78 multiplied by 170,000) while the 275,000 barrels of crude oil will give 21.45million litres of petrol per day, apart from other products.

5.      The allocated 445,000 barrels of crude oil will give about 35million litres of petrol per day (precisely 34.71million litres). According to Mr. Sanusi Lamido Sanusi, the Governor of the Central Bank, the daily demand for domestic consumption of petrol is less than 35million litres.

6.      The quantity of other products derived from one barrel of crude oil, apart from petrol, include 10 gallons (or 40 litres) of diesel and 4 (four) gallons (or 16 litres of Kerosene/jet fuel, among many other products.

 

We may now begin an attempt at answering the formulated subsidiary questions, starting with the first, as follows:

IS THE SELLING PRICE OF PETROL (PMS) PER LITRE BELOW THE COST OF PRODUCTION, DISTRIBUTION AND THE ALLOWABLE PROFIT MARGINS WHEN WE CONSIDER THE CRUDE OIL REFINED INTERNALLY IN NIGERIA?

The available facts, figures and calculations below show that the selling price of petrol per litre is not below the cost of production, distribution and allowable profit margins when we consider the crude oil refined internally in Nigeria; rather, the selling price is higher than the cost of production, distribution and profit margins, as far as the crude oil refined internally is concerned. Therefore, the conclusion is that the claim that subsidy exists cannot be validly sustained.

The above conclusion is based on the following facts and reasoning:

1.      The total costs of a barrel of petrol, plus allowable profit margins, amount to $35.68

2.      This means that the cost of a litre, plus profit margins, is $0.21 (i. e. $35.68 divided by 168, as there are 168 litres in one barrel).

3.      In Naira terms, at the exchange rate of US$1:N160, the cost of a litre of petrol, plus profit margins, is N33.90 or N34.00, approximately.

4.      At the selling price of N65 per litre, which is higher than N34.00, petrol refined internally in Nigeria is overpriced and there is no subsidy.

 

The full details of the cost elements of one barrel of petrol (from crude oil refined in Nigeria’s refineries), as supplied by Dr. Agbon who is an expert in this area, and which have not been disputed by government officials are as stated below (see <saharareporters.com/article/real-cost-nigeria-petrol-dr-izielen-agbo>) :

1.      Finding/Development cost per barrel,                         $3.50

2.      Production, storage and transportation,                                  $1.50

3.      Cost, up to refinery gate (i.e. addition of  (1) and (2) above  $5.00

4.      Refining cost                                                               $12.60

5.      Pipeline distribution cost                                                        $1.50

6.      Distribution margins (for retailers, transporters, dealers,

Bridging funds and administrative charges, etc                     $16.58

7.  Total cost plus margins                                                           $35.68

The above calculation that shows N34.00 being the cost of a litre of petrol, plus allowable margins tends to be supported by the Petroleum Trust Fund Decree 1994 in which General Sani Abacha statutorily confirmed that the cost of a litre of petrol, plus allowable profit margins, was N5.68, in 1994. The selling price of a litre of petrol was pegged at N11 in that Decree on the provision that the balance of N5.32 was to go into the Petroleum Trust Fund for social amenities and infrastructural development. In that year, General Abacha, under the heat of strike actions, reduced the price of petrol from N15.00 to N11.00. Also, under President Obasanjo, the official Report of the Special Committee on the Review of Petroleum Products Supply and Distribution, published by the NNPC in 2000 showed cost and margins per litre of petrol to be N21.00, even though the summation in the Report erroneously stated N22.00 per litre.

Let us now proceed to answer the second subsidiary question:

IS THE SELLING PRICE OF PETROL (PMS) PER LITRE BELOW THE COST OF PRODUCTION, DISTRIBUTION AND THE ALLOWABLE PROFIT MARGINS WHEN WE CONSIDER THE IMPORTED PETROL, ON THE BASIS OF CRUDE OIL SOLD OR EXCHANGED IN TRADE BY BARTER?

Here again, we contend that facts and figures show that if the proceeds from the 275,000 barrels of crude oil (sold or exchanged in trade by barter for the purpose of refining for domestic consumption) are subtracted from the landing cost and distribution margins, the selling price of petrol per litre is not below the cost of production, distribution and allowable profit margins when we consider imported petrol. Rather, the selling price is higher than the cost of production, distribution and profit margins, as far as imported petrol is concerned. Therefore, the conclusion is that the claim that subsidy exists cannot be validly sustained. It will be fraudulent on the part of government officials not to subtract the proceeds of crude oil from the landing cost before determining whether or not there is subsidy. It will amount to doubling the costs for the Nigerian consumer if the proceeds from the 275,000 barrels of crude oil, out of the 445,000 barrels reserved for domestic consumption, are not deducted from the landing cost.

The above conclusion that there is no subsidy on imported petrol because the selling price is higher than the cost of production, distribution and profit margins, can be further explained as follows:

1.       Let us recall that 445, 000 barrels of crude oil per day are reserved for domestic consumption.

2.      The local refineries have capacity to refine only 170,000 barrels of crude oil per day out of the 445,000 barrels of crude oil.

3.      The remaining balance of 275,000 barrels of crude oil (445,000 minus 170,000) are supposedly refined abroad (and products imported into the country).

4.      The projected price of a barrel of crude oil for 2012 is US$90 (see government propaganda materials as reported in the press http://thenewsafrica.com/2011/12/19/subsidy-evil-day-postponed . Indeed, it could be more than $90/barrel. Any such increase in the price of crude oil in the international market will be a blessing to the country.

5.      A barrel of crude oil, when refined, gives 78 litres of petrol, apart from other quantities of diesel (40 litres) and kerosene (16 litres), and so on.

6.      This means that from one barrel of crude oil reserved for domestic consumption, which is sold for refining externally, there will be a proceed of $1.15 or N184 per litre of petrol. The Nigerian consumer therefore ought to be subsidised by N184.62 per litre of petrol, at the exchange rate of $1:N160. (i. e. $90 divided by 78 litres, which equals $1.15 or N184).

7.      Government claims that landing cost of a litre of petrol and distribution margins amount to about N140 per litre of petrol.

8.      Points (6) and (7) above show that the landing cost per litre of imported petrol (N140) is below the proceeds (N184) realised by government from one litre of imported petrol, when we consider the number of litres of petrol realisable from one barrel of crude oil (78 litres) and the projected price for which a barrel is to be sold (not less than $90/barrel). This difference is N44.00 (N184 minus N140).

9.      The N65 per litre of petrol in Nigeria is considered nothing but a tax. There is no basis to therefore talk of subsidy.

10.  Nigerians should not accept the dubious fiction in the name of facts, which suggests that no value should be placed on the 275,000 barrels of crude oil reserved for domestic consumption before arriving at the so called ‘landing cost’. From the analysis here, any payment for domestically consumed petroleum products ought to go into Trust Funds for social security schemes because from one barrel of crude oil reserved for domestic consumption, which is sold for refining externally, there will be a proceed of $1.15 or N184 per litre of petrol, which is more than the claimed ‘landing cost’.

 

We have shown above that whether we consider the cost components of crude oil refined in Nigeria or the cost components of imported petrol, based on the 445,000 barrels of crude oil reserved for domestic consumption, the argument for petrol subsidy cannot be sustained. If any subsidy exists at all, what government has been subsidising is corruption in the industry. Fundamentally, all the desperate moves to remove so called non-existent subsidy is therefore nothing but concern to fully deregulate petroleum products pricing in order to encourage private sector full scale control of the Nigerian oil industry.

Rather than removing non-existent ‘oil subsidy’ for distribution among different tiers of government and for claimed infrastructural development, what should be done is a determination of the true costs and profit margins by government and all active interest groups. On top of this true costs and margins, the selling price of petroleum products could include additional margins for infrastructural development, social security schemes, including provisions for health, unemployment, education, and so on. This is the approach in the USA. According to articles written by a US-based Nigerian, Ogbeni Lanre Banjo, depending on the particular State in America (where there are 50 states altogether), factored into the price of every gallon of gas/petrol are the following:

  • Federal unemployment taxes, which start from 0.8%,
  • Social security taxes, including medical care taxes 7.65%
  • Cost of health insurance for employees working at filling stations
  • Workmen compensation in case of injury sustained within the premises of the filling station
  • Sales tax of between 5 and 9 per cent per gallon of petrol, etc.

 

If President Jonathan is not just bent on following the dictates of IMF/World Bank blindly, he ought to be more concerned about determining if subsidy actually exists, and if it exists, the true amount or degree of subsidy. For example, several organisations and concerned persons, activists and scholars, including Nigeria Labour Congress, the Trade Union Congress, Joint Action Front (JAF), Femi Falana and Prof. Tam David West, the former Petroleum Minister have expressed certain concerns, which demand answers before so called removal of subsidy can be rationalised:

  • What are the cost elements of refining crude oil in Nigerian refineries?
  • Is it true that subsidies claimed include demurrage calculated before the products leave the exporting country rather than when they arrive Nigeria?
  • Is it true that official audit reports commissioned by the NNPC into importation of petrol show that importing companies tend to present invoices (which run into millions of dollars) to claim subsidy more than once?
  • Is it true that many of the companies awarded contracts to import products, such as construction companies, are not qualified, in terms of not having the required facilities?
  • Is it possible or desirable to arraign all those who have taken contracts to carry out the Turn Around Maintenance (TAM) running into $1.78bn in the last twelve years (Tribune online, Saturday 24 December 2011) without anything to show for it?
  • Is it possible or desirable to carry out a judicial commission of inquiry to investigate operations in the oil industry with a view to retrieving the stolen wealth?
  • Is it more beneficial to import product or to refine crude oil domestically?
  • Are those who have destroyed the oil industry ‘untouchables’ and if so, do Nigerians deserve a government that is incapable of fighting corruption?
  • What is the actual rate of quantity of petrol imported and consumed domestically?
  • What is the actual rate of quantity of crude oil refined domestically and sent abroad for refining?
  • Are the barrels of crude oil sent abroad for refining sold or exchanged in trade by barter?
  •  If the barrels of crude oil sent abroad for refining are sold or exchanged in trade by barter, for what value are they sold or exchanged and in what account is the proceed kept?
  • Is it possible or desirable to, rather than punish the masses by removing so called non-existent subsidy, reduce income inequality in Nigeria by reducing the outrageous salaries and allowances of political office holders, the number of aids, including security votes of the executive arm of government? The latter gulps about N250bn per year for which no account of how it is spent is given.
  • Is Mr. President not due for impeachment for spending over N1.3trillion as at October 2011 in so called oil subsidy, without bringing supplementary appropriation bill, when only N240bn was appropriated by the National Assembly?
  • If subsidy actually exists, what is indeed the true value? The Interim Report on the Process and Forensic Review of NNPC by KPMG affirms that ‘… subsidy over deduction for 2007, 2008 and 2009 was estimated at N2bn, N10.3bn and N16bn respectively’. Should such ‘over-deduction’ not be investigated and those found guilty punished to serve as deterrence?

 

Unless and until the pertinent questions above are appropriately answered in the best interest of the downtrodden Nigerian masses, the masses have a duty to exercise the constitutional right of peaceful protest in defence of their interests. They have nothing to lose but their chains. All over the world, the rich want to die in opulence while keeping the poor in abject poverty. All over the world, the poor are fighting to shake off the chains of oppression; Nigerian masses must not adjust to poverty.

About socialistworkersbulletin

a bi-weekly publication of the Socialist Workers League, in the traditions of International Socialism. we stand for revolution from below! and our call is: workers & youths! unite & fight!

Discussion

3 thoughts on “THE FUEL SUBSIDY DEBATE: DOES PRESIDENT JONATHAN DESERVE TO CONTINUE TO RULE? By Femi Aborisade

  1. This is a lenthy article. Well writen and researched. But I want to correct the continuos allegation that Dr. Iweala is an agent of western institution. She is not. That much has been made abundantly clear by her at different fora.

    Posted by Seyi | December 28, 2011, 1:04 pm
  2. Your draft was well researched but in the end,you confused me by saying that Government should find out the actual cost of refining these petroleume products & if exchanged,at what cost & if by trade by barter,at what value.
    You said all these after you have opined via facts & figures that this is the actual rate & cost at which the Nigerian Govt. Imploy to refine products only to turn around to bring in uncertainties into the factor.I believe the since you based
    your draft on facts,you should have referd the government to your table of facts & figures & to show that you can actually defend these facts when called upon.Rather,you sent the Government into a voyage of discovery.
    My personal opinio.

    Posted by Ozoemena Chidiebere | December 29, 2011, 12:56 pm

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: