27th June, 2023
AN OPEN LETTER TO PRESIDENT BOLA AHMED TINUBU.
Dear Mr. President,
YOUR WITHDRAWAL OF FUEL SUBSIDY BY FIAT WAS HEARTLESS, RECKLESS AND ILL INFORMED!
Those of us who believed that with your experience as an executive governor of Lagos State for eight years, and your much celebrated political sagacity you would run a gregarious administration may have been proven wrong by this, your first act as President!
Without discussion, without negotiation, and without consultation, you decided to withdraw fuel subsidy, thus throwing millions of Nigerians into penury and threatening to throw the whole nation into economic recession.
In your inaugural address, you could have hinted on your determination to look into the issue of fuel subsidy. In that way nobody would panic because no one would be sure how you would approach the issue. After all, it is on record that during President Jonathan’s administration you were hell bent against removing subsidy for petrol, and you only became an advocate for subsidy removal once your political Party came to power.
You could have taken some time to discuss the matter with major stakeholders. You could have looked into the allegations of corruption, inefficiency and waste levied against NNPCL.
Instead of such a measured approach, you dropped the announcement of such a monumental subject on Nigerians in a cavalier manner. It is no wonder that the country is unified against this policy which you presented as if it was a military decree, “with immediate effect”. Nigerian Labour Congress in outrage called it a ” mindless price increase “, and world renowned News outlet, Cable News Network (CNN), on 2nd June 2023 referred to it as an ” off-the-coff announcement.”!
THE DEVASTATING IMPACT OF SUBSIDY REMOVAL.
Every aspect of daily life will be impacted adversely due to astronomical increases in cost of living. The cost of transportation will trigger this phenomenon. Whether going to work or going for leisure, whether travelling by road, rail, air or sea, and whether one is doing it in the privacy of one’s vehicle or whether one is traveling by public transportation, cost of travel will become significantly more expensive. The percentage of income spent on moving around will greatly reduce amount left to spend on crucial sectors such as food and health care.
Within hours of your ominous announcement, pump Price of petrol jumped over 250%, from 185/200 naira per liter to 500+ naira per liter. Danfo buses and other public transport operatives quickly adjusted their charges; demanding 1,500 naira for a one-way journey that would have cost commuters about 700 naira the previous day. An UBER cab trip which cost 4,000 naira on May 28th today costs 17,000 naira. And rushing to BOLT for reprieve is a waste of time. All cost of transportation has become equally prohibitive!
For your information Mr. President, you have not only unleashed economic hardship on your people, but you have set the Nation into panic. You should see commotion of people assembled in their hundreds at petrol stations. Some are drivers lined up to fill their car tanks and others are there to buy jerry cans of petrol for their generators. A similar type of panic buying is going on in the markets. Nigerians are hoarding everything from rice, garri, and beans to milk, sugar and soap, all in fear that the price of petrol, unreasonably high as it is would soon become even higher, and with it a higher price for everything else.
With it a higher price for everything else.’ No income group is spared from hardship. Anyone earning less than 500,000 naira per month will feel serious pain; and that is 80% or more of Nigerians. Consider this; if it cost you 15,000naira for a full tank of your SUV, or medium sized car, you will now be paying close to 40,000 naira. By the time you fill up 6 times in the month half your monthly income is gone on feeding the car. And don’t forget that the generator, whether it’s a tiny ‘I better pass my neighbour’s type or a bigger must also be taken care of. If the middle class person who earns as much as half a million naira is so badly impacted, imagine the pain and anguish of the minimum wage earner making 30,000 naira monthly.
Mr. President, for over 150 million Nigerians who make 50,000 naira or less monthly, this oil subsidy removal, and its attendant increase in cost of living means a choice between feeding the generator with petrol or feeding the children with beans and rice!
THE REAL MEANING OF SUBSIDY.
When governments provide subsidy, they do so in order to reduce the cost of goods or services to their citizens. Generally, government gives the provider of the goods or services an amount of money which the provider of the services or goods accept as enough for him to sell at a price acceptable to the government. This price would be one which the government believes has taken care of its objective; which is to provide a price which would not place undue burden on its citizens.
Government subsidy could be provided to cover cost of food, health, transport, to citizens, or to the private sector to assist with economic development. In the United States, and the United Kingdom for example, government provides subsidy for food through food stamps, health, transportation, as well as to areas of the economy such as agriculture.
The point is governments provide subsidy to citizens in areas which they believe will have a positive impact on most people in the country, and they deploy a percentage of financial resources to such subsidies. For Nigeria, that product which is essential to all, and which impacts virtually every aspect of the economy is Premium Motor Spirit (PMS) , popularity called petrol. And since Nigeria is a major producer of oil and gas, these products have always been available to Nigerian Leaders for the purpose of reducing the cost of living for their people; that is until now.
In reality therefore, subsidy is not a gift which governments give their citizens. It is a sign of good governance which citizens can expect from their government. Americans expect subsidy in the areas of health, food, transportation, and they get it. Nigerians have a right to expect petrol, and gas subsidy and must get it. Nigeria is the 15th largest producer of crude oil in the world, with huge deposits steel underground. Today, Aliko Dangote’s refinery is reported to be the largest in the world. This is the least any government can do here since we don’t enjoy subsidy in other crucial areas such as public transportation, and health care.
The claim that oil subsidy is not sustainable because it is too expensive is untenable, even dishonest. Nigeria is one of the strongest performing economies in Africa. International financial institutions understand our potential in terms of natural resources, mineral resources and human capacity. The economy is resilient, which is why we are able to borrow. ‘And as you, yourself stated in a January 11th 2012 article credited to you, after the bondage to gold was abolished in 1971, ” the ability of a Nation to print currency is not determined by its holdings of gold. The worth of the currency is based on strength of the economy and the amount of money the Nation prints is determined by that strength as well as the Nation’s future objectives”
Additionally, I would point to the ‘debt ceiling debate’. As demonstrated in America recently, a country’s debt ceiling can always be extended in order to cover essential expenditure.
THE CLAIM THAT SUBSIDY REMOVAL WILL BANKRUPT THE COUNTRY IS A SHAM!
There are two dimensions to this claim, and both of them are bogus. The first is that the share volume of cost of subsidy; put at 40billion per day is unaffordable. The other is that marketers’ access to forex puts unbearable burden on the country’s foreign reserve.
The first claim that 40billon naira per day is spent on fuel subsidy is suspect because neither the President as oil minister, nor his minister of state, Silva knows how much oil is consumed in the country, or how much is payed as subsidy. All of them are intentionally kept in the dark by the corrupt NNPCL structure headed by Mele Kyari.
Even if the subsidy amount is that high, the country can, and must bear it because petrol is the life line of the economy. And the more affordable and available it is, the more it is utilized, and the more people utilize the product, the more vibrant is the economy.
Coming out to bail banks with hundreds of billions whenever they are threatened with bankruptcy as the government is want to do is wise economic move. It is also positive economic policy to provide subsidy to large corporations like Dangote PLC. Government should not treat fuel subsidy any differently. It can even be argued that subsidizing availability of oil is more crucial to economic growth, considering that as many as 150 million people are involved in the process of buying, selling and utilization of petrol.
The other allegation that marketers buy up huge amounts of foreign exchange in their course of business is incorrect. Marketers have been paid in naira since NNPCL adopted the Direct Sale/Direct Purchase arrangement. Even before then oil producers were given forex allocations only to cover cost of essential foreign imports such as spare parts, and machinery. Salaries for most of the workers which takes up a greater percentage of operations cost is paid in the local currency.
True, many marketers would purchase foreign currency with profits made from their trade, but that process is available to any citizen. No substantial forex allocation is available exclusively to oil marketers.
Mr. President, you understand the position well as you indicate in your 11th January 2012 article, when you explained that the pressure on the exchange rate and foreign reserve, ” is not a bye product of the subsidy. It is a byproduct of importation” We might add that high exchange rates, and dwindling foreign reserves are also accentuated by the legitimization of a black market popularly called ‘ parallel forex market’. You have promised to abolish this black market, and it would be laudable if you implement this policy.
ARGUMENT THAT SUBSIDY REMOVAL WILL HURT MARKETERS AND NOT THE PEOPLE IS A HOAX.!
After enduring eight painful years of Buhari, Nigerians are prayerful that you have come to bring them relief. In their eagerness to see a better day, they want to believe the misconception that removal of pump Price oil subsidy will create more hardship for marketers and the oil cartel than it would for the consumer. Nothing can be further from the truth. than it would for them, the consumer. Nothing can be further from the truth!
Some members of your administration have since your inauguration advanced this misleading notion.
Minister for Works and Housing, Barrister Raji Fashola tried to explain away your culpability by stating that you were not responsible for the people’s misfortune because Buhari had already abolished the subsidy regime. He failed to add that you had aggravated the situation none the less.
On his part, Vice President Shetima waded into the discussion, positing that your administration must brace itself for attack from angry marketers who would see their profit dissipate with the removal of subsidy. Marketers proved the vice president wrong when they visited Aso Rock and thanked the President for his courage in removing subsidy. They even promised to donate some of their enhanced profit to the new administration’s public transportation initiative.
Your own comment that Nigeria cannot continue to be “Father Christmas” to Niger, Chad, Togo and other neighboring countries sounds impressive, but is essentially disingenuous. You should know that the racket of selling at increased price outside of the country has no impact on the amount of subsidy received by marketers. If the marketers were selling to Nigerians at a higher price than the approved subsidized rate that would amount to an abuse of the subsidy, but selling their extra cargo, to outsiders, after supplying the Nigerian market is a moral offence, not an economic one.
HOW TO ENHANCE THE ECONOMY WITHOUT WITHDRAWING SUBSIDY!
Subsidizing the cost of fuel in an oil producing country where salaries are low is a moral obligation of government. Nigeria produces 1.3 million barrels of crude oil per day. At 40dollars per barrel, this amounts to 52million dollars per day, or 26 trillion naira per day. Assuming that only 70% of crude exported comes back as refined product, (consider that refined crude is worth 17-20 times the value of crude), Nigeria makes about 18 trillion naira daily from oil resources alone. If the Nigerian economy is facing challenges, it is not because the country is poor, it is because of government’s inefficiency in policing corruption, and in protecting the Nation’s assets.
According to NNPCL, it expends as much as 870million naira per month on fuel subsidy. This sounds like a lot of money, but in a 10 trillion-naira economy, it is not that much. Two other points are germain here. Firstly, the 870 million naira spent on subsidy does not disappear into thin air. It goes into the use of oil which also fuels the economy. Secondly, diverting funds from subsidy to develop other areas of the economy as you propose is tantamount to robbing Peter to pay Paul” This is so because what will happen is that one area of the economy has been deprived for another. The hole you leave in one area remains a hole.
Government needs to be frugal, but while saving money in one area, it is pertinent to do other things simultaneously. Here are some suggestions:
(1) Government must diversify its foreign revenue sources to include, bitumen, bauxite, gold, uranium and lithium, among other minerals.
(2) Government must modernize the agriculture sector, and maximize its potential for employment. Previous governments have only paid lip service to this issue.
(3) The country’s economic condition would be greatly improved through devolution of economic powers to States. If minerals which exist within State borders are removed from the exclusive list, States would not require guarantees from the Federal government before securing foreign investment for development of such resources.
(4) Government must intercept acts of corruption within its own structure. Consider the litany of economic and fiscal misconduct in government circles. There are many dimensions to this matter:
Failure to collect outstanding royalties of 62 billion dollars in the Deep offshore and Inland Basing Production Unit from International Oil Companies.
Failure to recover 500 million dollars from government officials who between 2010 and 2022 high-jacked the 500million dollars earmarked for installation of International Cargo System to prevent shipment of illegal goods.
Undervaluing of government assets. For example, Central Bank invested 1.3 trillion naira to revitalize Polaris bank, but sold it for 50billion naira; a shortage of 80 billion naira.
In 2000, government set up the Asset Management Corporation of Nigeria (AMCON) to save commercial banks from collapse due to toxic loans they had issued. To date, the government has been unable to recover these loans from about 370 companies. The amount owed to government is close to 5.4 trillion naira.
Between 2017 and 2022, import duties worth 16 trillion naira have been waived for special friends of government.
A sum of 10 trillion-naira operation surplus which government revealed in 2019 had not been remitted by CEOs of government enterprises and is yet to be collected.
Between 2016 and 2020, The Federal Inland Revenue Service ,FIRS , collected 533.39 billion naira as tax deduction cost. By law, all revenue collected by Agencies of the government are to be paid into the Federation Account. This amount of 533.39 billion naira has not been paid into the Federation Account to date.
In 2022, Nigeria Customs Service withdrew 128.64 billion naira as cost of tax collection. Section 162 of the Nigerian Constitution dictates that all revenue collected by government shall be paid into Federation Account. Nigeria Customs has so far failed to credit the amount to the Federation Account.
Special salaries for top public officers, Senators, House of Representatives Members, State Assembly Members, security votes, and pension for governors are incompatible with economic realities. Security votes paid to governors and other senior public officers amount to about 241billiion naira annually. And how can we justify the fact that Nigerian Senators earn more than their counterparts in America. The country can save billions of naira by a downward review of these benefits to top public servants.
In addition to government’s ineptitude and graft, there are many companies which have contributed to the depletion of the country’s economic resources. Recovering these assets, and preventing these companies from further looting will enrich the National coffers significantly. Following is a list of some of these companies and their nefarious activities.
(5) NNPCL AND CORPORATE COMPLICITY!
In March 2023, Senate noted that since 1992, beneficiaries of over 2 million houses, allocated by government have not been paying ground rent on the properties. Amount owed to the Federal government through this negligence or fraud is put at some 6 trillion naira. The unpaid ground rent across the country is yet to be collected
Under the Petroleum Equalization Fund (PEF), Federal Executive Council approved the sum of 17 billion naira for installation of Technology Monitoring Equipment to track and monitor tankers transporting fuel. NNPCL never bought the equipment and never returned the 17 billion naira to government.
NIMASA lawyers confirmed that between 2011 and 2014, 60.2 million barrels of crude oil was stolen and exported to the United States of America. This illegally exported oil, valued at 12.7million dollars was never accounted for by NNPCL.
House of Representatives investigation confirmed that between 2011 and 2014, crude oil worth about 17billion dollars was stolen and exported to foreign countries. NNPCL has failed to account.
The Nigerian Extractive Industries Transparency Initiative (NEITI) found that between 2009 and 2020, 619.7. million barrels of crude oil mysteriously disappeared under the watch of NNPCL. That stolen crude is valued at a whopping 16.25 trillion naira, i.e. 46.16 billion dollars!
Between 1993 and 2016, Federal government voted through NNPCL about 6.065 billion dollars for upgrade and maintenance of the country’s 4 refineries. No appreciable work was done on the refineries, therefore the contractors are in debt to government to the tune of 6.065 billion dollars.
Between 2010 and 2023, a total of 14.9 trillion naira (3.9 trillion 2010-2014, and 11trillion 2015-2023) was allocated to NNPCL for fuel importation. In addition, NNPCL receives 445,000 barrels of crude oil per day for domestic consumption. Despite this humongous investment, Mr. Mele Kyari, Chief Executive Officer on NNPCL announced recently that Federal Government still owes NNPCL as much as 2.8 trillion naira in fuel subsidy payment. To add to the spurious pronouncements coming from NNPCL, Kyari announced on Arise Television, Thursday 1st June 2023, that ‘increased local production of petrol by Dangote Refinery, Port Harcourt Refining Company and others in Nigeria will not reduce the pump Price of fuel’.
Keep in mind that, NNPCL advised the House of Representatives Appropriation Committee that the Dangote Refinery would be up and running by March 2023 hence there would be no need to make provision for subsidy in the 2023/2024 budget.
Evidently, corruption at NNPCL is monumental and alarming. Former Minister of State for Petroleum Resources, Timipre Sylva described the situation succinctly on 27th March 2022, when he lamented the criminality surrounding NNPCL operations; ” At this rate, I have said if anyone is looking at a criminal enterprise, look no further than the fuel subsidy”. Mr. President it is imperative that you probe the NNPCL establishment, because its egregious operation constitutes an existential threat to the economic progress of the country, as well as to the Nation’s stability!
CONCLUSION AND SUMMARY!
My point, Mr. President, is as follows:
That pump Price of petrol at 500naira or more per liter is not affordable in a country where minimum wage is 30,000naira per month , and where 80% of citizens earn less than 100,000naira per month. Under the circumstances, the price of petrol has been weaponized against at least 150 million of your citizens.
That the amount saved from removing subsidy is not substantial enough to impact the economy.
That on the other hand, the prohibitive price will have a negative impact on the whole economy, because not only people who use petrol to run private motor vehicles and generators will be impacted negatively, but also private businesses. With the increase in price of petroleum products come increase in general cost of living. When people’s spending power is reduced, and companies experience a reduction in their customer base, general economic activity will shrink. This may lead to economic recession.
That growing the economy by bringing other minerals, such as lithium, gold, bauxite, uranium and bitumen, in addition to oil, into the Nation’s resource pool, and by placing priority on agricultural development, the Commonwealth will be greatly enriched.
That if you are able to curb corruption, and reduce waste and inefficiency in major government agencies like, NNPCL, CBN, NIMASA, NPA and FIRS, you will find the trillions of dollars you need to achieve your stated desire of National development. You would not need to balance the budget on the backs of the Nigerian People by removing fuel subsidy.
If you achieve minimal succes in the areas suggested in this letter, you would be credited with helping Nigeria toward achieving its economic potential, and you would have done more for the country than any President before you.
I am,
Yours Truly,
Adetokunbo Pearse, PhD.
Public Affairs Analyst, Convener, Reset Lagos PDP