Fuel: The day of reckoning is here

It is a factual error to conflate the subsidy uprising of 2012 and the crisis of 2020. True, both speak to a national emergency, but the circumstances are starkly dissimilar. Nigerians that marched across the nation in the harmattan-scorched January of 2012 were actually protesting a touted rising economic tide that didn’t in any way raise their individual boats.

Rather, what they saw was an emergent tribe of of free-loaders fattening on petrol subsidies. Then Senator Bukola Saraki had blown the whistle: billions of naira budgeted as petrol subsidy originally were ballooning into trillions. And the beneficiaries were mostly campaign donors to the ruling party in the 2011 polls in the most audacious sort of political incest.

Just a teaser of the profligacy and squander-mania that had seized the land then: the Excess Crude Account (ECA) with $22b bequeathed by Umar Yar’Adua in May 2012 had been decimated to $4b by the turn of 2010. The people saw briefcase buccaneers without recognizable addresses receiving fat concessions to import fuel while established oil majors with known massive storage facilities got far less. Very little, if anything at all, was imported eventually. While the nation’s treasury was being bled to death.
It is, therefore, a misreading to assume that what drove people to anger then should also be leading them to street protests today.
What then seems confounding to many naysayers gifted at imagining the worst possible scenario in the circumstance, is why Nigerians didn’t pour unto the streets in droves spontaneously in anger like 2012 immediately the fuel stations jerked up petrol’s price this time.

Provocative enough, the hike came at the same time as the increase in electricity tariffs. Painful as the twin-blows might feel, most Nigerians appear to have chosen not to live in denial. Those circumspect enough have surely realized we have arrived at a defining maelstrom – that point when a cataclysmic occurrence alters the course of history forever. One, it should be noted that President Buhari, by personal philosophy and instinct, will ordinarily side with the poor. For the ascetic from Katsina, it is always a thing of pride to be labeled the champion of the poor and the vulnerable. But the dire economic reality of the moment obviously leaves him with little or no option.

Indeed, the world economy we once knew before March this year has been severely disrupted by Covid-19, displacing even the most affluent. Almost all the big economies around the world have officially declared recession. Even a “nanny state” like oil-rich Saudi Arabia has since cut down sundry subsidies, doubled VAT and stopped monthly cash handouts to citizens, to stay afloat. Elsewhere in the US, according to a CNN survey, no fewer than forty million mortgage-owners in the acclaimed “God’s own country” were facing eviction by the end of August over back pay.

Now, back at home, our revenue and forex earnings fell by 60 percent in the first half assessment of Year 2020 on account of Covid-19 pandemic. Contrary to even the modest growth earlier projected for Year 2020 barely a year after exiting the recession inflicted by the steep crash in commodity prices in 2014/2015, our economy has instead suffered a contraction of more than 6 percent in the first half of the year on account of the a total shutdown of the economy for four months, with expected foreign inflow shrinking by about 78 percent.

True, disruption is a given in world economic climate almost every decade. For instance, the prime mortgage crisis birthed the tsunami of 2008/2009, with the attendant dislocation of big businesses and national economies across the universe. If the impact was benign for us in Nigeria then, it was largely because of combined foreign reserves of over $60b. Aside from the foreign reserve of $46b, there was ECA in excess of $20b. Of course, this offered a robust buffer for the government then to navigate the turbulence with little inconvenience.

In 2015, the ECA the Buhari administration inherited was $2b. Even at that, $1b had to be set aside to procure military hardware and software to strengthen the nation’s push against a decade-old insurgency in the north-east. If the 2015 situation was lean, the condition of 2020 is, therefore, better imagined with practically nothing left in ECA to allow the administration any flexibility in responding to the Covid-19 emergency.

Against this backcloth, it is clear that the ordinarily populist advocacy for a policy option mindful of social protection is simply no longer feasible in the face of sparse reserve. Whether we want to admit or not, the truth is that the day of reckoning is finally here for us to atone for past iniquities in a way that will reset the nation to a more sustainable path henceforth.

An account given at a town-hall meeting in Lagos in 2012 by then CBN Governor, Sanusi Lamido Sanusi, perhaps sums up all that is wrong with our downstream sector and the subsidy regime: “Between January and November 2011, the total amount of foreign exchange we sold to petroleum marketers … was in excess of $8b. Over the same period, the total amount of subsidy that was given to these same marketers was another $8b. That is $16b… Actually $16.2b, if you want to know the numbers. Now, do you know what?… The total amount of money that came to us in the federation reserve from the entire oil sector in the same period was $200,000 less than that!”

This simply meant throwing away all the crude produced in Nigeria for almost a whole year and, to add insult to injury, incurring additional debt of $200,000! Of course, it must be admitted that those gaming the system had always benefited from the emotions the issue of subsidy readily evokes. Subsidy is generally thought a protection for the poor. So, anyone mulling subsidy removal is easily blackmailed as anti-poor. But trusting his fellow-feeling, most Nigerians would seem predisposed to give Buhari the benefit of doubt at this trying time. By retaining an austere lifestyle and shunning the temptations to parlay office to erect personal financial empires like most of his predecessors, they see him leading by example. They believe he feels their pain.

In enduring the hurt, the consolation Nigerians can draw is that the erasure of fuel subsidy from the nation’s budget head will henceforth mean that the significant sum that used to end up in the pockets of a small oil cartel would now be freed to be ploughed into funding education, healthcare, road infrastructure and other forms of social investments that benefit the greater majority of the people.

Dissecting this uniquely historical development in a recent piece entitled “Beyond fuel, electricity rates hikes”, popular columnist Segun Ayobolu however cautioned that the government should not be gloating over public’s “understanding” so far, but should demonstrate sufficient emotional intelligence by being empathetic in messaging to a populace left to endure existential challenges they least anticipated, much less prepared for.

I can’t agree more. But it bears restating that with President Buhari, the interest of ordinary Nigerians has always been priority. Recall that when oil price earlier crashed in March, the government did not wait for any public agitation before ensuring that pump price was adjusted downward to reflect this. The pump price was first reviewed downward to N125 and later N121.50k.

In yet another engaging intervention in the ongoing subsidy debate, Owei Lakemfa, labour icon and former General Secretary of Nigeria Labour Congress, contended that part of what is being passed off to the people as subsidy is substantially the cost of government inefficiencies by way of bottleneck at the port. Again, that is an informed observation.

To eschew such, let it however be noted that the administration is breaking the age-old tradition by introducing deliberate policies to, for instance, divert maritime traffic from Lagos port to Port Harcourt. Nothing dramatizes this policy shift than last month’s historic berthing at Onne Port in Port Harcourt of Maerskline Stardelhorn, the biggest container ship to ever arrive Nigerian coast.

It is consistent with a new thinking to ease the traffic at Lagos port and explore the full potential of other ports across the country.
Overall, for us, the good news is that the difficult choices imposed on us by the prevailing circumstances would ultimately help us to lay the foundation of a sustainable national economy. At a personal level, it would also hep us to reset our priorities. We cannot escape making adjustments. With additional costs of petrol, it is, for instance, now purely a question of economic option for folks like us to decide which is more sensible between driving our petrol-guzzling V8 SUVs and 4-litre saloon which consumes less fuel.

The possibility of virtual meetings would also mean that our 36 governors now have a choice between adopting a more-effective option and an in-person interaction for, say, a national meeting. The latter option would require most of them to charter private jets to Abuja. But the former is cheaper. It, therefore, translates to saving more public resources to pursue things that benefit the people the more.
Looking ahead, now is the time for honest conversation on oil and how to extract the best deal from an exhaustible resource which future value seems increasingly put in question in view of rapid advance of technology. Whereas forward-looking oil-producing nations like the United Arab Emirates (UAE) would seem to have evolved a template which delivers maximum benefits such that oil receipts are deployed to fund massive investment in social infrastructure, we seem still stuck with subsistence such that most states depend on their monthly share from oil receipts to meet even recurrent expenditure, much less capital vote.

True, what ails Nigeria’s oil sector had long been diagnosed. The enduring challenge has been the political will to do the right thing. The last refinery built by the government was in 1989, to bring the nation’s collection to four from 1965. At a combined installed capacity of 445,000 barrels per, the output is only about half of the nation’s estimated daily consumption today. Aggregated, the nation consumed 20.8 billion liters of PMS in 2019.

Even at the peak of their performance during the Obasanjo government, the refineries never operated above 40 percent of their installed capacity. This made massive importation inevitable. Everyone knew it was an insane idea, considering our status as a major crude producer. Everyone knew the most sustainable option was boosting local refining capacity to optimize the benefits in the value-chain.

Sure, dozens of refinery license were issued out over the years. But because importation created easy fortune for a buccaneering cartel and the subsidy regime was helping to feed the hyena of corruption, those issued licenses saw them as probably fit only to be kept as mementos.

But more than any other administration in history, the Buhari government has taken practical steps to end such distortions arising from opaque importation by incentivizing the participation of private investors in the oil industry through modular refinery. As part of the “peace process” enunciated by Vice President Osinbajo in 2016 to end the scourge of artisanal bunkering in the Niger Delta, we are beginning to witness an expansion in local capacity with the take-off of modular refineries across South-South.

By introducing a bouquet of incentives like duty waivers and intervention fund, four of the six of such have technically been completed and are ready for commissioning and production. Together, the six have a combined capacity to refine 50,000 barrels per day.
The completed four include OPAC (Delta), Waltersmith (Imo), Niger Delta Petroleum Resources (Rivers) and Edo Modular Refinery (Edo). The outstanding two include Azikiel (Bayelsa) and Ikwe-Onan (Akwa Ibom).

Only recently, the BUA Group joined the mix by announcing plan to float a refinery with a 200,000 bpd capacity. Potentially, all things being equal, that should be ready in another two years. Of course, the ultimate game-changer wouldl be the Dangote Refinery currently at completion stage in Lekki, Lagos with a 650,000 bpd capacity.

It is estimated that when all these come on stream in no distant future the country would not only have been completely weaned off importation of refined products, but also become an exporter. Only then will our economy be in a position to tap the full benefits of her God-given, but not inexhaustible oil resource.

Louis Odion is the senior technical assistant on media to the president