Why Nigeria can’t remove fuel subsidy – Zakka

Bala Zakka, a public affairs analyst, in this interview with EHIME ALEX, explains the subsidy regime and the Nigerian government’s dilemma over its removal

The Petroleum Industry Bill has been signed into law, but the subsidy policy remains. What are your thoughts?

With the Petroleum Industry Act, which we now have, it is clear that the government is sensitive about subsidies. What is playing out now is a clear demonstration of what some of us have been saying for a very long time – that if activities were going to be carried out, it should be carried out in national interest. Some of us have been vindicated. We have said, Nigeria generates so much revenue from crude oil and gas, but the key thing the country needs do is to be internally domestic and accept its state as a poor and third world country. We needed to also accept that the Nigerian economy is not ripe for running a full capitalist economy, but a pseudo-capitalist economy, because it is too weak. Even the political and economic leaders have sensed that if they go ahead and deregulate, it will create social and economic anarchy. That will not be good for the country because once we get to that level, there will be no governance, but social hostility everywhere.

Our President recently went to Glasgow for a summit on climate change. Now, when we talk about climate change, we are saying that people should not be generating smoke, using firewood and the rest. In the context of Nigeria, you do not want people to use firewood but to move to cleaner fossil fuel like liquefied petroleum gas or cooking gas. Look at the price of cooking gas; it is increasing rapidly because we import most parts of it. And if we are looking at using electricity to escape the former, there is not enough for a population of above 200 million citizens relying on less than 10,000 megawatts. How can we be able to survive? How can we be able to participate in making sure we check climate change? For most of the other countries talking about climate change; petrol, cooking gas, diesel, kerosene and good roads are not part of their problems. When we look at it from this angle, we can say that Nigeria is just trying to key into global vision, while at the local level, we have so many economic problems.

Look at diesel, it is heading to N350 per litre. At that rate, do you expect any industrialist to be able to survive and break even? If we remove subsidies on diesel, how many production companies will be able to break even? Recently, a Nigerian of global repute and President of the African Development Bank, Mr Akinwunmi Adesina, said no business can survive in Nigeria today without the use of generators. What was he referring to? When you have the generator, you will either use diesel or petrol. Government has realised that it cannot remove subsidy from petrol now, else many people will go jobless. In fact, since the Coronavirus Disease started, many people have been operating from their homes, using their laptops and other gadgets to do their jobs. This increases the use of generators because there is no electricity. If we make the price so high now and they cannot afford to pay, what will they do? There is no electricity, petrol or diesel to run their generators because they cannot afford it, what do you think will happen? The next thing is anarchy! I also run a fuel generator as I cannot afford to fuel my diesel generator. Now, imagine what will happen if the price is increased again. I will be among the agitators that will carry placards and be on the road. The government has realised the issues and is looking for a tactical way to ensure things do not get out of hand.

A lot of people keep making the mistake that it should have been deregulated during the time of President Goodluck Jonathan. If it had been deregulated then, are they saying that by now petrol or diesel would have been N100 per litre? So, most of those fake economists, advisers and sycophants trying to advise leaders in government have also realised it, and just do not know what to do. Look at the inflation figures. Minimum wage is still about N30,000 per month. These are problems. By the time you connect all these issues, you will find out that the plan to remove subsidies has done a lot of psychological harm to the economy of the country. If it were to be China that has the crude oil, the country would never sell a barrel out, but process everything and sell the finished goods. If China were to have the natural gas that we have, they would be producing their fertilisers and other things, generating and coming up with all kinds of methanol and selling. They will be generating electricity and selling. So, it is very clear that the government has discovered there would be anarchy, if subsidy is removed.


The new PIA has brought about the incorporation of the Nigerian National Petroleum Corporation into a limited liability company. What are your concerns, as regards unbundling of the NNPC?

First of all, they say there is incorporation of the NNPC, which is almost going to be a private company. That means the accounting will change and be in line with the International Financial Reporting Standard. We would also expect to have a profit-centre and a cost-centre. So, the problem that is clear now is that, like a standard government corporation, in this case the new entity will be after profit maximisation and cost minimisation. Any company that is just after profit maximisation, and cost minimisation do not care what happens to the consumers, but its profit. This is why at every point in time, institutions of government need to be alert and awake to cushion pain. If it is the same government that is trying to create private entities, such that everything will be profit maximisation, then goodluck to them.

A lot of analysts make the mistake of trying to compare the Nigerian Liquefied Natural Gas model with what NNPC is trying to do. It is a completely different model. They do not even have a meeting point. The NLNG is a consortium of oil companies that came together and had a relationship with NNPC. This is how to understand private companies of international repute. In the case of Nigeria, you cannot have a wholly-owned company or corporation and begins to behave as a private company. It is wrong! Every country you go to has a way of helping their citizens. We will just wait and see. Government, by its definition, is supposed to provide goods and services for its citizens. So, if in the case of Nigeria, they want to run everything about their institutions like capitalist nations, time will tell.


The new PIA is expected to bring about major structural changes to the oil and gas industry. How should the approach begin?

We will expect to see structural changes. Yes! I agree because when you say Department of Petroleum Resources, Petroleum Equalisation Fund and Petroleum Products Pricing Regulatory Agency will be scrapped, that technically and practically is a structural change. It means there will be realignment. If you scrap PPPRA, for instance, that means nobody will be coming up with the template of what landing cost and how prices of petrol, diesel and the rest will be. This is like setting the ground for deregulation. When we scrapped that and decided to deregulate, it means people can bring in their petrol, diesel or kerosene at any amount and sell at any cost because they brought it on their own; you did not provide the hard currency, so they could sell at any amount. The only thing the government can do in that area is to ensure that the quality is not compromised. But the Nigerian government will never have powers again to decide how much a litre of petrol or diesel will cost. You can see how an economic tsunami will be triggered in the country.

When you say PEF is going to be scrapped, it is very clear that prices will be different within the same country. The essence of PEF was to ensure the price of petrol, diesel or kerosene are the same across states. When you scrap an agency like that, definitely the prices can be any amount. The same for DPR. The agency issues licences, carries out certifications and checks other things. So, when you scrap it, changes will occur. But our hope is that by the time the government carries out all those structural changes, let it be for the greater good of Nigeria because we are also told that in post-PIB, the staff that will be used to actualise the vision and mission of the new NNPC will be the same people. This simply means they will not be sacked, but there will be horizontal and vertical movement of staff. To that extent, we will wait and see. But one thing that we know and is clear and we will want to advise the government is that in carrying out serious changes like this, we expect that people will be assigned new responsibilities. There is likely going to be knowledge gap. We pray and hope that the chairing committee and necessary government agencies that would be saddled with overseeing everything will come up with a set of training programmes that will help to bridge the knowledge gap of some of the personnel to be reassigned. Definitely, they need to bring in consultants to bridge the knowledge gap of staff to actualise the vision and mission of the new NNPC.


How will the implementation framework for actual deregulation of the oil sector be used to mitigate the impact on ordinary Nigerians?

Let us be honest and practical to ourselves. The minimum wage in Nigeria is less than $50. Anybody that will be talking and comparing Nigeria with policies in the United Kingdom, United States and Canada is using a false template. The inflation in Nigeria today is very high, probably one of the highest in the world. When you look at the investment index of our Gross Domestic Product, people are not investing like before because the business climate is very hostile. When you look at the Nigerian balance of trade today, it is almost heading towards zero and negative. So, as far as GDP is concerned, Nigeria is not looking good. The only thing some of us are going to say is that the government should be extremely careful. If I would advise the government of Nigeria, the first thing I would say is that whatever it would cost us, let us get our refineries working, so that we free ourselves from foreign exchange pressure and make sure we have things to produce internally. China and Japan would not have sold their own crude oil, and many of these countries would have internal sufficiency. That is the best thing I can advise the government, even if it means coming up with death penalty for saboteurs and those who would be overseeing the activities of those facilities like the refineries. After all, in China, public officers caught defaulting are killed. In Japan, public officers on their own will commit suicide because any sabotage on the national economy or facility is a sabotage on all the citizens. And when you go to places like the U.S. Europe and the Americas, what they do is that anybody caught is sent to jail. If anybody sabotages the Nigerian refinery, that means over 200 million citizens have been sabotaged. So, there is no way such a person should not be executed, sent to jail or made to commit suicide.

Let us insist, starting with Mr President, that effective January 1, 2022, any occasion where imported wood or furniture or fabric are used, he should not grace such events. We agree that we do not have many spare parts, yes we can import spare parts and certain other things, not toothpicks or the likes. But the real things, finished goods, if they are imported, the President and his vice, senators and governors should never honour such occasions. If this can be done, I tell you, the economy of Nigeria will boom in no time. It will attract manufacturers into the country, even if it is to come and assemble in Nigeria as they did way back with the likes of Peugeot, Volkswagen and the rest. Let us start from there. Most of the private companies depend on the government, so when the government leads the way, it will happen. It will turn around the economy because that is what China, India, Malaysia, Singapore would do. Why would Nigeria do that?

Ehime Alex
Ehime Alex
Ehime Alex reports the Capital Market, Energy, and ICT. He is a skilled webmaster and digital media enthusiast.

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