This “subsidy” non-debate BUT a done deal

t is by now very clear, that come January 2012, our government is going to allow fuel prices to skyrocket in the name of “removing” some political fiction they dubbed fuel subsidy. I say ‘our government’ in the assumption that it still governs, if not exactly for us at least, in our name. We on our part must share the blame for allowing a non-debate to degenerate. The federal and state governments may just escape with a lie, and impose a punitive policy on us.

If by “subsidy” we mean the billions that have been spent on a cabal of importers and their collaborators in Petroleum Products Pricing and Regulatory Agency (PPPRA), the Ministry of Petroleum Resources and the Presidency (since Obasanjo) I fully support its scrapping, punishing the culprits and coming up with a more logical policy for providing this nation with petroleum products. However, at no time was a subsidy ever in place if we define it rationally.

A subsidy exists when a service or a product is sold (or given out) free or at less than its cost price. In our case this was not, and still is not, happening. So let us go back to basics before it is too late. The concession we got from OPEC was to produce 445,000 barrels of crude oil per day to refine (or swap) for our domestic consumption requirement.

The first mistake we accept is to consider the export price of a barrel of crude as our base price. We should not. How much we could have realised if we had exported the crude is false and misleading. The amount earmarked for domestic refining is, legally, not exportable except if we intend to use the proceeds to import our shortfall. The selling price of say US$70 or US$75 dollars is thus merely an opportunity cost. You do not grow yam and then tell your children let us sell the yam, and then buy prepared pounded-yam, because he selling-current price of yam is very attractive. The pounded yam you keep buying would end up costing you more than the amount you realised from selling the raw yam.

The cost price for our calculations should be the amount of money required to bring it out from under the ground (on-shore) or under the sea (off-Shore). According to a our own NAPIMS, an NNPC subsidiary which should know, it costs an average of US$3.5 to find and bring out each barrel of crude oil to the well side, and another US$1.5 to deliver to the refinery gate. So, for about US$5.0 we can get Port Harcourt, Warri or Kaduna to give us refined petroleum. A barrel is 42 gallons (or 168 litres), so we can have crude petrol for N4.76 per litre outside their refinery gates. If we pay them refining costs of $12.6 per barrel, pipeline distribution cost of $1.50 per barrel, distribution margins of N15.49 a litre or $16.58 per barrel (for retailers, transporters, dealers, bridging and administrative charges) we get $35.7 per barrel ($5 +$12.6+$1.5+$16.6) or N34 per litre as the true cost of refined petrol. But our government is charging us N65 per litre and shouting subsidy! Professor Tam David West had argued this before, and recently Izielen Agbon an excellent piece on this matter, which coincides almost exactly with our own analysis with Engr. Ibrahim Ali (one-time Minister of state for Petroleum) and Alhaji I.M. Abba (retired Group executive Director NNPC) which we made available to two of President Yar’adua’s top aides and the then Minister of National Planning. For some reasons the fiction of subsidy is still being promoted from Shagari to date.

Clearly, what is happening is that we have, over the years, been swindled. OPEC gave a concession to the Federal Government to exceed its quota by 445,000 barrel a day to provide for the domestic requirement of Nigerians. But the government, because it finds it lucrative, crippled the refineries so as to continue selling this allocation internationally making a kill while using the proceeds to “import” refine products in a very obscure manner and claim it is even losing money!!

Let us come back to the excuse that we are currently not refining locally, but are importing from abroad and thus have to pay “international market prices”, some strange concept that is used to confuse issues. First of all there is no single price for these items; it depends on the exact specifications of the blend you are buying. PPPRA conveniently selects the highest price for the most exacting blend and puts up that price in its infamous “template” while most of the importers bring in the cheapest, leaded petrol with no special additives. Even the DPR has accused them of lifting from Nigeria, going to the high-seas and returning to claim they imported the stuff and are thus entitled to refund.

It is imperative that we (and especially labour and civil society) force the governments at all levels to sit down and address real issues. What is happening to our domestic crude? How much has accrued from its sales, swaps or contract refining? Who keep account? Why can’t our refineries be made to work? Why are we not building additional ones? Recently someone told President Jonathan some fiction, which he was busy repeating, to the effect, and I quote; “In the last 10 years we have issued 20 licenses to people who wished to set up their own refineries. They have been unable to do so because of government price control mechanism on fuel. Those companies have been waiting on government and now, they are moving to Niger Republic, Chad, Ghana and Benin…” No Mr. President, even at N65 per litre these potential refiners could have realized over 100% margins. They were only seeking for an oligopolistic market where they can dictate prices. In any case these refineries were not set up by those we gave licenses to but by the governments of these countries along with investors they diligently selected.

Sanusi Lamido Sanusi is right to raise the alarm that we cannot continue paying out these extortionist sums to the cabal. But the solution is not to declare an open-season on the price of refined products while giving out some token palliatives. Subsidy should not be construed as something negative. Every nation on earth uses some form of it either in education, housing, agriculture, exports, energy and water for its industry and people. Moreover, have we asked ourselves why only the poor and the marginalized are protesting? If you increase employment and take home pay for the majority, do you think anyone would protest marginal increase in prices?

Labour cannot just keep on saying No, No, and No. It must help articulate a policy that will get us out of importing refined products because we should not go back to our colonial past of exporting raw materials and importing manufactures at ridiculous prices. Otherwise the labour of our heroes past would have been in vain. There is much more to this than the current sterile debate and entrenched positions.