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Fuel SubsidyRemoval Crisis: An Overview

By Dr Bukar Usman


The most surprising thing about the wholesale fuel subsidy removal announced by the Petroleum Products Pricing Regulatory Agency (PPPRA) on January 1, 2012, was that it was contemplated at all. The second surprising aspect of the entire drama was that the removal became so urgent a policy thrust that government could not wait for the year-end holiday season to pass but was compelled to announce it on New Year day! This overview, in appraising the many issues thrown up by the crisis, hopes to identify policy areas which require urgent attention to ensure that the gains of the crisis are maximized for the benefit of the people.

    From about N141 per litre pegged by the PPPRA on January 1, 2012 (thereby abolishing the then prevailing price of N65 per litre), the pump price of "petrol" was reduced by President Goodluck Jonathan, fifteen days later, to N97 per litre. It was a welcome relief, although none of the nationwide protesters was relieved enough to thank the president or the labour leaders who capitulated without achieving the set goal of making government revert to N65 per litre.

    Indeed, many protesters were disappointed by the Nigeria Labour Congress and the Trade Union Congress (NLC/TUC) decision to call off the strike. Their explanation that they would press further for their demands to be fully met through the forum of the committee chaired by former Chief Justice of Nigeria, Justice Alfa Belgore, impressed very few people.

    I think both government and the protesters should take solace in the fact that each side got 50% of what they had wanted. But beyond this compromise is the floodgate of open enquiries into the hitherto secretive goings-on in the downstream sector of the petroleum industry. This, for me, far more than the "palliatives" and the SURE promises, is the greatest achievement of the mass protests. And I hope the enquiries, especially that of the House of Representative committee chaired by Hon. Lawan, should be carried out to its logical conclusion and the findings made public.

    The public began it all and deserves to know the findings unearthed by its representatives. While it was labour which initiated the protest, it developed into a mass protest as non-wage earners equally participated while other interest groups expressed solidarity with the labour cause. Some saw the protest as their round of "harmattan" protest akin to the "Arab spring."

    Such was the far-reaching impact of the protest! It afforded Nigerians the opportunity to vent their pent-up feelings and for government to feel the pulse of the people from whom it appeared to have alarmingly drifted within so short a time after the general elections. Otherwise, how did a civilian administration imagine it would succeed in pushing through a one-time, wholesale removal of fuel subsidy, a long-standing temptation even past military administrations were sensitive enough to avoid? It was mere upward adjustments of the pump price of "petrol" that elicited serious protests in the past. What made the state and federal governments appear so insensitive this time around?  

    The question is: what pushed us to this subsidy removal crisis. Looking back at the road leading to the fuel subsidy removal policy would help us understand where we are coming from and where we might be headed. It has become even more compelling to so reflect in view of the recent accusations and counter accusations as to who was responsible for the policy. For sure, it was a government decision and not an individual's. But that would not explain it all. How did the idea of subsidy removal come about; and how did it crystallise as a compelling policy of government?

    Before the subsidy removal, government had dropped the hint of its intention to remove fuel subsidy, estimated at N1.3 trillion for the period January-August, 2011. It followed up by entering into discussion with various interest groups, including Labour which quickly indicated its intention to oppose it. Socialist-oriented, Labour had taken such principled stand over SAP and the on-going deregulation of public enterprises.

    The first hint that government was determined to remove fuel subsidy emerged when it submitted to the National Assembly the 2012 national budget without making any provision for the subsidy. This put Labour, the civil society and, indeed, the entire nation on the alert. But since government gave the impression that it was committed to its on-going consultation with interest groups on the matter, all adopted a wait-and-see approach.

    Following the decision to raise the national minimum wage to N18, 000 per month, about the middle of 2011, state governors, fresh from elections, raised issues with the federal government about their inability to meet up with the financial burden of the new wage bill. They asked for an upward review of the revenue allocation formula or some other source of money to augment their revenue.   

    They also raised issues about "illegal" deductions from what was due to them from the Federation Account and, in protest, refused to come forward to collect their regular allocations on at least two occasions. They further objected to the Excess Crude Account (ECA) and the Sovereign Wealth Fund (SWF) which affected the quantum of money in the Federation Account available for distribution to all tiers of government. 

    With some dialogue, the governors somehow patched up their differences with the federal government. The SWF which was already signed into law would stand while money in ECA would be transferred into the SWF after some were released to the states. In effect, ECA gave way to the SWF with hopes raised about more money coming from the fuel subsidy removal. Meanwhile, the implementation of the minimum wage was stalled, with some states making some token gestures, here and there, amidst threats by the labour unions to embark on strikes to back up their demand for immediate implementation.

    All these took place under the tense atmosphere of continual Boko Haram attacks in some parts of the federation, resulting into massive destruction of lives and properties. There was widespread panic when the group ordered some religious groups to relocate from their normal places of abode. Towards managing the crisis, government announced the imposition of state of emergency in some affected local government areas in Borno, Yobe, Plateau, and Niger states.

It was against this background that the public received the shocking announcement on January 1, 2012, that fuel subsidy had been removed. Most Nigerians were still in holiday mood and had travelled to various places for the holidays. Suddenly their calculations for the cost of their return journey to their destinations were thrown into disarray as prices of goods and services immediately shot up, with some prices doubled or tripled to match the percentage of the subsidy removal.

    Labour was immediately up in arms. Within a few days, it put its scheme in place and commenced strike with effect from Monday January 9, 2012. As at January 14, the strike had entered its 5th day with government and labour yet to arrive at an amicable solution. The Senate President, Senator David Mark, turned out to be the honest broker between the executive arms of government and labour while the president walked a tight rope ensuring that he carried the governors, the formidable power brokers and international creditors who favoured zero subsidies, along. 

    The protests and measures taken by government to forestall or abort the labour-led mass protests brought out the worst and the best in both parties. That government waited till Friday to move an ex parte motion leading to the National Industrial Court order stopping a strike that was scheduled to start on Monday was very curious, to say the least. Conveniently, too, labour claimed not to have been served with the order, and went ahead with the strike.

    The use of the security agencies, particularly the police, resulting into deaths, here and there, inflamed the situation. In some states, curfews were imposed to check violence. Public servants were ordered to resume work or lose pay. Labour replied with "work-to-rule" threat.

    Having come under heavy barrage of protests against what had turned out to be an unpopular policy, government officials embarked on the blame game. The Minister of Finance and Co-ordinating Minister of the Economy, Mrs Okonjo-Iweala, tried to absolve herself, stating that the decision to remove oil subsidy was taken before her arrival into the country. She pointed to the state governors as being the catalysts. Governor Babangida Aliyu of Niger State, on his part, kicked the blame ball in the direction of the Governor of Central Bank, Sanusi Lamido Sanusi. Some ministers placed the burden on the Minister of Petroleum Resources, Mrs Alison-Madueke, who was alleged to have given the final directive to PPPRA to make the subsidy removal announcement on New Year eve. The Petroleum minister maintained that it was a "collective decision," in other words, the collective responsibility of the federal executive council members.

    There were also denials over accusations that, in removing the oil subsidy, government was merely implementing World Bank/IMF programme. The visit of the IMF Managing Director to the country shortly before Nigeria took the final decision on the subsidy removal tended to lend credence to this belief. But Izielen Agbon, in his article, "IMF and ‘Fuel Subsidy' Removal" (The Guardian, Jan 12/13, 2012), amply traced the conception and crystallisation of the fuel subsidy removal policy to documents prepared by high-ranking IMF officials dating back to 2002.

    Some of the documents include IMF Working Papers 02/140, 03/42, 06/247, 07/71, IMF Public Information Notice (PIN) No.08/135 and IMF Staff Position Note 10/05 all of which were debated in Washington and at the G-20 meeting before adoption as a policy for implementation.

    Reportedly, in IMF Public Information Notice (PIN) No. 08/135 of October 10, 2008, the IMF and World Bank pushed for the adoption of their fuel subsidy removal policies in the September 2009 G-20 leaders meeting in Pittsburgh, USA. The G-20 supported fuel subsidy removal world wide, calling on the International Energy Agency (IEA), Organisation for Petroleum Exporting Countries (OPEC), Organisation for Economic Cooperation and Development (OECD) and the World Bank to provide an analysis on the scope of the energy subsidies and suggestions for the implementation of the initiative.

    To advance their price-gap methodology campaign, and using Nigeria as a test case, IMF officials, as far back as 2003, prepared a paper which developed policies ‘'to stop any strong protest and social unrest after subsidy removal.'' Further IMF policy papers developed similar strategies aimed at selling the bitter pill to make it palatable for interest groups to swallow.

Agbon, earlier mentioned, had pointed out that ‘'in 2011, the Federal Ministry of Finance carried out a review of the economy based on the IMF price-gap methodology. The Federal Government insisted that the fuel subsidies must be passed on to the consumers. It advocated fuel subsidy removal and the implementation of the IMF plan."

    Part of the IMF plan was the necessity of a proper management of the pre- and post-subsidy removal publicity. It was apparently that plan which inspired the various publicity stunts generated by the NNPC, the Ministry of Petroleum Resources, the Federal Ministry of Information, state governors and establishment NGOs.

    According to Agbon's research, even the much-promoted Subsidy Reinvestment and Expenditure Programme (SURE) of the federal government was not home-grown. It was IMF-inspired. For sure, SURE shares the same origin as the Structural Adjustment Programme (SAP), Millennium Development Goals (MDGs), and the SWF. Such terminologies point to their external roots in today's global village in which some transnational organisations and foreign powers lord it over others. SWF and the fuel subsidy removal especially are programmes primarily targeted at OPEC member countries to recycle their enormous petro-dollar, a task     

    OECD was charged with by the West since the energy crisis of 1973.

It could be seen that the formulation and implementation of fuel-subsidy removal was scripted over a long period of time at the IMF and in Nigeria. Considering her exalted position in the World Bank, a major player with the IMF in shaping the economies of developing countries and the world, it would be difficult to accept Mrs Okonjo-Iweala's claim that she had no prior knowledge of the policy or that the IMF has no connection with it.

    It was a well-packaged policy which was poorly executed because the product was unsalable. If subsidy-removal as a concept is such a worthwhile policy, why are some developed countries, notable for administering heavy subsidies to their people, not adopting it even when such countries are currently known to be facing serious budget deficits? Some of those countries for decades subsidised farm products, such as wheat and butter, and are still doing so with no sign of discontinuing.

    If you discount the corruption which bloated the actual subsidy amount, fuel subsidy may not be the heavy burden the government wants Nigerians to believe it is. Since government has traced this corruption to "a cabal," why should it, rather than deal with the "cabal" and their official collaborators, toe the line of least resistance by depriving Nigerians the subsidy they rightly feel entitled to? The people are not convinced that if the regular annual budgets of the federal, state and local governments had not appreciably delivered jobs and social amenities, denying them oil subsidy would make these governments overcome corruption and do more.

    From the pieces of information passed through internet social media during the protests, corruption emerged as the No. 1 problem, not oil subsidy. Unlike past protests against fuel price increases, social media was fully utilised by the intelligentsia, the political elite, civil society, opinion-moulders and Nigerians abroad to exchange information and effectively mobilise public opinion.

    The CBN Governor's position, which was well articulated and freely circulated in the internet, cuts both ways to the cause of the subsidy removal policy. It made a strong case for subsidy removal while throwing up issues of monumental fraud, thereby making many to believe that government did not do enough to check glaring abuses in the disbursement of the funds. How did N246bn subsidy budget for 2011 rise to N1.3trn within 8 months when the annual average for preceding years was at worst N400bn? That was and still remains the big question yet to be answered. Could we not have cut down such wastages and the enormous perks of public officers before embarking on subsidy removal?

    The circulation of the list of beneficiary organisations, which list was associated with who's who in the society, merely compounded the situation, as it made people to make insinuations and resolve that before we could proceed any further there is need to first sort out the rot so that the sacrifices the generality of Nigerians are being asked to make could be justifiable and better appreciated.

    Even now, government needs to reassure people by indicating on project-by-project basis how the "subsidy" removed would be applied, as the public remains highly sceptical and do not seem ready to give a blank cheque.

    In summary, the agenda for items requiring government attention may be short but critical as it includes looking into financial leakages in the NNPC and the maritime industry, perks of public officers, corruption, devolution of powers, review of the revenue sharing formula, and internal security without which the SURE programmes cannot even be implemented. It is advisable for the authorities to quickly sort out these issues for the genuine transformation of our beloved country.


January 27, 2012




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