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CBN and Fuel Subsidy

Category: Oil Sector


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CBN and Fuel Subsidy

 

January 6, 2012 / by Henry Henry Boyo / Punch
 
The removal of petrol subsidy is one area that has exposed our government’s characteristic indecision and prevarication. Government’s claim to subsidy value of over N600bn per annum is considered outrageous and unsustainable as these expenses subhead alone usually exceed the consolidated capital votes for health, education and transport each year. Meanwhile, Nigerians continue to bemoan the huge infrastructural deficits in these critical areas of social welfare, but still rigidly insist on the maintenance of this oppressive expenditure pattern. Indeed, the Peoples Democratic Party led-government has continued to threaten Nigerians with petroleum subsidy withdrawal for over six years, with renewed calls and affirmation by government officials every month or so. The bombshell was finally thrown on New Year Day when the government announced the removal of the subsidy on petrol.
 
Nonetheless, subsidy has increased from just over N100bn in year 2000 to its current value of over N600bn, while government continues to make feeble noise on the end of subsidy. The truth, of course, is well recognised by government that removal of subsidy will bring untold hardship to all Nigerians (especially those who do not have easy access to government treasury). But there is the possibility that subsidy could exceed over 70 per cent of our capital budget, if oil prices rise fortuitously to above $100/barrel in the next 12 months. If this happens, any hope that we will make any serious impact on our infrastructural deficit may well be a pipe dream together with the porous Vision 2020 strategy.
I have maintained without equivocation in the last six years that it will be impossible for government to cancel subsidy (i.e. dismantle the Nigerian National Petroleum Corporation’s current petrol import monopoly) without first dismantling the monopoly of our Central Bank in the foreign exchange market, where the CBN controls over 80 per cent of all dollars traded in the market while it maintains its constitutional monopoly of all naira issuance concurrently. Needless to say that government’s dilemma on fuel pricing firmly corroborates our observation.
 
 
However, we have noted how the adoption of the instruments of dollar certificates (strictly not cash) for disbursement of dollar derived revenue to constitutional beneficiaries would immediately lead to steady decline in local fuel prices such that ‘subsidy’ will become unnecessary while government will be repositioned to actually derive substantial revenue from a sales tax which can be levied without any opposition from labour.
 
In other words, the adoption of dollar certificates will make available over N600bn for capital and social welfare enhancement in addition to a sales tax revenue of up to N10/litre on the estimated 30 million litres of fuel consumed daily. If the situation can be turned around so simply and beneficently, why is the government pussyfooting on this vital issue? The only obvious reason for government’s lack of enthusiasm to embrace this reality is that its adoption would quickly reduce the space for corruption and self-enrichment, particularly in the CBN, the commercial banks, the executive arms of government and in the bureau de change, who now serve as a collaborative conduit with treasury looters to facilitate money laundering.
 
A national newspaper’s editorial on June 17, 2010, entitled, “CBN and Petroleum Subsidy”, aptly captures the issues. It is axiomatic that the same CBN which is primarily the promoter and the villain in the scourge of subsidy is also shouting the loudest for its removal. Some analysts observe that it is a case of propaganda and an attempt to distract attention and divert recognition of the apex bank as the engine of our problem. The editorial under reference noted among others that:
 
“The problem of petroleum subsidy has lingered for several decades and it is therefore regrettable that the CBN failed to look inward for alternative options for resolving the matter, a sine qua non – confirmed by the following cursory historical review. Petroleum products have not always been subsidised nor did the outset of subsidy result from lagging petroleum product prices relative to changes in the international price of crude oil. From its stable price of 8.8 kobo per litre in 1966-78 when there was no subsidy, petrol price rocketed by 73,700 per cent to N65 per litre today.
 
“Also diesel which retailed at 11 kobo per litre in 1985 zoomed to 99,900 per cent or N110 per litre currently. But crude oil, even at the peak price of US$147 per barrel in 2008, rose by only 880 per cent over the 1978 level of $15 per barrel. Hence nominally, with domestic petrol and diesel prices outpacing crude oil prices by 84 fold and 114-fold respectively during the period, the culprit in the vexed subsidy is the precipitous depreciation of the naira by over 99.6 per cent since 1980 with its attendant high inflation. Doubtless, the monetary and fiscal authorities culpably left their job undone.
 
“Accordingly, until the CBN begins to correctly infuse federation account dollar proceeds into the system so as to halt the slide of the naira and stem high inflation, removal or reduction in petrol subsidy would leave the masses worse off. On the contrary, when government flushes out (as it should) the oil sector cabal currently cornering substantial part of the subsidy, the lot of the masses would improve. Poised against the masses, Sanusi further sought to justify his position by claiming falsely that government was borrowing to pay petrol subsidy debts. The truth is that proceeds (local or external) from any volume of crude oil allocated for domestic consumption more than cover whatever shortfall that might arise because of the controlled pump price of petrol.
 
“For now, as the CBN searches for excuses for its unending failures, Nigerians should be spared the distraction and economic pain that the removal of the remaining petroleum subsidy could cause.”
 
However, how do Nigerians see government’s argument and propaganda for rationalising subsidy removal? To answer this question, we will conclude this week’s piece with excerpts from a rejoinder entitled, “The Arithmetic of Subsidy, the ‘Isiro’ of Deceit” (isiro in Yoruba translates to calculation) by Oyewale Tomori, a Professor of Virology on page 64 edition of the same newspaper on June 24, 2010. It reads as follows:
 
“The campaign, or rather the war to remove subsidy has been going on now for some time; the losers will be the ordinary abandoned, deserted, discarded, forsaken, neglected and done for citizens of Nigeria… They have employed tactics bordering on deceit, trickery, duplicity, deception and guile.
 
It is either somebody is trying to fool us, or the secret of how much we really need to develop this country has been inadvertently released to us.”
 
•Boyo, an economist and entrepreneur, wrote in from Abel Sell Limited, Lagos via lesleba@lesleba.com.
 
 


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