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Fuel Subsidy Debts: The Way Forward

What is required now is for him to come up with an appropriate blueprint for addressing the problem. We support the position that the subsidy regime should end

President Muhammadu Buhari recently revisited the vexed issue of fuel subsidy debts that have always threatened to cripple the downstream sector of the country’s petroleum industry.

The President did so during a meeting with officials of the Revenue Mobilisation, Allocation and Fiscal Commission, RMAFC, Tuesday August 25, 2015. He condemned the escalation of fuel subsidy payments into billions of Naira in the past couple of years and blamed it on deliberate neglect of the nation’s refineries, oil pipelines and other related infrastructure by past administration so that the fuel import business and the corruption that goes with it would thrive.

Fuel import subsidy has been a nagging problem for a long time in this country. And, as President Buhari rightly observed, successive administrations have been unable to raise the volume of local petroleum refining operations to anywhere near demand for these products in the local market.

In the past also, there has been a lot more of polemics on the rot that has characterised the downstream sector of our oil industry than concrete corrective actions. Local refineries are the best example of the victims of this attitude. Every government did what President Buhari is doing now, that is, providing an accurate prognosis of the situation in the nation’s oil sector.

The emphasis had always been the need to get the local refineries working at a reasonable refining capacity so that fuel import would be minimal and subsidy payments drastically reduced. Unfortunately no government achieved that mission for the country. They applied the obviously wrong approach of attempting to hike pump prices of petroleum products in order to cut down on what government paid to importers as subsidy.

This approach was rejected each time it was introduced because of its attendant harsh consequences on the economic welfare of the people. There was no real and pragmatic approach to make the local refineries work. It is also true, as President Buhari has noted, that some unscrupulous officials took advantage of this situation to defraud the country of huge sum of money.

Subsidy payments were inflated in some cases. There were also payments made to persons who did not import petroleum products at all and were not even in the business of fuel importation. Fuel subsidy payments were, in some instances, used by politicians to settle their cronies.

This was responsible for the bloated figures paid as subsidies. But it is not true as some people have suggested that there had been no effort in the past to stop subsidy payments. We recall that it was the attempt to end the fuel subsidy regime that led to the biggest national revolt against the administration of President Goodluck Jonathan in 2012.

That nationwide revolt crippled virtually all business activities for several days. Government had to bow to the wishes of the people to retain subsidy by reducing the pump price of N141 to N85 per litre. The argument always made against removal of subsidy which is still relevant is that it will lead to adverse economic consequences, especially higher and unbearable prices of goods and services.

It is for this reason that it has always been suggested that removal of subsidy should wait until local refining of products is raised very close or equal to national consumption level. While we agree with President Buhari that past governments did less than required of them to resolve the subsidy controversy, we advice that he should not fall into the same temptation by talking more and doing less about it.

He has said repeatedly that past governments were negligent about pragmatic steps that could have ended the fuel subsidy regime and all the sharp practices associated with it. That point is very well made. What is required now is for him to come up with an appropriate blueprint for addressing the problem.

We support the position that the subsidy regime should end. But it should not be by government fiat. The nation should be prepared gradually for it and this must follow a time-table that is not only implementable but enjoy the confidence and support of all the critical stakeholders.

It must be designed in such a way that it will not lead to fuel scarcity and price hikes. The blueprint should aim at increasing local refining capacity and a gradual reduction in the volume of importation of products. This can be implemented hand in hand with the establishment of new refineries by private sector interests.

What the government needs to do is to encourage such business interests by creating for them an enabling environment to reap dividends of their investments. As a former minister of Petroleum Resources, President Buhari has a good knowledge of the oil industry.

He should avail the sector of his wealth of experience. Faulty policies, corruption and reckless theft of crude oil involving the low and mighty of this country are among the factors that have frustrated our national dream of building a great country from our oil wealth. Buhari should do whatever he can to make this dream a reality.

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