The concept of the equalisation fund as is currently being administered in the refined fuel distribution trade, is a strange concept and appears to contradict the law of regular economics. Value is added to a product being distributed in trade, by virtue of its movement from one point of distribution to the other; that is why similar quantity of trade goods may be priced differently at different locations within an economy. To establish and operate a trade protocol which involves the collection of a toll from product traders at one end of the supply chain for distribution to consumers at a different more remote location in the petroleum products supply chain in the name and for the purpose of equalising product prices everywhere is to operate an unfair, irregular and diseconomic system. Under the current arrangements, profit margins, estimated in the region of about 420 million naira everyday, drawn from revenues which ought to accrue to tank farm owners, product traders at the lower end of the product supply chain are currently being appropriated as premium by PEF for dissipation and distribution to consumers higher up in the consumption chain. With the disbanding of PEF under the new Petroleum products market supply regime, this premium which is being deducted from tank farm and depot marketers income ought to be returned to them as their natural reward/profit through the discontinuation of the deductions. Since the disbanding of PEF, deductions ought to have been discontinued. But if they have not, where and for what purpose is the money still being accumulated?
Conversation With Capt E. Ihenacho: Fuel Subsidy Removal Will Revamp Nation’s Economy
Captain Emmanuel Iheanacho, a former Minister of Interior and the Chief Executive Officer (CEO) of Integrated Oil and Gas, and the Chief Executive Officer (CEO) of Genesis Worldwide Shipping Respectively in a no-holds-barred interview talks to Trojan.com.ng media on how fuel subsidy removal will revitalised the nation’s economy and address the challenges of unemployment ‘as the current fuel subsidy implementation is only profiting the rich’.
Excerpts
Sir, you’re one of the consistent earliest advocate of fuel subsidy removal, aren’t you concerned that its removal without working refineries will pauperised Nigerian masses the more?
Yes, we have advocated the removal of fuel subsidy in our economy because of the economic distortions and inefficiencies which the fuel subsidy policy engenders. Fuel subsidy policy as currently being practised is not helping the poor man or alleviating his poverty. It is instead, creating a situation where the value of the benefit of subsidies is being accrued predominantly by the middle class first line recipients of the subsidised product, namely private car owners, commercial vehicle owners and operators, and government vehicles. Non of these entities can be described as poor Nigerians. The fuel subsidy policy is promoting a situation where economic benefits are being routed to those who can very well afford to pay full market prices for the fuel they need to operate their vehicles. Even though the driver of private car, commercial transport and government vehicles may be classified as poor Nigerian, they do not own the vehicles they drive, they do not make decisions regarding who and who may ride in their cars or the price which may be charged for a seat in commercial vehicles. In the real interest of really poor Nigerians, it is best to administratively discontinue the policy of subsidy delivery as the benefits are currently being received by entities for whom it is not intended; to recover the huge sums which are currently being wasted as fuel subsidies and to invest the monies so saved in programmes that will create genuine value, profits and jobs for poor people within the economy.
Minimum wage has remained stagnated at N30,000. Don’t you think fuel subsidy removal will further erode the working class purchasing power and that of the downtrodden?
Wages should not stagnate at an arbitrarily determined sum of 30000 naira a month. Wages which are payable to workers should be determined in accordance with the quality and value of the work which is done in particular industries. Artificially pegging wages at an arbitrary level accross the board accross several industries promotes the economic ineficierncy of cross subsidization wherein the harder working and more productive workers are paid less than the value of their work whilst the lesser productive workers are paid more than they deserve. The issue of appropriate wages for work done should not and cannot be linked to the availability of fuel subsidies for reasons which have already been stated in this presentation. Subsidies should be discontinued and harvested for investment in rewarding socio economic programmes, whilst wages should be set according to the value of work in various industrial settings.
Do you think Nigerian government means well with the N2.5trillion palliatives to cushion the effects of fuel subsidy removal without accurate data of our population?
I have no doubt that the government might mean well by proposing a N2.5 trillion palliative to cushion the negative impact of subsidy removal. However, meaning well and being effective are two different things. The question that immediately arises may be framed as follows:
“Will the N2.5 trillion be a one off provision? How would this palliative be delivered to ensure that there are no leakages of benefit in the course of its administration? How would the effect on the poor be measured? You also raised the issue of problems with population statistics.
An arbitrary one off policy of providing a N2.5trillion naira windfall to cushion the effects of subsidy removal would be fraught with a lot of administrative problems. The palliative option does not address the issue of policy implementation time lines.There are likely to be a lot of issues with respect to leakages of palliative benefits to parties who are not entitled. Removal of subsidy option will be properly phased in time, ad infinitum as long as we continue to burn fossil fuels in our vehicles.
The National Assembly seems to have exposed the Presidency by saying N2.5 trillions is not in 2022 budget. Do you foresee a clash between both arms of governments?
I dont forsee a conflict situation between the legislative and executive arms of government over the subsidy issue that cannot be managed. If there is agreement, and a will, there will always be a way. For instance, you observed that there is no sum of N2.5 trillion naira allowed for in the budget. Note also, in similar manner, there is huge sum, denominated in current subsidies, which may also not be formally captured in the budget. The two sums are roughly equivalent and counterbalance. What may be required if subsidies were ordered to be removed is to accrue the savings resulting from this policy change and formally appropriate this income to proper well conceived investments in productive and manufacturing infrasteucture which will yield greater job and better compensation opportunities for all potentially employable Nigerians.
The Minister of petroleum, Timi Sylver said Nigerian Government is helpless over the skyrocketing prices of cooking gas, what do you think should be done to bring the prices down to appreciable levels?
I very much doubt that the Minister and the government are as helpless as you say. I am sure they are considering all options to bring down the price of cooking gas as soon as possible, including; opening up the market for cooking gas supply, removal of any bottlenecks observed in the product supply chain and reating incentives for ithe commitment of business investments in cooking gas retailing.
Lastly, Do you think Petroleum Equalization Fund (PEF) has been administered efficiently so much so that the targeted individuals are benefiting from the implementation of the policy?
