Subsidy: Evaluating the N5,000 alternative

The planned phase out of fuel subsidy and introduction of N5,000 as an alternative palliative has thrown up issues of reliable data and transparency in managing such project in an equitable and fair manner, ABDULWAHAB ISA reports

As an oil producing nation, Nigerian government, past and present, has retained the fuel subsidy regime. The logic behind the retention was a noble and sensible decision, given that Nigeria ranks among top oil producing countries. As a product in abundance, it is only rational for Nigerians to have a feel of the commodity’s abundant deposit.

One way of giving Nigerians that sense of ownership is by creating a cheaper and affordable fuel via subsidy regime whose burden is borne by the government. Africa’s largest economy devotes a huge chunk of its annual spending on subsidy to lower the prices of premium motor spirit or petrol. Regrettably, over the years, this noble intention has been intensely abused and corrupted. Today, subsidy is cancerous and unhealthy to the economy. It’s one ailment every administration has had a plan to exorcise. It stubbornly mutates and outlive every succeeding regime.

Corruption, abuse

A recent data by the World Bank put the cost of Nigeria’s government spending on subsidy at N864 billion ($2.1 billion) in the first nine months of 2021. It also added that the cost of petrol subsidy for 2022 could reach N13,000 per person. Apart from World Bank, the International Monetary Fund (IMF) has been vocal and critical of fuel subsidy retention.

The two world financial bodies described retention of the policy as corruption enabler that retards economic growth. They want it suspended and, in turn, channel the fund into infrastructure development like using it to lift health sector facility, upgrade schools and construction of roads. As recent as last week, at the presentation of the World Bank Nigeria Development Update, November 2021 edition titled: “Time for Business Unusual,” the global bank was vehemently vocal.

It reiterated its position, counseling Nigeria to end its expensive fuel subsidy regime within three to six months. In addition, the bank advised that the removal of the subsidy must be accompanied by “aggressive reform effort” that “could contribute more to growth than a sustained period of high oil prices.

“Urgent priorities for the next three to six months, include reducing inflation, improving exchange-rate management, eliminating the PMS subsidy and improving infrastructure,” the World Bank said in the report. The premium motor spirit (PMS) subsidy is eroding Nigeria’s limited fiscal space to provide essential services. The reality and import of fuel subsidy phase out is that it will lead to increment in the prices of the product on which millions of people depend to power their electricity generators for their homes and businesses because of pervasive erratic power supply. Governor of Kaduna State, Malam Nasir El-Rufai, had added his voice to the raging push to phase out subsidy, which, he said, was riddled with corruption.

The Kaduna State governor stated that Nigeria was losing N250 billion a month on petrol subsidies and that state governors were committed to supporting the Federal Government on ending the fuel subsidy regime. Advocates of subsidy phase out maintain that the subsidy isn’t getting to the larger populace of Nigerians. They claim that enlightened, connected a few with access to government subvert the process by skewing it to their selfish advantage and leaving the larger populace reeking in poverty. They claim that these few insignificant number of people divert cheap, subsidised fuel from Nigeria and sell at high market price in other countries. In other words, Nigeria petrol commodity is subsidising neighboring countries.

FG’s position

Government, from all indications, has taken a no-going back position on ending fuel subsidy. This regime is determined to end fuel subsidy regime romance. Sustenance of subsidy costs government trillions in naira. Yet, the palliative option being contemplated by government could gulp an amount higher than subsidy itself.

Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had hinted of government’s plan to pay N5,000 monthly to 40 million deserving Nigerians. The minister, who let out the plan at same Abuja event where World Bank presented its report on Nigeria, explained that the decision was part of measures to cushion effect of removal of fuel subsidy mid-year 2022. “Let me underscore the efforts of the World Bank Group on Nigeria’s Development Update, which the group releases six monthly.

“We appreciate the candid assessment and outlook that the report offers and welcome this level of public interaction to discuss the broader findings of the report as they relate to our economic transformation and growth agenda,” she said. She was optimistic that “the recent developments in the oil sector, such as the Petroleum Industry Act (PIA) 2021, hopefully, the full reactivation of the four public refineries in the country and the completion and coming on stream of the three private refineries under construction in 2022 would significantly boost contribution from the sector to our economic growth efforts.”

“The subsidy regime in the sector remains unsustainable and economically disingenuous. Ahead of the target date of mid-2022 for the complete elimination of fuel subsidies, we are working with our partners on measures to cushion potential negative impact of the removal of the subsidies on the most vulnerable at the bottom 40 per cent of the population. One of such measures would be to institute a monthly transport subsidy in the form of cash transfer of N5,000 to between 30 to 40 million deserving Nigerians.

“We will continue to prioritise investment in critical infrastructure needed to unlock production and supply constraints, to create adequate productive employment and preserve jobs, and to ensure macroeconomic stability and promote poverty reduction and equity. “I agree with the report that with the expansion of social protection policies during the pandemic, government has an opportunity to phase out subsidies such as the PMS subsidy, while utilising cash transfers to safeguard the welfare of poor and middleclass households.

“Towards this end, we intend to accelerate our structural reforms, particularly in the power sector, in governance, in business environment to unlock the huge potentials of the economy, scale up social safety net and deepen financial inclusion to reduce poverty and inequality gaps. We will carefully calibrate the sequencing of these reforms to manage their attendant political fallouts,” she said. At another forum last week, Ahmed was reported as saying that the Federal Government may deduct at least N2.4 trillion from the Federation Account to fund the N5,000 cash palliative that will be handed over to 40 million poor Nigerians after the fuel subsidy is removed next year.

Doubt trails palliative

The N5,000 alternative palliative to cushion impact of fuel subsidy phase out is eliciting reactions. A rough estimate of the planned N5,000 payment to 40 million Nigerains translates to N200 billion monthly. Multiply that by 12 months, it amounts to N2.4 trillion.

The figure is far more compared to 2021 annual N1.8 trillion subsidy figure. Experts, who spoke to New Telegraph, were doubtful of government’s capacity to objectively and transparently conduct the exercise. They spoke of inadequate data as weakness. They drew experiences from a similar past initiatives marred by the ‘Nigerian factor.’ Financial Adviser, Wealth Management Expert, Gabriel Idakolo, spoke his mind on fuel subsidy phase out and the planned N5,000 palliative.

“This measure will have been sustainable if we have adequate statistics for the deserving Nigerians. This will most likely go the way of other good intentions of government that political factors and corruption did not allow to thrive.

“The Federal Government also cannot boast of reliable data to aid disbursement because government has failed to conduct population census which is supposed to be conducted every ten years and the categorisation of Nigerians is mainly done on paper by Nigeria Bureau of Statistics without adequate evidence to back up the claims. In as much as this policy is good but implementation may likely fail on the long run,” he submitted. An Economist and Managing Director of Credent Investment Managers Ltd, Mr. Ibrahim Shelleng, said: “Firstly, my take on fuel subsidy is that it is simply not sustainable and somehow detrimental to the economy. I would rather see government subsidising food.” On the proposed monthly palliative for transport fare, he described it as “absolutely ludicrous and will not alleviate the problem, but rather create avenues for massive corruption.

“These welfare programmes hardly get to those that really need them. There is simply not enough data to ascertain those that need or will get the welfare funds. However, perhaps using the e-Naira, government plans to dole out these funds directly to end users.” A former president, Chief Olusegun Obasanjo, also added his voice to the raging attempt to phase out subsidy. He said Nigeria must commit to generating power from renewable energy and clean carbon-free sources. Speaking at his Otta Obasanjo Library last week at the inauguration of the Olusegun Obasanjo Presidential Library 2MW solar power project in Abeokuta, Ogun State, he said: “Today, I am speaking to you in a facility powered by the sun – solar energy. It is the way of a future Carter envisioned all those years ago. “It will help build the future we want.

The Olusegun Obasanjo Presidential Library solar power project is a reflection of our commitment to clean and renewable energy and is the single largest investment this not-for-profit organisation has made. “As large an investment as it is, it is remarkably cost effective. It costs less than two and half years supply of diesel to power our generators. So, in diesel terms, it pays for itself in less than three years. So, in effect, the electricity it produces after three years is almost at no cost,” he added.

Last line

Fuel subsidy regime is both unhealthy and unhelpful to Nigeria economy, no doubt. Government must think through properly whichever palliative option it wants to adopt. Rather than paying N5,000 to 40 million out of 230 million population, proceeds of subsidy is better channeled into infrastructure and propping up quality of institutions.




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