Agbon: The post election petrol price increase (1)

By Izielen Agbon   |   20 January 2015   |   11:00 pm  

“Nigeria….Lessons. A well-thought-out public information and consultation campaign is crucial to the success of a reform. Although the government campaigned vigorously for the removal of the subsidies, the measure was still highly controversial when it went into effect. The backlash has been predicted. The public communication campaign lasted only six months, and there was no broad popular consultation…”

– IMF African Department Paper 13/02: Energy Subsidy Reform in Sub-Saharan Africa: Experiences and Lessons. Trevor Alleyne et al, April 18, 2013.

“When we go on this strike; what if the NLC backs down and compromises along the way… I asked them. Excuse me. Where is Plan B? What is Plan B if they back out? Everybody was so convinced that this can never happen. Then, it happened. There was no Plan B…”

– Femi Kuti. On the January 2012 Subsidy Struggles. Interview with Sahara Reporters. N.Y. January 13, 2013

THE Federal Government of Nigeria (FGN) plans to raise current petroleum products prices after the 2015 election in accordance to an updated IMF subsidy removal strategy. Indonesia successfully implemented the updated IMF strategy and raised PMS prices by 30 % in November 2014 after its national election. Nigeria is next.  On December 2, 2014, petrol prices fell to $1.98/gal ($0.523/litre) in a few petrol stations in Oklahoma and Texas as crude oil prices dropped to $70/bbl. In Nigeria, the Central Bank exchange rate was $168/$ and the PPPRA Expected Open Market Price (EOMP) was N115.1/litre ($0.685/litre). The official FGN price was N97/litre ($0.577/litre) with a declared “subsidy” of N18/litre. The fact that petrol is now cheaper in USA than Nigeria shows us that the EOMP/Official PMS prices in Nigeria are political prices based on European spot market prices and not on Nigerian economic realities. The industrial take-off and sustainable development of Nigeria presupposes affordable domestic energy inputs driven by production costs plus average refining profit margins. The FGN promotes the continuous underdevelopment of Nigeria by imposing European energy prices on Nigeria’s developing industrial and agrarian structures. The PMS production cost of a litre of petrol in Nigeria is N40/litre and any price above that is a reflection of the power relationship between the Nigerian masses on one hand and the IMF/FGN/Cabal on the other. The IMF knows this and, therefore, conducted numerous reviews of its subsidy removal strategy in 2012-13. We will examine the updated IMF strategy and the FGN efforts to implement it in Nigeria in more detail. 

In January 2013, the IMF reviewed energy subsidies in 176 countries and reaffirmed its “how to do” energy subsidy removal programmes based on detailed case studies of petroleum products subsidy removal programmes in 22 nations including Nigeria. (“Energy Subsidy Reform: Lessons and Implications” IMF paper prepared by a staff team led by Benedict Clements, January 2013). The study blamed the lack of information and credibility for the partial success of the 2012 subsidy removal in Nigeria. It emphasised key elements needed for a successful energy removal programme. These included “(i) a comprehensive energy sector reform plan entailing clear long-term objectives, analysis of the impact of reforms, and consultation with stakeholders; (ii) an extensive communications strategy, supported by improvements in transparency…(iii) appropriately phased price increases, …(iv) improving the efficiency of state owned enterprises to reduce producer subsidies; (v) targeted measures to protect the poor; and (vi) institutional reforms that depoliticize energy pricing.”  

   In April 2013, another IMF team studying energy subsidy removal in Sub-Saharan Africa reached similar conclusions. (“Energy Subsidy Reform in Sub-Saharan Africa: Experiences and Lessons.” IMF African Department paper 13/02 by a staff team led by Trevor Alleyne, April 18, 2013). This study concluded that “in oil exporting countries, the task of removing subsidies has proved even more challenging because it is difficult to convey to the public the rationale for products to be sold at their opportunity cost and not their cost of production.” These conclusions and summaries of many other studies were communicated to the FGN by the IMF during annual bilateral discussions.

   Under Article IV of the Articles of Agreement, the IMF holds annual bilateral discussions with its member nations. Every year, an IMF team visits Nigeria, collects relevant data/information and holds numerous meetings with Nigeria’s financial and economic officials (FMF, CBN etc). The team returns to the IMF headquarters and prepares a report for the IMF Board.    The IMF Board holds a meeting and sends a summary of the views of IMF directors to the FGN.  More meetings are held. The FGN responds and implements its economic/financial programmes within the broad guidelines of the IMF. This is one of the institutional mechanisms that the IMF uses to control the Nigerian economy. Studying the annual IMF Article IV Consultation Staff Reports on Nigeria since its inception teaches us a lot about neo-colonial imperial institutional economic control of Nigeria. 

    According to the IMF 2011Article IV Consultation Staff Report on Nigeria, “…President Goodluck Jonathan and his economic team have announced a ‘Transformation Agenda’ that sets out the economic goals and policies of his administration for 2012-15. Other Key Fiscal Policy Objectives (i) Remove the fuel subsidy, which cost over four per cent of GDP in 2011 (ii) Increase capital spending from 25 per cent to 32 per cent of total spending by 2015, including containing the growth of the public sector wage…”  (Appendix 1- Transformation Agenda, “Nigeria: IMF Staff Report for 2011 Article IV Consultation,” IMF Country Report, Feb 2012). The foundation/backbone of the Transformation Agenda is increasing fuel prices (removing fuel subsidy) while keeping public sector wages constant. This pro-subsidy removal agenda can be summed up as the underdevelopment of the toiling Nigerian masses and the development of the cabal/ruling class. Despite assurances from the IMF, subsidy removal has not reduced poverty in Nigeria. The IMF wrote “…With growth concentrated in the pro-poor, labor-intensive agriculture and trade sectors, the disappointing outcomes in unemployment and poverty reduction are somewhat puzzling.” (“Nigeria: IMF Staff Report for 2012 Article IV Consultation .” IMF Country Report, Jan 2013). There is nothing puzzling about increasing energy costs and increasing poverty in a mono economy oil exporting developing nation. By 2014, Nigeria was 152 out of 186 nations on the UN Human Development Index List. The share of working poor (PPP $2 a day) was 79.2%.  Despite these economic realities, the FGN intensified its efforts to implement the updated IMF subsidy removal programme.

   In 2013, the FGN intensified its efforts to organise all sectors of the Nigerian ruling class behind the removal of all “fuel subsidies” in line with these 2013 IMF/World Bank reviews and recommendations. The presidency put the whole plan under the direct supervision of the Federal Ministry of Finance (FMF). The first part of the FGN plan was to re-organise the leading role of the FMF, the Federal Ministry of Petroleum Resources (FMPR) and the Central Bank of Nigeria (CBN) in the subsidy removal propaganda campaign. The second part was to mobilise other stakeholders such as the National Assembly, the Judiciary, the State Governors and political class, the Press and Trade/Student Union leaders using SURE-P. The final part was the 2015 post-election introduction of fuel price hike and the neutralization of the ensuing public opposition.  

The first part of the FGN plan did not go too well. The unity of these three FGN institutions had suffered major setbacks after the 2012 mass struggles. The ensuring investigation by the House of Representatives Ad Hoc Committee on Fuel Subsidy headed by Farouk Lawan had set the three institutions at odds with each other. During the Lawan Committee hearing, the CBN found out that 31.5 million litres/day was imported in 2011 (not 59 million litres per day) and deductions had been made for subsidy payment prior to deposits in the Federation Accounts. The CBN, FMPR and FMF had different figures on the amount spent on “fuel subsidy” in 2011 (FMF N1.6 trillion, CBN N1.7 trillion, Farouk Lawan Committee N2.59 trillion). The Presidency, FMF, FMPR and CBN were not happy with the House of Representatives AD-Hoc Committee. Farouk Lawan was compromised in a bribery scandal and the committee’s report was left to gather dust in limbo. But the damage was done.

   In response to the unfavourable exposure, the FMF encouraged the Presidency to inaugurate a Presidential Committee on Verification and Reconciliation on Fuel Subsidy payments (the Aig-Imokhuede committee). The FMF ensured that the Aig-Imokhuede committee focused only on local subsidy payments and not on the New York JP Morgan Chase account. This did not satisfy the CBN.  The CBN Governor therefore sent a September 2013 letter to the FGN President and demanded an audit of unremitted revenue (Jan 2012-June 2013). The CBN insisted $20 billion was unremitted after reconciliation with FMF and FMPR. The FMPR insisted that all revenue due had been remitted or used to pay for subsidy, leaking pipes and NPDC expenses. The FMF claimed $10.8 billion needed to be reviewed. This led to conflicts between the CBN and the Presidency resulting in the illegal dismissal of the CBN Governor. The FMPR defended itself and its control of the JP Morgan Chase account while the FMF hired Price Waterhouse to do a forensic audit of the $10.8 billion. The New York JP Morgan Chase Account and the New York Federal Reserve Bank account were not included in the so-called forensic audit. Despite all these contradictions and problems, the Farouk Lawan and Aig-Imokhuede committees helped focus public attention on subsidy removal and the FGN’s attempt to organise major stakeholders with monies from SURE-P.

• To be continued tomorrow

• Dr. Agbon, a former Chairman, University of Ibadan Branch of Academic Staff Union of Universities, resides in the United States.



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