Friday, April 18, 2014

The fuel subsidy conundrum (Part 2), By Chido Onumah

Published:

Chido Onumah: Fuel subsidy is a ruse. If we can get our refineries working, we can put an end to this subsidy palaver, and provide employment for Nigerians

I ended the first part of this piece last week by asking on whose side President Jonathan was on the fuel subsidy debacle: the Nigerian masses or his oil-marketers friends? I had barely finished sending out the piece when I read the troubling headline, “Unpaid subsidy: Diezani, NNPC report Okonjo-Iweala to Jonathan”. I shall return to the sordid details of what is gradually turning into an albatross around the president’s neck.

Two weeks ago, President Jonathan had said that “Total fuel subsidy removal is a must”. A few days after that statement, he reversed himself, noting that “Subsidy stays in 2013,” while remaining silent about the prospect of an increase in the price of petrol. There are lots of issues arising from the fuel subsidy imbroglio and there is no better place to start that the president’s own argument.

The thrust of President Jonathan’s argument is that we need to attract investors to the oil sector and the only way to do it is for government to end subsidy so-called and privatize our refineries before they can become functional. Of course, the president’s argument falls flat in the light of current reality. As one commentator noted, “It is not the removal of oil subsidy on petrol products that will attract investors to the oil sector; it is the government having zero tolerance for corruption, fraud, waste and abuse; prosecuting and jailing anyone found guilty of any felony”.

There is very little to add here, except to note that it is not enough for the government to wish for investors; it has to create the environment for investments to thrive. In the last one week, Nigeria has moved from the most fraudulent country in Africa to the worst place for a baby to be born. KPMG, the global audit and financial advisory firm, recently rated Nigeria as “the most fraudulent country in Africa, with the cost of fraud during the first half of 2012 estimated at N225 billion ($1.5 billion). According to reports, the firm’s Africa Fraud Barometer, instituted this year, measures fraud on the continent and assesses the fraud risk that confronts companies (emphasis mine) in their operations. A few days before that not-too-shocking revelation, it was reported that “Nigeria came last of 80 countries researched in a recent study by the Economist Intelligence Unit, as the worst place for a baby born in 2013”.

Do we really need these meddlers to define us? We know Nigeria is one of the worst places on earth to do business. As the Halliburton bribery scandal revealed, even our presidents are not left out of official bribery and the wheeling and dealing when it comes to doing business in the country. So, what investors are we really hoping to attract under the prevailing business environment?

The president referenced Canada as having 16 functional refineries because they are privately owned. It appears when it is convenient for our rulers they make reference to other countries. While the president was on the issue of Canada, he should have talked about Canada’s public health system which provides near universal coverage to all Canadians and is a reference point around the world. He should have also mentioned Canada’s infrastructural advances, social security system, and the fact that working parents are entitled to a  full year of maternity leave. Perhaps, the president needs to be informed that at the height of the US invasion of Iraq after the 9/11 terror attacks in the US, Canadian taxpayers received bonus cheques from their government because the country earned extra oil revenue from the rise of oil prices occasioned by the 2003 invasion.

Let’s forget the Canadian diversion for minute and come back to our own reality. The president says our refineries are struggling to refine at 30 per cent of installed capacity because they are publicly owned. Since we can’t manage our refineries, the way out is to sell them off. But, if there is one thing that has failed woefully in more than five decades of independence, it is the Presidency.  I have yet to hear our rulers make a case for outsourcing the Presidency

There are four African countries, including Nigeria, that are members of the Organisation of Petroleum Exporting Countries (OPEC). Almost all the refineries in these countries are state-owned. Algeria has five refineries. One is run by the China National Petroleum Corporation, while four are run by Sonatrach, a state-owned company. Angola has two. One is run by Chevron Corporation, while the other run by Sonangol Group is state-owned.  Libya has five refineries. All five are state-owned. Three are run by the National Oil Corporation (NOC) while the other two are run by the Arabian Gulf Oil Company (AGOCO).

It seems that the corruption which permeates the oil industry for which some people are making the asinine argument for the privatization of our refineries is the issue here. Just last week, The Nation newspaper reported of “disquiet in the Presidency over a ‘close’ relationship between a serving minister and Pinnacle Contractors Limited, an unregistered  firm which was indicted for N2.7billion ($18 million) phony oil subsidy deals”.

Before this latest revelation, we had been alerted on how subsidy claims shot up from N300 billion ($2 billion) to N2.3 trillion ($15 billion) under President Jonathan. Many of the culprits in that unprecedented pillage are currently trying to plea-bargain their way out of jail. That corruption has rendered the oil sector comatose shouldn’t, for any reason, be a case against public sector-driven oil industry.

But it is not just corruption that has dogged the oil sector and the subsidy business. The confusion and incompetence is mind-boggling. On November 22, Punch reported that “the Nigerian National Petroleum Corporation (NNPC) had alerted President Jonathan  to  a looming acute  fuel shortage  if the Federal Government failed to pay N1.13trn ($7.5 billion) subsidy  owed it (NNPC). “The NNPC top management, led by the Minister of Petroleum Resources, Diezani Alison-Madueke, and the corporation’s Group Managing Director, Mr. Andrew Yakubu, reportedly made this known to Jonathan at a recent meeting,” the newspaper said, adding that the team told the President  that  the Minister of Finance, Mrs. Ngozi Okonjo-Iweala,  had  failed to pay the  debt. Alison-Madueke and her cash cow, the NNPC, hinged their “capacity to continue the importation of fuel on the payment of the debt which had accumulated over the months”.

Interestingly, three days later, on November 25, The Guardian reported that “the Federal Government is apparently set to recover about N1.3 trillion ($8.6 billion) owed it by the NNPC and other multinational oil companies. The newspaper quoted the president at the retreat for new members of the NEITI as saying the recovery task team would comprise high-ranking government officials as well as government agencies that are saddled with either the responsibility of collecting or managing Nigeria’s oil and gas revenue. If you are confused, so am I!

So, what really is the subsidy argument? The government’s position which is self-indicting is that the country cannot refine enough petrol for local consumption because our refineries are not functional. The government has to export crude oil and import refined petroleum products. In an attempt to address the problem, the government set up the Kalu Idika Kalu led National Refineries Special Task Force.

The committee’s report says that Nigeria, with Africa’s third largest refining capacity with its 445,000 barrel per day installed capacity, has only 18 per cent capacity utilisation and efficiency. This contradicts President Jonathan’s claim that the country’s refineries are operating at 30 per cent of installed capacity. What really is the exact figure? According to the committee, Egypt (Africa’s largest refiner of petroleum) with 774,900bd capacity has 81 per cent efficiency level.

The committee also highlighted the massive corruption associated with the Turn Around Maintenance of the refineries which is not surprising. Unfortunately, Kalu Idika Kalu and his team fell into the privatization trap by calling for the sale of Nigeria’s refineries. It is interesting to note that Egypt has nine refineries, with the tenth one under construction. All the refineries are run by the state-owned Egyptian General Petroleum Corporation (EGPC).

Clearly, the subsidy scheme is a ruse. If we can get our refineries working again, we can put an end to this subsidy palaver, provide employment for thousands of Nigerians, create and expand local industries. I agree with Prof. Asisi Asobie that “a government that is transformative should not say it cannot run the refineries; what it can do is to change the way the refineries have been run in the past. The culture and values of doing things must change and the government must find the necessary political will to make that change happen. Cultures and values are the hallmarks of a transformative government and not a government that derives pleasure in creating committees. Committees will not change the country for the better, but taking actions that produce results”.

It is heartwarming that civil society has fired the warning shots against any increase in the price of petrol as we head into the first anniversary of the Occupy Nigeria protests. President Jonathan has a choice: either to allow dubious private businessmen hold him hostage or govern in the interest of the people.

Concluded.

conumah@hotmail.com

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