Nigeria: Act to Cut Fuel Subsidy Falls on the Jonathan Administration

Summary:

An attempt to reconstruct Nigeria’s economic structure resulted into a nationwide strike in January, obliging the Jonathan administration to withdraw what it had imposed 16-days earlier – the removal of petrol subsidy. Yielding to public uproar to ‘cut corruption, not fuel subsidy,’ the Nigerian government also made a promise to explore on corruption in fuel subsidy management. Four months later, a 205-page document has surfaced leaking names and schemes that defrauded the nation of some $6bn only in a span of two years. As investigations continue at the congressional level, fresh revelations could push the Jonathan administration around critical edges.

Background

Nigeria maintains a democratic form of government. Its state of affairs is incumbent upon elected leadership positing a stark disparity with the monarchial types found in other Islamic oil-producing countries (i.e. Saudi Arabia, Kuwait, Brunei, etc.) where citizens enjoy well-entrenched social programmes and other forms of subsidies from oil revenues. Although inadequate to stand for a comparison, Nigerians content themselves with fuel subsidies which render them the only apparent benefit they could derive in view of the lacking social services and infrastructure.

On January 01, 2012, the Nigerian government has officially abolished a 30-year-old subsidy on refined petrol – premium motor spirit (PMS) to reposition its economy. President Goodluck Jonathan vowed to redeploy the subsidy cost of $8bn for health and social services improvements.

Earlier, Nigerian opinion-makers have expressed opposition fearing severe negative impacts that might hurt the economy even more should President Jonathan remain impervious to persuasions asking him to reconsider such plan. Obviously, Jonathan was committed to take an unpopular decision allegedly at the prodding of the IMF. In less than two weeks following the removal of the subsidy, a nationwide industrial strike was staged.

After incurring opportunity losses running close to $1.3bn, the Jonathan administration heeded to protest demands six days later, resulting to rollback in PMS pump prices from N140 to N97. (Its previous price under subsidized terms was at N65/liter). Moreover, the government promised to resolve alleged corruption in the management of fuel subsidies.

In April, a 205-page parliamentary report exposes ‘sullied’ practices involving oil industry players and their cohorts in the state-owned Nigerian National Petroleum Corporation (NNPC) and the Petroleum Products Pricing and Regulatory Agency (PPPRA). The report includes allegations of stashing $300m from the subsidy fund through fictitious payments. The names of President Jonathan and some officials in his government were tagged among the beneficiaries. Nigeria’s parliament is poised to tackle this fuel subsidy anomaly said to have defrauded Nigeria of some $6bn in a period of two years.

Meanwhile, as the partial restoration of the fuel subsidy continues, Nigeria’s central bank governor Lamido Sanusi has raised concerns about high oil prices and how the trend might fall back on the nation’s ability to sustain the subsidy amidst depleting funds. On another note, Central Bank of Nigeria (CBN) is implicated in the ongoing fuel subsidy congressional investigations.

Analysis

The removal of fuel consumption subsidies is a campaign drawn by the International Monetary Fund (IMF) aimed at eliminating unsustainable yet expensive fuel subsidy programs. The mechanics would cause present domestic fuel prices to align with international prices and incentivize governments to curb oil smuggling as well as encourage investments in refinery infrastructure. The IMF also argues that fuel subsidies produce regressive effects. Meaning, the greater part of the burden is imposed on the poor than on the rich. Conversely with fuel consumption subsidies, the rich can draw more benefits from it than what the poor can possibly handle.

Months after the aborted removal of consumption subsidy on PMS, President Jonathan still maintains a firm stance favoring subsidy cut over subsidy restoration. He views deregulation as ‘the way’ to longer-term economic survival vis-à-vis a subsidy regime that only erodes Nigeria’s economic future.

The orientation Jonathan is gearing resonate some degree of conformity with the engendered tenets of the IMF. It further hints that Jonathan’s unsuccessful attempt was felt in the affluent class more abrasively. If so, it provides a good reason to reexamine whether the six-day strike was instigated on the account of genuine public clamor, for it is possible that some influential personalities (corporate or individual) were behind the disturbance for their own interests.

Nevertheless, the ultimate outcome of such an untimely act may ‘boomerang’ on Jonathan’s administration. First, the 205-page parliamentary report presents an open manifestation that corruption exists in government. Proven or otherwise, the IMF wins either way in diffusing the idea why it supports cutting fuel subsidies. Second, the leaked report provides an eye-opener. President Jonathan along with other names being dragged adds spectacle to the case and highlights the contention that fuel-subsidy programs only nurture corruption and the corrupt – not the people for whom these subsidies are meant. And lastly, Jonathan’s retraction on the petrol subsidy holds some degree of vulnerability that his political opponents might exploit.

Conclusion

January 2012 marked the first nine months of President Jonathan’s as elected president. If his handling of the six-day nationwide strike is an acid test for measuring political will and crisis threshold, analysts may surmise that the incumbent leadership is indecisive and weak. Adding the spate of terror being unleashed by the Boko Haram group, the current situation in Nigeria is volatile and could degenerate into a full-blown crisis. Aside from promoting religious ideologies, the group propagandists exploit issues on corruption, poverty and weak governance.

With the so-called leaked reports, more explicit details on corrupt maneuverings can be exposed. Since the media are able to amplify deplorable events better than the usual ones, a bombshell disclosure could easily enrage the public and prompt them to the streets. And as the proceedings of the congressional inquiry continue to deepen, Jonathan’s career is tip-toeing along critical edges.

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