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Energy And Power Crisis In Africa’s Largest Economy: Keeping It Simple

Subsidy on gasoline is the Nigerian government’s social security payments to its citizens in a country where there is no medicare or medicaid for health care, no unemployment checks to those unable to find work or retired with no pension payments upon retirement

Jude Fejokwu

Nigeria’s economy pretty much ground to a halt two weeks ago due to scarcity of diesel and gasoline for use in generators and motor vehicles. Diesel and gasoline are two major byproducts of refined crude oil of which Nigeria is Africa’s largest exporter. Angola is the second largest exporter and its foreign reserves have hit the $25 Billion mark while Nigeria is currently at the $29 Billion mark. Let us start with Energy while I try to be succinct.

Nigeria imports refined petroleum products despite having four refineries which are largely in a moribund state and always undergoing Turnaround Maintenance whenever you inquire. Major downstream energy players will tell you they import all their supplies and/or buy from third parties like the Nigerian National Petroleum Corporation (the equivalent of Petrobas in Brazil.) When did the refinery consistently work that it is always undergoing repairs? Question for the gods as they say. Economists want a quick fix to the situation and has proffered many a time for the subsidy on gasoline in Nigeria to be removed as it is wrongfully enriching some gasoline importers and is expending scarce funds with high opportunity costs.

The funds saved from subsidy payments could then be channeled into appropriate areas like infrastructure and health etc. Nice academic reasoning… I disagree with the removal of subsidy on gasoline at this time for the following reasons: 1. It is a knee jerk reaction to a chronic problem in the energy sector. All four existing refineries should be fully repaired and working before the subsidy on gasoline is removed. I equate removal at this time to a shortterm fix to a long-term problem.

I am looking at the bigger picture here as it relates to the citizenry and economic pursuits. Why should the government want to burden its citizens directly with subsidy removal at this time when it has not been able to refine crude oil locally at optimum levels which, will stop importation anyway or keep it to the barest minimum at the very least? When a government keeps using its citizens as means to an end for perennial problems instead of taking responsibility, frustration, redundancy (not a synonym for unemployment) and inflation picks up in the economy.

The first two are not readily monitored or discussed by economists . 2. People keep talking about foreign reserves depletion and the need to remove the subsidy so as to stop the depletion of foreign reserves on dollar payments for refined gasoline and diesel. I understand this. My question is why not do an exchange for physicals instead of cash. Nigeria has crude oil, the refineries outside the country sell gasoline and diesel (among others.) We export crude oil to these refineries (not to be refined) as payment for refined gasoline going in the opposite direction. The amount of gasoline available in one barrel of crude is known. The price of crude oil internationally is monitored daily. An exchange for physicals ratio is established for a shipment of refined gasoline for equivalent barrels of crude that will net out cash payments. There may be fractional situations that need to be paid for in cash which is fine. It is time to bring in the Power part of the Equation: 3.

More gasoline and diesel is used by the residents of Africa’s largest economy to provide power to their homes and offices than to drive their motor vehicles. The need for all day, every-day power is a necessity before subsidy on gasoline is removed. People spend more of their money on gasoline to fuel generators than to drive cars. If this is removed from the equation, by my estimates, the savings will be more than enough on average to pay for gasoline into cars only at market rates. Residents are spending money on gasoline and diesel for a need that should not be applicable in any country in our world of today: self-provision of power.

Why does Nigeria keep exposing more of its economy to the vagaries of the Energy industry? Lack of gas supply to power plants is now the number one reason mentioned by power generating companies as to their inability to produce the required MW based on the capacity of the power plant. Reasons such as differential pricing and vandalism of gas pipelines readily come to mind as to why power plants do not get enough gas in a consistent pattern. Must we only use power plants to generate power in Nigeria? Why not wind?

When I was in Germany, all I saw along my journey were wind turbines across vast lands turning in the wind and generating power for the country. Clearly in my opinion, vested interests (diesel suppliers, generator sellers, downstream players wrongly benefiting from gasoline importation) do not want all-day every-day power in Nigeria (a country of 180 million.) My cursory check tells me that no country with a population larger than Nigeria has the kind of power supply crisis that we have. In other words Nigeria is the most lucrative market for generator manufacturers in the world.I need to close it out as my time is limited.

The economists should not forget that Nigeria does not have a social security system like here in the United States that provides unemployment checks (American spelling) if you are fired or laid-off from your job for all its eligible citizens and residents. A similar scenario applies in Germany (greetings to my German friends.) My point here is that these countries find a way to subsidize the have-nots from the haves. Government money is spent to ensure that its citizens and legal residents do not suffer untold hardship due to no means of livelihood or earn an annual income below the poverty line as determined by the country in question. This is a form of subsidy which at the end of the day helps its citizens live a life where their basic needs can be met.

Nigeria does not have this form of assisted living for its citizens. The only assisted living for the people of the country is paying for gasoline at below market prices while the government covers the real differential. This may very well turn out to be truly cheaper than providing monthly payments to the unemployed and families which should exceed $12 Billion a month if sixty million people are covered and are paid the local equivalent of $200 a month. Suddenly, gasoline subsidy becomes a cheaper option even with the corruption. I do hope and expect the leakages to be found and plugged.

I also advocate for crude oil to be used to pay the foreign refineries and not dollars. Subsidy on gasoline is the Nigerian government’s social security payments to its citizens in a country where there is no medicare or medicaid for health care, no unemployment checks to those unable to find work or retired with no pension payments upon retirement. This happens a lot in the informal sector of the economy which ironically is where most of the population is gainfully engaged. Most of the Economists speaking loudly against fuel subsidy are based in London, Paris, New York etc. The countries where these cities are located, provide for their people in need to an admirable extent. Nigeria does not; the subsidy is all the people have.

Behavioral economics has not yet found a way to measure frustration and neglect of the populace. Its impact on any economy cannot be adequately captured by any model no matter how fancy it looks. The people have borne enough suffering; do not take away their last card yet. The government has other cards to alleviate the negative impact of the gasoline subsidy on the economy as enumerated above. Play these cards instead of taking away the last card of the people. Developed nations do not subsidize gasoline, but, they do subsidize their citizens through some of the ways mentioned above among others.

Fuel subsidy is Nigeria’s way of subsidizing its citizens as more advanced economies also do. Let it be for now. Babies must be carried until they start walking; after they start walking, it becomes optional to carry them. Imagine forcing a baby that cannot walk to try to walk before its time; I call this torture. When Nigeria starts walking (in this context of power and energy,) then, the subsidy on gasoline can be removed unless, the government wants to torture most of its citizens and residents. The outcome on Africa’s largest productive economy and the people is better imagined and not felt.

•Jude Fejokwu, Senior Africa Analyst, wrote in via thaddeusinvestments@ gmail.com

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