Fuel Subsidy and Fake Subsidy…Simon Kolawole

I am a notorious pro-fuel subsidy “activist”. I’ve done this all my life. My reasons are twofold. One, as citizens of a petroleum-rich country, why should Nigerians not enjoy the privilege of paying lower prices for fuel? Two, in a country where over 70 percent are classified as living below the poverty line, I believe fuel subsidy is the only “social security” or “dole” that the masses enjoy. All my arguments for fuel subsidy over the years hang on these two threads. Many readers often agreed with me, while industry experts always disagreed. I’ve been involved in countless arguments over the subsidy issue. I’ve even made enemies in the process.


However, my pro-subsidy resolve was badly damaged in December 2009 following the “confidential briefing” I received from an industry player who was pushing for full deregulation of the downstream sector. In one of the most frightening briefings I have ever received on the economy, the man took me through the sordid details of how a few people milk the treasury in the name of subsidy. “Whenever you hear that the government has spent N500 billion on fuel subsidy, discount it by at least 60 per cent,” he said. “Fuel subsidy is the biggest fraud in the history of Nigeria.”

He listed three aspects of the “subsidy fraud”. One, he said a fuel importer could bring in 2000 metric tonnes and claim subsidy for 8,000 metric tonnes. “The mark-up will be shared down the line,” he said. “Even if you are a pastor, you will fall for it. The money is just too much. Imagine the billions of naira available to be shared on a regular basis. So the regulatory system is compromised and weakened.” Two, he said NNPC always imports more than it has storage facility for. “So the product is stored at private tank farms. If NNPC stores 30 million litres with your farm, you don’t have to account for 10 million litres. There is a process by which you can account for only 5 million litres as long as you know how to share the proceeds of the remaining 5 million litres with those who matter.”

I jumped up, transfixed, mouth agape, arms akimbo. “Relax, Simon, relax,” he said, sarcastically. “I enjoy reading your column, but your problem is that you write too much about ideals. Nigeria is not an ideal country. There are many things that are unheard of all over the world that you will find in Nigeria. What works perfectly in Saudi Arabia and Norway will not work here. Ask yourself: how come our refineries have not been working for ages? Name another country that has four refineries that hardly work. Do you know how many emergency billionaires we have produced through turn-around maintenance contracts in the last 20 years?”

He finally listed the third aspect of the fraud. Listen to him: “When they tell you the landing cost of petrol is N100 and the pump price is N65, it means the importer will get subsidy payment of a little over N35 per litre. Now, that is another fraud. There are different grades of PMS (petrol). They do not go for the same price. In the UK, for instance, the price of leaded petrol is different from that of unleaded. In Nigeria, we don’t distinguish between grades. We pay the same price. So the landing cost of the lowest grade may be N75, but the importer still gets a subsidy payment of about N35 instead of N10 per litre. Do the math. Multiply that by millions of litres everyday and you will understand the fraud. Remember too that the importers get paid for demurrage even if they don’t incur it. I can go on and on.”

To cap it all, he said: “Simon, I can tell you authoritatively that our daily PMS consumption is not as high as officially quoted. It is the biggest fraud ever. We keep calculating subsidy on the assumption that we consume 40 million litres a day. Remember to always discount the official figures. It is good for your health.”

I had never been that sober in my life. The fear of God gripped me. But I gradually summoned courage and asked: “But can’t government do something about these fraudsters? Can’t they be thrown into jail? Why should Nigerians be punished with higher fuel prices because a few people are abusing the subsidy regime?”

He sighed. “What government? In a country where you can actually swear to an affidavit that you are President Barack Obama and, with a N200 bribe, the document will be stamped in court? You think these people are stealing this subsidy money without the involvement of government officials? And you think one government official will turn down N50 million just to sign a document that says you’ve brought in 10,000 metric tonnes of PMS? Are you kidding me, Simon? Are you saying you don’t know that fuel subsidy is the easiest way for government to fund patronage and reward its friends and loyalists?”

Sensing that he had subdued me, he declared: “The way forward is total deregulation. Free the market. Let anybody who wants to bring in fuel bring it in at his own cost and charge the market price. The money government is spending on fake subsidy should go somewhere else that will help develop the country. That is what you should be fighting for. Unfortunately, those of you who keep fighting for the retention of fuel subsidy don’t know that you are playing into the hands of the cabal that milks the treasury of billions and billions of naira every year.”

After the encounter, I began to meditate on the way around this scandal. I came up with a two-part series entitled: “Time to Rethink Fuel Subsidy” published in February 2010, when President Umaru Musa Yar’Adua was away in Saudi Arabia receiving medical attention. I reshaped my long-held position on fuel subsidy and argued that it should be paid directly into the salary package of workers. I said there should be an item called “fuel subsidy” on the pay slip. This is like a direct transfer to the citizens. That way, the money would reach the people while fuel pricing would be left to the market. But my “amended” position was weak on many counts: what of Nigerians who don’t have jobs? How would they benefit? What of the private sector? Won’t ghost workers begin to surface to claim fuel subsidy? The major problem with my proposal is that we don’t have a national ID system where every citizen will have a social security number. So any attempt to transfer money directly to Nigerians will be massively abused.

Obviously, we—the die-hard fuel subsidy “activists”—are losing the argument. But does that mean the government is winning the argument? The answer is no. To start with, I find it very bemusing the way government is handling the issue. We just woke up one day to learn that the government had written to the National Assembly saying fuel subsidy would be removed from January. The lawmakers—who are very important in the whole game—heard of it, just like any other Nigerian, when the letter was read on the floor of the National Assembly. That is terrible. I am also not aware that the labour unions were consulted in the first place, even if they would oppose it.

And, up till now, I am not aware of an articulated government presentation to Nigerians on the issue. What is the problem? What is the solution? What is the message for Nigerians? How are Nigerians going to be sure that the benefits would reach them at all after decades of failed promises? The impression I’m getting is that we are only discussing the removal of subsidy so that the governors would be able to pay the new minimum wage. If that is the case, government has already missed the road. Already, there is a wide communication gap between the government and the people on this fuel subsidy issue, which we all know is highly inflammable (no pun intended).

As for me, the only condition that can make the removal of subsidy attractive is for us to be cocksure of how we would enjoy the benefits. When Gen. Sani Abacha increased fuel prices in 1994, he set up the Petroleum (Special) Trust Fund (PTF), under the leadership of Gen. Muhammadu Buhari, to spend the savings on infrastructural development. We all saw what PTF did.  It remains the best public works programme the country has embarked upon in ages. Anything short of this landmark will be a massive failure. Meanwhile, the debate continues…

Simon Kolawole

Chixy –
Posted with WordPress for BlackBerry.


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