As the debate on the planned removal of fuel subsidy by the Federal Government rages, ONYEDIKA AGBEDO brings you an expert's view of how the policy will affect your finances if it scales through.IT had started like a rumour but became very official when on Tuesday October 4, this year, President Goodluck Jonathan conveyed to the National Assembly the intention of his administration to begin the removal of fuel subsidy by January 2012. In a letter conveying his administration's Medium Term Expenditure Framework and a N4.8trillion budget for the 2012 fiscal year, President Jonathan told the National Assembly that 'a major component of the policy of fiscal consolidation is government's intention to phase out the fuel subsidy, beginning from the 2012 fiscal year.'The move as indicated in the president's letter, 'will free up about N1.2trillion in savings, part of which can be deployed into providing safety nets for poor segments of the society to ameliorate the effects of the subsidy removal.'Two days letter, the 36 state governors backed the Federal Government's move at the National Economic Council (NEC) meeting.'One of the most important issues that we canvassed and decision reached was that governors supported the Federal Government's move to remove subsidy because we believe it is to the interest of this country. We will save money for the development of the economy and at the end of the day, we will provide opportunity for the greater number of people,' the Chairman of Nigeria Governors Forum (NGF), Governor Chibuike Amaechi, told State House correspondents after the NEC meeting.Petroleum subsidy means that a fraction of the price that consumers are supposed to pay to enjoy the use of petroleum products is paid by government so as to ease the price burden. The Nigerian government has consistently maintained that prices paid by Nigerians to use petroleum products are less than what they should pay particularly when benchmarked against the prices in the international market. This price difference (the supposed subsidy) has over the years been supposedly borne by the government.Government claims it spends about N72.8billion monthly on petrol subsidy. According to the pricing template of the Petroleum Product Pricing Regulatory Agency, as at August 15, 2011, the landing cost of a litre of petrol is N129.21; the margin for transporters and marketers is N15.49; the expected pump price is N144.70; while the official pump price is N65. This means that the government pays N79.70 as subsidy on each litre of petrol consumed in the country. With about 32 million litres of petrol consumed daily across the country, it also means the government is paying about N2.6billion as subsidy every day, which translates into N18.2billion per week and N72.8billion per month.Nevertheless, economic experts and other stakeholders, believe that petroleum subsidy does not really exist in Nigeria and that removing it would add to the hardship ordinary Nigerians are already experiencing in their daily lives.President, ValueFronteira Ltd, Martin Oluba, a professor of Economics and Finance at SMC University, Switzerland, told The Guardian that government's massive inefficiencies generously feed into the petroleum product-prices which consumers pay.Oluba who is also a Professor of Economics and Finance at UGSM-Monarch Business School, also in Switzerland said: 'No true subsidy actually exists in the context of the Nigerian petroleum pricing. What is true is that government's massive inefficiencies generously feed into the product-prices, which consumers pay. The fraction of costs that is taken-up by the government in the name of subsidy is not even enough to soak up the price increases due essentially to its inefficiency. If indeed a genuine liberalisation of the sector was in place, one would have expected the emergence of many private refineries, which should ultimately make refined products locally available at prices that reflect the advantage we have as oil producers. In the least, one would expect that such prices would not import freight costs.'A recent example and indeed a good case study is that of Niger Delta militants who over the years successfully refined much of the products used in their operations by setting up myriads of very small refineries,' Prof Oluba further explained. 'The successes they had in these respects show that it is possible albeit with some modifications to have lots of refineries. We cannot place any substantial hope in the quick resurrection of the dead government refineries. The evil conspiratorial network, which has worked against the emergence of local refineries so as to enjoy gains from fuel imports at the expense of the Nigerian people, will not give up easily. More so, this government has not proved that it really has the muscle to deal with such networks and in fact corruption generally.'Oluba also flawed government's argument that the removal of fuel subsidy will provide the necessary impetus for the Nigerian economy to find its rhythm. According to him, there is technically no subsidy and therefore, the question of whether fuel subsidy will provide impetus for the Nigerian economy to experience a boom does not really arise.'The economy is under the evil deadweight of Nigerian government inefficiencies sustained by collusive corruption,' he declared. 'The price we are paying for these inefficiencies is high already irrespective of the claims that the direct absolute impact on prices (in the name of subsidy) are borne by government. Examined from another angle, government is only a custodian of community resources and is accountable for this continued inefficiency for which Nigerian community resources are misappropriated. In effect, therefore, the removal of the so-called subsidy will only multiply the economic tragedies that Nigerians are exposed to as a consequence.'He aligned with those who have argued that should the proposal scale through, it would amount to government taking back whatever was added to worker's salary in the new minimum wage, which many state governments are even yet to pay. In his words, 'precisely, the removal of the so-called subsidy will make nonsense of the recent naira additions to the salary of public sector workers in the new minimum wage.'He emphasised that the move would add to the economic pains already borne by Nigerians. 'The removal of the so-called subsidy will greatly aggravate the economic pains borne by Nigerians,' Professor Oluba stressed. 'Transport prices will definitely rise in relative proportions across the country with implications for the prices of other goods and services whose prices incorporate the increased transport costs. The same effect is expected in power generation. Most generators used in this country depend on petroleum products. And as long as our power problem remains unresolved, the high dependency on power generators for electricity will prevail and will continue to put pressure on relative prices. It is important to note that most of the people who use fuel-powered generators for businesses are the low-middle-income Nigerians. This group makes up over 70 per cent of the productive sector of the economy. On the whole, this action if allowed will inevitably delay the recovery of the Nigerian economy.'Thus, it is an economic policy that would affect homes by way of increase in food prices, school fees, hospital bills, and their entire living standards. Businesses would also suffer greatly and those, which may not be able to pass the added cost to their consumers, might be forced to close shop.But government recently said it was working out 'a range of safety nets targeted at different segments of the population to ameliorate the possible negative impact especially during the initial period of implementation.'According to reports, a key component of the strategies being discussed are to encourage the establishment of more refineries. Apart from the refineries, others include the execution of mass public works projects for youths; facilitation of a comprehensive mass transportation system for workers and students of tertiary institutions of learning; building and rehabilitating key roads across the country; building on the progress made in extending the nation's rail network; implementing social programmes targeted at pregnant women, children and the elderly; and improving on the progress being made in power generation and distribution through additional investment.Nonetheless, the question is how long would it take government to achieve these objectives' And how far would the measures touch the lives of ordinary Nigerians who will certainly be hard hit by the policy'Oluba provides the answer: 'The government does not need to remove the so-called subsidy to achieve any of these. These promises are at best in the same mould as some of the promises that past leaders had put forward to consistently remove (inefficiency) subsidies and consequently inflict more economic pains on Nigerians. The government should be more truthful about the rule of law and the fight against corruption. A genuine fight along these lines will improve efficiency and result in the attendant recovery of some of the resources required to attend to some of these promised intentions.''Furthermore,' he added, 'improvements in genuinely fighting corruption will engender the reputation that Nigeria requires to access international financing for some of these projects. Thirdly, do we really need governments to provide the promised infrastructure/project and programmes' A lot of this can and should be taken up by local and international private investors if an enabling environment is provided for same.'To Oluba, should Nigerians allow the Federal Government to foist the policy on them, they have succeeded in digging their own economic graves. 'I do not think that Nigerians should allow this initiative to succeed. It will definitely make things worse for the ordinary people,' he surmised.
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