*Photo: Leke Adepoju*
This write-up was inspired by Bayo Ogunrotifa in his analysis of subsidy removal. A subvention is a grant of financial support or a subsidy given by a government or organization to help fund an institution, project, or specific need. Going by this definition, subvention is another word for subsidy. Let us take a historical analysis of subvention as given by the government.
In the colonial era, nothing was free. Yet there had been provision of social amenities such as pipe-borne water, electricity and railway. None of these operated below breakeven, though they might not have yielded huge returns. Even education at all levels was paid for by the citizenry, including primary education. Nigeria Railway Corporation (NRC) is of a particular interest. It was a viable corporation and expanded its horizons under the colonial government.
Shortly after Independence, it started nose-diving to bankruptcy because of over reliance on government handouts. The colonial administration had bequeathed a liberal economy to the country but oil money changed the orientation.
The underlying factor in putting power generation in the exclusive list of the constitution is paucity of funds. It was wrongly assumed that subnational governments, let alone investors, cannot afford to embark on such projects. Subvention was given to Universities, Nigeria National Petroleum Corporation (NNPC), National Electric Power Authority (NEPA) and other corporations providing essential services. At the time of establishing most of these corporations, social need was prioritised at the expense of efficiency which is often guaranteed by profit.
Asking Bretton Woods Institutions such as International Monetary Funds and World Banks for a loan is a sign of insolvency. You do not give out hard-earned resources of other nations to waste. These institutions might have been established as a matter of necessity, the fundamental principle is capitalist orientation. Problems that led to insolvency must be identified and solutions provided before loans can be granted. As a result of this, conditions are usually given to governments. It was not peculiar to Nigeria, similar conditions were given to defunct socialist countries.
After the discovery of oil in commercial quantity, Nigeria political elites practically gone to sleep. Crude oil was exchanged for imported refined petroleum products and that arrangement continued until Nigeria National Petroleum Corporation (NNPC) was established to safeguard national interest. Having inherited the burden of subsidy abinitio, NNPC maintained the status quo.
Oil refineries were established to face out the importation of refined petroleum products, import substitution. The mode of operation was so porous and inefficient.
Crude oil was given at no cost, let alone at international oil price. Despite the fact of getting the crude oil free, the refineries cannot sustain their operational cost. The government paid staff salary, training and other welfare packages through NNPC. Servicing and overhauling were paid from government cofers. The unification of prices of refined products had done more damage. Imagine a product being produced in Warri was sold at the same price all over Nigeria, which economics theory supported that. The refineries output could not meet up with the local demand. Thus, importation of refined petroleum products was necessary. At the initial stage, it was a supplement and continued to grow abysmally high until it killed the local production.
Complete dependency on imported refined petroleum products has so many challenges unlike the locally refined products. NNPC will bring in products through dubious suppliers at higher cost and sell them at discounted prices. To ensure low price, foreign exchange will be given to the suppliers at a discounted rate, inflated landing cost paid for, and transportation of the products distribution to the nooks and cranny of the country also discounted to ensure uniform price. The gap between the actual cost and the discounted price was a subsidy. If all the players had acted and transacted conscientiously, the subsidy regime would have lasted for many years to come. As time passes, corruption in the sector became unbearable.
Fuel subsidy was a cash cow to both the official at government agencies and suppliers of imported refined petroleum products. These suppliers will seek for foreign exchange that frequently ended at bureau de change, where they made quick profit by selling the hard currency. The quantity of imported refined petroleum products used to be astronomically inflated.
Some more callous suppliers would not even bring in anything and got paid for supplying nothing (round tripping). Marketers will make false claims of taking the products to a far distance, collect money and sell the products within the area where NNPC depots are located, leading to artificial scarcity. As if all these were not enough, Nigeria was also subsidizing the products for the neighbouring countries due to smuggling. What a waste!
After sixty-three years sojourn in the feeding bottle economy, there comes a hero to free the country from the economic conundrum. That he had done in a heroic way by making the announcement on the day of his inauguration as the seventh executive President of the Federal Republic of Nigeria. He saved the country from self-ruin that could have conflagrated into a catastrophic economic disaster. As at the time he made the announcement, many subnational governments could not pay workers salary for months or embark on meaningful capital projects. NNPC had very little remittance to the Federation Account for onward sharing among tiers of government. Prosit from Value Added Tax (VAT) became more reliable than the much needed oil money.
NNPC had been using more than fifty percent of its monthly profit to subsidize petroleum products.
There had been contradictory data on daily consumption of Premium Motor Spirit (PMS) which is the most important among the refined petroleum products. As at May, 2023, Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) estimated Nigeria daily consumption at 66.8 million litres of the PMS. This drastically reduced after the removal of fuel subsidy to 42.2 million litres of the same product. What has changed? The corruption has been done away with. The sector is now open to both local and international investors. Thank God, our own Dangote is leading with a huge investment in the refinery. In the coming days, more refineries will become operational and market forces will determine fuel prices.
To use current economic reforms of President Bola Ahmed Tinubu (PBAT) as a yardstick to campaign against his re-election bid can be liken to an abortion before birth.
PBAT’s economic reforms are progress in process and should be encouraged because there is a light, which has started shining, at the end of the tunnel. Oyo State government embarked on construction of road projects and finished 76km in record time due to a good template laid by PBAT which is availability of funds. It is left to the subnational governments to put this fund to a better use.
Of course, it is not yet Uhuru. There are still works to be done by the PBAT-led administration, that is the reason we need to give him a second chance. The President team and party must be at the drawing board to perfect their strategies on how to mitigate the economic hardship imposed on the citizenry by the reforms that have started yielding positive results.
For the gains to be consolidated, there must be a deliberate plan to optimise them. This must be made available during electioneering campaigns to assuage the fears of the electorates.