In the name of Nigerian ‘masses’…

Meanwhile, President Muhammadu Buhari has approved the payment of N413bn subsidy arrears to oil marketers “to avert another fuel crisis”. In December 2014, President Goodluck Jonathan paid N381bn subsidy arrears “to avert fuel crisis”. Before leaving office in May, he paid another N156bn “to avert crisis”. Put together, we have paid N950bn subsidy on petroleum products in the last 11 months “to avert crisis”. That is $4.822bn in today’s official exchange rate. Nigeria, a country that is reportedly broke and cannot pay its workers, has paid $4.822bn as subsidy on the consumption of petroleum products in less than one year. I repeat: $4.822bn! More to follow…

Let us try to make sense out of the nonsense. Why do we import petroleum products? Because we do not have enough local refining capacity. We have been stuck with the 440,000bpd capacity since 1989 when Port Harcourt II was inaugurated by President Ibrahim Babangida. Since then, we have not built a single refinery — despite a ballooning population and rapid growth in fuel consumption as more people buy cars and generators. In truth, our refineries cannot even handle 50% of their 440,000bpd capacity. They are always down. Successive governments continue to award turn around maintenance contracts that only turn around contractors’ bank accounts.

Let us now look at the $4.822bn we have spent on subsidy in 11 months. Our neighbours, Chad, built a 20,000bpd refinery at Dajmarya for $60m. That is N11.8bn. It took them two years to build. Again, you heard me right: two years only! We have been experiencing fuel shortages since the days of Gen. Sani Abacha when the refineries became sickly and “turn around maintenance” (TAM) became a household phrase in Nigeria. Several presidents after, and with billions of dollars spent on TAM, the refineries are still not working. We are still importing fuel. Even if the refineries are working at 110% capacity, they cannot meet our needs. But we keep repairing refineries and keep importing.

In 2011, we spent — at least, officially speaking — N2tr on fuel subsidy. Or have we so easily forgotten? By the time the accounts were settled, yes, it was N2tr. That is $13bn in today’s exchange rate. I repeat: $13bn! The largest refinery in the world is in India. It is called Jamnagar Refinery. It has the capacity to refine 1.24 million barrels per day. It was built within three years. The cost of building it was — wait for this — $6bn only! Please, go through those figures solemnly… $6bn to build a 1.24mbpd refinery in three years in India… Nigeria spent $13bn to subsidise fuel imports in just one year… And we’re still regularly paying fuel importers billions of dollars “to avert fuel crisis”.

Why are we stuck with importation and subsidy? Some will argue that until the downstream sector is deregulated and freed from price controls and subsidy payments, private investors will not be involved. This, they argue, explains why many companies got licences but never built a refinery. Investors want to be sure they will recover their costs, and they cannot base their business plans on receiving subsidy from government if they will be forced to sell at regulated prices. They want to be in charge of their own destinies, not to be begging government to settle their claims all the time. This is a fair argument, to be honest, and I will not dispute any of these points.

But let us say I am the government of Nigeria. I have issued licences to private companies to build refineries and they have failed to build because of pricing constraints. Yet I am spending billions of dollars per year to subsidise imports. Since I cannot force people to build refineries, what am I supposed to do if I were to apply common sense? I have two options, basically. The first option is to deregulate the market, roll out incentives for investors and ensure that in record time, Nigeria achieves self-sufficiency in refining. Of course, people will pay higher prices for products, but the $2bn we just paid to marketers could have fixed a few roads or hospitals.

The second option is to seize the bull by the horn by building refineries. I suggested a “reverse BOT” in this column sometime in 2004. President Olusegun Obasanjo was in power then. My proposal went like this: since private investors have refused to build refineries, why can’t the government build? I reversed the Build, Operate and Transfer (BOT) logic by suggesting that government should build refineries, lease them to operators as managers (see the NLNG model, for instance) and privatise later. That way, we would eliminate associated import costs of shipping, demurrage, foreign exchange differentials and interest rate differentials — and fast-track deregulation.

My position was described as “stupid” by some “experts” in Obasanjo’s government — who, with the benefit of hindsight, were possibly benefitting from the subsidy rents. But let us now review my stupidity. If Obasanjo had invested $6bn to build the biggest refinery in the world then, it could have been ready by 2007 when he left power. We have spent over $25bn (my estimate) on fuel import subsidies and TAM since 2004. Several subsidy scams have also been developed and implemented since then. Yet poverty has not reduced in the land, so the “masses” are not enjoying the benefits of oil subsidy as we expected or projected.

If we had chosen the “stupid” option of building refineries to stop fuel imports, we would have eliminated a major pressure on forex. A 1mbpd refinery can produce up to 77m litres of petrol daily. We consume only 35m litres daily. That means we would begin to export products and earn more forex. In simple English, we would be earning forex from the sale of crude oil as well as products. But now we are losing on all sides. Crude prices have fallen and our forex reserves are going down. The naira is losing value. Sadly, motorists won’t benefit from low crude prices because we import the products at an expensive exchange rate! We lose as oil exporters, we lose as fuel importers.

The argument against the deregulation option is that cost of living would go up and the “masses” would suffer. To be sure, though, people are already paying higher prices for fuel. Outside Lagos and Abuja, it is uncommon to buy petrol at N87. Despite Buhari’s “body language”, fuel is selling above the official price in his home state, Katsina. A friend who bought for N125 in Katsina last week told me so. If marketers are still selling above pump price despite Buhari’s “body language”, then there is a deeper problem than we have always accepted. My grandmother used to tell me: “It is as I buy that I sell.” You cannot get fuel at N100 and sell for N87. Quite simple.

The notion that Buhari, being a tough president and a no-nonsense new sheriff in town, would make all filling stations sell fuel at the same price all over the towns and villages in Nigeria is unrealistic. The cost of enforcement alone — human, material and financial — is unimaginable. DPR enforcement teams would go around, with police and photographers, sealing filling stations, but how many can they seal in a year if they were to work 24/7? Why are we deceiving ourselves? If we free the market and allow the prices to be determined by economic factors, we would deploy the police to tackle armed robbery and kidnapping which will serve the “masses” better.

Now a caveat: I used to be a notorious pro-subsidy campaigner. When Babangida increased fuel price in his 1986 budget, I was mad — even though I was a tiny teenager then and understood nothing about economics. I always opposed fuel subsidy removal for two reasons: one, I believed that Nigerians should enjoy cheaper oil because we have it in abundance, just as Gboko people should not buy yam at the same price we buy in Lagos; two, I believed that the attendant increase in fuel prices would impact on the poor with higher transport costs and the multiplier effect, particularly on food prices. For these two reasons, I remained a subsidy fanatic.

While I still believe in these principles, my position has been defeated by what I have seen in Nigeria in recent years. Marketers, government officials and rent seekers are buying private jets from subsidy scams while the “masses” I was “protecting” are still dying in their poverty. Transport costs are still going up. Food prices are still going up. People in Borno, Sokoto, Bayelsa and Ebonyi are still buying fuel above subsidised prices — so the marketers are making money in many ways: from the pump, from the product diversion, and from the subsidy. We keep losing billions of dollars in subsidy payments that benefit the fat cats. I simply lost the argument.

AND FOUR OTHER THINGS…

BEN’S BRUISE

While I favour reducing the N1.04tr fine slammed on MTN, I don’t get Senator Ben Murray Bruce’s argument that sanctioning the telecoms giant for an infraction was going to scare foreign investors away from Nigeria. Foreign investors are actually more comfortable in a country where rules, laws and regulations are enforced, where impunity is discouraged. Ironically, MTN is not even disputing that an infraction was committed; it is only asking for leniency. Even Cyril Ramaphosa, the South African vice-president and top shareholder in MTN Nigeria, says the mobile operator should obey Nigerian laws. But Bruce, an elected lawmaker, is campaigning otherwise. Contradictions.

MINISTERIAL MIRAGE

President Muhammadu Buhari is talking as though having ministers without portfolios will reduce the cost of governance “because we are broke”. To start with, all ministers earn the same pay — even if you are minister of state or minister without portfolio. Interestingly, the average salary is N2m per month, or N24m per year, including the monetised benefits for accommodation, cars and aides. For all 36 ministers put together, the total remuneration is less than N1bn in a year! Add trips, estacodes and all-what-not, and you will still arrive at a decent total. The real problem is the leakages through waste and inflated contracts. Easy.

HOLIDAY MAKERS

Col. Hameed Ali (rtd), the comptroller-general of Customs, spoke the whole of my mind on Thursday. “Our ports generate about N1.5 billion a day, so any day they say public holiday, that N1.5 billion is gone. And Nigerians love holiday. If Christmas falls on Saturday, we will say we want to have Monday as holiday,” he said. You see, any country that depends on the citizens’ prosperity for its own revenue will not be eager to declare work-free days at the slightest opportunity. If we really calculate the cost, government and businesses lose hundreds of billions because of too many work-free days. Wasteful.

GOLDEN BOYS

I enjoy watching U-17 football more than anything else. I love the innocence, the raw skills, the open play. At senior level, football has become too technical, too tactical and too mathematical for its own good. At the cadet level, football is pure fun. Victor Osihmen makes goal scoring look like child’s play. The drive and maturity of Kelechi Nwakali as player and captain are two scarce commodities in the senior team. Emmanuel Amuneke, like Manu Garba before him, has built a very entertaining team. If the key players are properly mentored and nurtured, then another golden generation is in the making. Eureka?