MIS Advisory Finance News

07
JAN
2012

Subsidy Discussions. And not Emotions pls! - by Ayo Olowookere

In taking an objective position on the fuel subsidy removal issue, I tried to work out the 2 possible thought processes:

Thought Process 1:

-       On coming in May 2011, the FG did a comprehensive infrastructure audit and ascertained the need/ gap

-       The FG had a brainstorming session on how to finance the needed infrastructure growth

-       Removal of subsidy on PMS surely comes across like the only practical way

Thought Process 2:

-       The adoption of the N18k minimum wage leaves the States with very little to put into private pockets

-       There’s desperate need to shore-up this gap

-       The FG and the Gov’s Forum had a brainstorming session and agreed that subsidy removal is it

My opinion: The real reason for the subsidy removal is “Thought Process 2”. Taking a good look at the proposed distribution and utilization of the “saving” from subsidy removal, will tell you why.

 

Sharing the N1.13 Trillion annual subsidy booty

      I.        FG – N478b per annum (42%)

    II.        States – N411b per annum (36%)

   III.        LGs – N203b per annum (18%)

  IV.        FCT – N10b per annum (1%)

    V.        Derivation/ Ecology – N31b per annum (3%)

 

§  It is always good to start from the beginning – We have a deficit budget even without provisioning for subsidy. This means the Govt will borrow to fund the N1.13 billion plan every year. Yes, borrow!

§  55% of the funds will go to the States & LGs and this will not be monitored by anyone or committee. It’s just extra slush funds for everyone. Best case is; it will be spent on recurrent expenditure.

§  Even the distribution to the States looks kind of funny. Lagos state (consumes over 30% of PMS consumption) gets approx.. N830 m per month (the same as FCT and not enough to do a standard 1km JB road with drainage) while the likes of Akpabio, Uduaghan and the other chap in Bayelsa, on the average, pockets approx.N3.3 billion every month ( times four of what Lagos gets!).

    What the FG should know and do now

§  Firstly, please pay as enough attention to insecurity and terrorism. The continuous existence of this nation and security of lives and property are far more important than fuel subsidy removal.

§  Most of the 160 million people in Nigeria do not trust your Govt. Look at it this way: You have given them no reason to anyway. Since you have confessed that you can’t fight the cabal ripping us all off, how are we sure you can fight the new set of cabals that will want to circumvent the subsidy savings.

§  You should have actually dialogued with the stakeholders. That is what Governance is all about.

§  On a serious note, do endeavour to carry out an audit of the real consumption and determine what the real “saving” should be. (It’s true that most of the 35 million litres is the supply figure and includes what goes to Niger, Chad etc)

§  Sort out our refineries and build new ones. Maybe spend the whole N478 billion in the 1st Year on this. It makes more sense than buying 1,600 buses for the 774 LGs. With our refineries working, we can be buying at less than N100 per litre, cos we don’t need to pay the N30/N40 cost of importation and related charges on each litre.

§  Show some discipline, seriousness and also sacrifice. Just the same way you are telling us to do. Cut down your costs!

§  Subsidy is not poisonous as wrongly painted by the World Bank Economists and book analysts. The US still subsidizes (health care, jobless claims, farm inputs) to the tune of trillions of dollars every year. As well as the UK (NHS, Transport) and other Western nations.

§  And please, stop running this country on an ad hoc basis. The palliatives, planning and utterances are at best, laughable.

      The Questions you should not ask me:

§  Is there anything wrong with phasing the subsidy removal?

§  Is deregulation all about removal of subsidy? What about the PIB (that alone can create thousands of job)?

§  Why is the DPK (kerosene, aviation oil) still subsidized? Are there no cabal working in that sphere?

§  Is SLS really telling us the truth when he said inflation will still be around 12% by Q4 2012? Or should we take him to Bishop Oyedepo?

   Conclusion

Sometimes, timing is as good as taking a step at all. Removing subsidy now is like having   my younger brother in JS3 start discussing marriage plans. That said, I have a bad news and a good one.

The bad news is; Govt will not reverse on subsidy. Few days of strike. Some lives lost in the trenches. And we are back to normal.

The good news; even if you don’t win, it is good to fight anyway. And we would have buried the issue of subsidy or no subsidy for good.