CRITICAL SUCCESS FACTORS IN ACHIEVING NIGERIA’S VISION 20:2020 – THE CASE OF THE OIL SUBSIDY CONTROVERSY
CRITICAL SUCCESS FACTORS IN
ACHIEVING NIGERIA’S VISION 20:2020 – THE CASE OF THE OIL SUBSIDY CONTROVERSY
By
Femi Aborisade[1]
Dept of Business Administration
and Management Studies
The Polytechnic, Ibadan
Introduction
Permit
me to express profound gratitude for the opportunity extended to me to deliver
a paper at the First Annual Lecture Series/Award of Academic Excellence. Your
choice of topic shows that your Department fully appreciates that education
must be tailored towards solving societal problems. As a philosopher puts it, the
measure of all intellectual work is the emancipation or freedom of the people
from political, social and economic subjugation.
The
challenge which the topic of discussion poses is to examine the extent to which
government policy on oil subsidy may facilitate or hinder the attainment of the
Federal Government’s declared Vision 20:2020. The first logical question to
answer therefore is: what is Vision 20:2020?
What is Vision 20:2020?
The
key goal of Vision 20:2020 is to
catapult Nigeria into the league of the first global 20 economies by the year
2020. The idea of Nigeria’s Vision 2020 has been traced to a research conducted
by some American economists who predicted that based on the abundance of human
and material resources, Nigeria could be in the league of 20 top economies by
year 2025, provided the resources are
properly managed and channelled towards attainment of defined economic goals[2].
Central to the Vision is the target of reducing extreme poverty, along the line
of NEPAD and Millennium Development Goals, MDGs. Under Vision 20:2020, the State
is to be, on the one hand:
·
the enabler (helping the private sector to
grow);
·
the facilitator (putting in place policy
measures to attract private sector investment)
·
the regulator (putting in place laws, rules
and regulations and ensuring private sector compliance)
On the other hand, the private sector
is to be:
·
the executor (carrying out economic
activities)
·
the director investor (committing capital
to economic activities)
·
manager of businesses
In short, under Vision 20:2020, the private sector is to be the engine of
economic growth.
In order to appreciate the enormity of the challenge
posed by Vision 20:2020, we need to have an idea of the extent of poverty which
has to be reduced in order to attain the level of quality of life in the league
of the 20 top economies of the world which Nigeria seeks to join by by 2020.
In
spite of the oil wealth, there is an
alarming increase in incidence of poverty, which has turned the country
into host to 6% of the core chronically
poor in the world. This means that Nigeria
currently hosts the third largest concentration of poor people in the world
after China and India and is among the top 20 countries in the world with the
widest gap between the rich and the poor.
It is
estimated that about half of the estimated 170million population, i.e. 85 million,
live on less than a dollar a day and up to 70 per cent (i.e. about 119m
altogether) of the people live on less than 2 dollars a day. The incidence of
poverty is higher even compared to countries in the West African region, like
Ghana and the Ivory Coast (44 per cent and 10 per cent respectively) living on
less than a dollar a day’ (APRM, 2008, paragraph 696 p. 219).
The
African Peer Review Mechanism (2008:301-302) found that out of 1.2million
applicants for university admissions annually, only 148,323 places are
available.
The 26
per cent of national budget recommended to be devoted to education by UNESCO
has never been met by all levels of government, particularly from 1999 till
date. Indeed, the allocation to education in 2011 was the least – 1.5% of total
budget (The Nation, 25 May 2011:
4). Between 1999 and 2010, the budgetary allocations to education ranged
between 5.09 and 13 percent, without discounting for inflation.
|
YEAR
|
ALLOCATION to educ (% Of TOTAL)
|
|
(for 2011, %
allocation derived from figures given in The Nation, 25/5/11 p. 4)
|
|
|
1999
|
11.2
|
|
2000
|
8.3
|
|
2001
|
7.0
|
|
2002
|
5.09
|
|
2003
|
11.83
|
|
2004
|
7.8
|
|
2005
|
8.3
|
|
2006
|
8.7
|
|
2007
|
6.07
|
|
2008
|
13.0
|
|
2009
|
13.0
|
|
2010
|
6.4
|
|
2011
|
1.5
|
The
African Peer Review Mechanism (2008) also established that over the years,
Government’s per capita expenditure on
health has been at less than US$5 compared to the $34 per capita
recommended by the World Health Organization for developing countries. Average Life expectancy in Nigeria is estimated
to be 43.
Publications
by the National Manpower Board and the Federal Bureau of Statistics indicate
that only about 10% of graduates released annually into the labour market from
tertiary institutions in Nigeria are employed.
CAN
VISION 20:2020 REDUCE EXTREME POVERTY?
In order to determine whether or not
Vision 20:2020 can reduce extreme poverty, we have to understand the
philosophical world outlook informing the Vision. I argue in this paper that
the philosophy which informs Vision 20:2020 can only accentuate rather than
attenuate poverty. Vision 20:2020 is hinged on rolling back the State and
making the private sector, rather than the public sector, the engine of
economic growth. A more apt concept for this philosophy is neoliberalism. Thus,
we pose the question, what is neoliberalism?
WHAT
IS NEOLIBERALISM?
Neoliberalism
is the idea that perceives existence of public enterprises and/or government
involvement in the economy as the
obstacle to economic development. Neoliberals advocate: de-regulation,
commercialization and privatization of existing PEs and the promotion of the
private sector as the engine of economic growth; an international free market
for the major companies, removal and/or reduction of subsidies, etc.
Harvey (2005) has aptly captured the essence of all the component
elements of the theories of neoliberalism when he posits:
‘Neoliberalism is in the first instance a theory of
political economic practices that proposes that human well being can best be
advanced by liberating individual entrepreneurial freedoms and skills within an
institutional framework characterized by strong private property rights, free
markets, and free trade.
‘The role of the state is to create and preserve an
institutional framework appropriate to such practices. The state has to
guarantee, for example, the quality and integrity of money. It must also set up
those military, defense, police, and legal structures and functions required to
secure private property rights, and to guarantee by force, if need be, the
proper functioning of markets.
‘Furthermore, if markets do not exist (in areas such
as land, water, education, health care, social security, or environmental
pollution) then they must be created, by state action if necessary. But beyond
these tasks the state should not venture’.
In essence, neoliberalism represents the epochal unprecedented conspiracy to hijack the state from serving,
minimally, the interests of the ordinary people to serving just the interest of
big business, the interest of profit.
Its philosophical foundation is the Social Darwinist principle of survival of
the fittest – that inequalities of wealth, position and political power are
naturally inevitable. Any attempt to alter the natural state of inequality is
an affront against nature itself. Thus, there is no rationale for government
supporting the poor and disadvantaged. If the individual cannot compete and
survive, he may die! If the individual has the means, he may survive; if
he doesn’t, he may perish!
Neoliberalism represents a collapse of values
in governance. This occurred formally in Nigeria
with the introduction of privatization of public enterprises as a component of
the neo-liberal policy of Structural Adjustment Programme (SAP), in July 1986.
But neoliberalism is a relatively new
phenomenon. It has not always prevailed. Its history can be traced to two
earlier dominant economic thoughts, as follows:
• Classical Liberalism - Laissez-faire;
no government interference; the self-regulatory power of market forces.
• Keynesianism
– state interventionism or state centrism (arose as a
result of failure of Economic Liberalism)
• Neoliberalism
or Neoclassical Liberalism – no government
interference; a return to classical economic liberalism (which arose as a
result of failure of Keynesianism)
Let us briefly explain these concepts.
Classical Economic Liberaslism
• Classical Economic Liberaslism means
‘free market economics’ or the orthodox ‘laissez faire’ economic ideology that
prevailed until the great slump of the 1930s.
• It
contends that free market economies will run smoothly, steadily producing more
wealth. Any problems that may arise are attributed to ‘unnatural monopolies’
particularly the influence of organized labour, which, it is claimed, tends to
prevent the free movement of prices and wages based on the forces of demand and
supply.
• State
intervention or involvement in the economy was seen as an aberration, which
could distort the economy, reducing it from its optimum position. The role of
the state therefore should be restricted to defending private property,
upholding contracts, national defense and overseeing the money supply.
• The
ideas of economic liberalism are rooted in the work of Adam Smith [(1776)
1976]. Smith argues that the economy works best when it is controlled by the
forces of supply and demand rather than government interference. Effective
allocation of resources and appropriate product pricing would be attained
within the context of the freedom of producers to decide what to produce, the
freedom of the buyer to choose what to buy, the freedom of the employer to
determine who to employ and the freedom of the employee to choose the employer
to work for, all depending on the market forces of supply and demand
• That the
market is self-regulating and needs no external guidance because it is
controlled by the ‘invincible hand’ of demand and supply.
• Unemployment
and other economic problems can be solved when all stakeholders submit to the
dictate of the market. Example: unemployment means that there is excess supply
of labour than is demanded at the current price. The unemployed would be
employed if they accepted lower wages. Laissez-faire, i.e. let them act, means
leave the economy to sort itself out without government interference.
• Failure
of economic Liberalism: However, the ideas of economic liberalism fell into
disrepute with the failure of the free market to maintain economic prosperity
in the face of high unemployment and poverty during the Great Depression of the
1930s throughout the industrialized world.
• In
addition, the Russian revolution frightened the ruling elite by showing that
the working class would revolt if reforms were not provided by the state. In
this era, even liberals advocated a substantial role for government in the
economy.
The
Rise of Keynesianism
• The
collapse of economic liberalism led to the rise of Keynesianism - so called
after the proponent John Maynard Keynes, a leading British economist.
• Keynesianism
advocated state interventionist policies: a programme of full employment as a
goal, provision of a safety valve for the weak, government’s involvement in the
economy, government overspending when necessary to influence purchasing power
and maintain overall aggregate demand.
• By the
end of the 2nd World War, virtually all Western states had adopted
Keynesian interventionist policies
• Keynesian
state interventionist program thus saved capitalism from itself.
• Even the World Bank supported Keynesian
standpoint by providing loans for the reconstruction of Europe after the Second
World War and later, from the 1970s, to the governments of the former
colonies. As a result, it was vilified
by the Wall Street Journal and others for ‘promoting socialism’ in the
developing countries (Leys 2001).
Failure of Keynesianism
• Although
Keynesian economic policies appeared to work over the thirty years from 1945,
in the mid-1970s it could not deal with stagflation, a combination of recession
(stagnation) and rising prices (inflation) being experienced in the core
capitalist states. This led to mainstream economists returning to classical
economic liberalism on the excuse that the economic problems were due to state
intervention.
• Thus, the
economic crisis of the 1970s in the West led to a resurgence of support for the
ideas of classical liberalism and a shift from Keynesianism. This phenomenon is
what is referred to as neoliberalism or neoclassical liberalism.
• Implementation
of Neoliberalism on an international scale: When Reagan came to power, he used his voting rights and
power to change the World Bank’s President and its philosophy from
mid-1981. As Budhoo said when resigning
from the IMF, “President Reagan effectively told us to go out and make the
Third World a new bastion of free wheeling capitalism, and how we responded with
joy and a sense of mission! …Everything we did from 1983 onward was based on
our new sense of mission to have the South ‘privatised’ or die”. (Harvey 2005).
• The above quotation shows that
implementation of neoliberalism carries with it, international or imperialist
pressure.
What the foregoing means is that the
poor segments of the Nigerian society are not just fighting against an isolated
issue of fuel price increase. What we
are confronting is a full scale neoliberal agenda, which involves series of
attacks on the rights of the downtrodden. These attacks have been
manifested in the following, in recent time:
·
Privatisation
of public enterprises, including PHCN.
·
Increase in
electricity tariffs by up to 88%
·
The threat to
the jobs of PHCN workers
·
The proposed
sack of 50% of public sector workers, which translates to sacking 190,000 of
the estimated 380,000 public sector workers at the Federal level, comprising
80,000 in the civil service and 300,000 in the other parastatals and
corporations (See Tribune, online version of 12 February 2012 at Http://tribune.com.ng/sun/news/6382-fg-in-dilemma-overpublic-service-restructuring)
·
Full scale
neoliberal agenda for the oil and gas sector.
What
is happening in the petroleum industry shows very clearly the transition from
the era of state interventionism to the neoliberal phase. For example, the 1970s was a period of nationalization.
In 1971, the government acquired 331/3 per cent equity interest in Nigerian
Agip Oil Company. To retaliate against the support which France gave to Biafra
during the civil war (1967 to 1970), the government acquired 35 per cent equity
interest in ELF, as well as in Shell-BP, Gulf, Mobil and Ashland. In 1979, the
government acquired 60 per cent equity interest in Gulf, Mobil, Agip, ELF,
Texaco and Pan Ocean. In the same year, BP was nationalized as it was accused
of shipping Nigeria.’s oil to apartheid South Africa. The radical measures thus
resulted in raising state participation in most oil companies from 35 per cent
in 1971, to 55 per cent in 1974, and 60 per cent in 1979 (Omeri and Nchi, 2008;
Human Rights Watch, 2005:2; Omorogbe, 2001). Even though Nigeria became the
eleventh member of Organisation of Petroleum Exporting Countries (OPEC) in
1971, the government took measures to enforce the declaratory statement by OPEC
at its inception in 1968 that oil producing countries should undertake direct
oil exploitation or where not possible, enter into various contracts, which
involved holding equity interest in foreign oil companies, exercising greater
control and ensuring payment of greater royalties. In line with OPEC.’s
declaration, the 1968 Companies Decree forced all companies operating in
Nigeria to become Nigerian corporations by being registered in Nigeria. In 1970,
the 1969 Petroleum Decree was enforced. It required that Oil Mining Leases
(OMLs) must not exceed 20 years and that 40 after 10 years, half the acreage of
the OML must be transferred to government. Before the Decree, OMLs were valid
30 years onshore and 40 years offshore, with no transfer requirement. The granting
of an OML may also be on the basis of a specified level of state participation.
OML holders were expected to guarantee that within 10 years of operation, 75
per cent of total management, professional and supervisory positions would be
held by Nigerians and at least, 60 per cent of positions in each grade were to
be occupied by indigenes. The 1968 Companies Decree also required all
semi-skilled and unskilled workers to be Nigerians, within 10 years of an oil
company starting operations (Omeri and Nchi, 2008; Human Rights Watch, 2005: 2;
Omorogbe, 2001).
The
interventionist and developmentalist state approach, based on partial
nationalization, increased state participation, higher equity interest and
control of the oil companies characterized the 1970s. This contrasts with the
neoliberalism of recent decades, involving a program of sale of state-owned
refineries and equity interests in oil companies.
The neoliberal phase, it must be noted,
is not a phase that has any regard for
democratic norms, rule of law and respect for democratic rights. After deceiving the masses that fuel price increase would be effected on April 1, 2012, the Executive Secretary of the PPPRA, in a Press
Release dated 1/1/2012, unilaterally announced
the punitive New Year gift that ‘formal
removal of subsidy on Premium Motor Spirit (PMS)’ has commenced with effect
from 1 January 2012 and that in
effect, petrol would be sold at rates ‘to be published fortnightly and posted at
the PPPRA website’. The PPPRA Press Release was clearly illegal, as it violated S. 2 of the PPPRA
Act. Section 2 establishes a Governing Board for the PPPRA, which includes
representatives of NLC, TUC, NURTW, NUPENG and PENGASSAN, among others. This
Board did not meet to take decisions on the new policy. The Executive Secretary
lacked the power to unilaterally and validly declare pricing policy. The new
price regime was announced by the PPPRA Executive Secretary as if Nigeria was
under military dispensation. As the petrol price regime of N140/litre was
unilaterally announced by the PPPRA Executive Secretary, so also the President
unilaterally announced the reduction to N97/litre, without negotiations with
the leadership of organised labour.
Similarly, the protesters who sought to continue
the protests after the strike was suspended by the two central labour
organisations, the NLC and TUC, were militarily suppressed by deploying
soldiers into the streets across the nation. Again, the memorial rally to
remember those who were murdered in cold blood during the 2012 nationwide
protests was forcefully repressed. Thus, the age of neoliberalism is not the
age of claiming fundamental rights; it is the age of enslavement, economically
and politically.
The neoliberal age is not the age where superior
ideas prevail; it is the age of using
force to suppress reason. Otherwise, why
would government decide to raise petrol price by force, from N65/litre to
N97/litre, without providing answers to officially proven and documented incidences
of corruption in the petroleum industry?
Government’s argument has been that fuel subsidy
has to be removed in order to save N1.3trillion for infrastructural
development. (it should be noted that according to newspaper reports[3],
President Jonathan has declared that fuel subsidy palliatives are not possible
again because it has not been possible to fully remove the so called subsidy). However,
the massive corruption that has been revealed by official investigations show
that what government actually subsidises is corruption, and not petroleum
products consumption, as shown below:
·
PPPRA’s template currently applies
14-day demurrage at the rate of $28,000/day (see http://www.guardiannewsngr.com/index.php?view=article&catid=31%3Abusiness&i ...).
·
Whereas the highest estimated quantity
of petrol consumed domestically is 35million litres/day, government pays
subsidies on 59 million litres per day thus resulting in N1.9billion being stolen
daily or N667bn annually, at the rate of about N76 subsidy per litre (See
publications of the probe exercise by the House of Representatives).
·
Conflicting figures on subsidy being
claimed by different officials and organs of government. For example, for 2011,
the Petroleum Minister and PPPRA had earlier told the House of Representatives
panel probing the subsidy claims that the total subsidy for 2011 was
N1.3trillion. The Finance Minister stated that it was N1.4trillion. But the CBN
stated that the actual subsidy for 2011 was N1.7trillion. Indeed, some
marketers appearing before the House of Reps panel claimed that they were still
being owed unpaid subsidy. The House of Reps panel estimates the claimed debts
to around N500bn, meaning that the subsidy for 2011 could surpass N2trillion.
·
By 2010 or before 2011, only 49 companies
were registered to participate in the Petroleum Support Fund (i.e. subsidy
programme). But by the 3rd
quarter of 2011, the number had risen to over 100, meaning that ‘briefcase
petrol importing companies’ had emerged.
·
The 2009 Report of the Auditor-General(Samuel
Ukura) on the Accounts of the Federation of Nigeria for the year ended December
31, 2009 revealed that there was N11billion gap in the figures of revenue
remitted to the Federation Account by the Nigeria Customs Service on the
account that the Department of Petroleum Resources, DPR, shirked its
responsibility of raising assessments on royalties on crude oil payable by oil
companies or where it raised such assessments, it adopted wrong basis of
calculation. Rather, the oil companies were allowed to do self assessment of
royalties payable.
·
Official
audit reports commissioned by the NNPC into importation of petrol show that
importing companies tend to present invoices (which run into millions of
dollars) to claim subsidy more than once?
·
In
particular, the 2008 audit report into importation of petrol points out that
the following companies presented invoices twice for the payment of value of
subsidies indicated against their names:
o
Sahara
($40.27miliion).
o
Addax
($9.37million).
o
Arcadia ($40.34million).
o
J & S
Services ($45.35million).
o
Ovlas
($31.10million).
·
Public funds
running into $1.78bn in the last twelve years have been invested in carrying
out Turn Around Maintenance (TAM) without anything to show for it (Tribune
online, Saturday 24 December 2011) and nobody or company has been arraigned for
prosecution.
·
The KPMG Report on the Process and
Forensic Review of the Nigerian national petroleum Corporation (2010) made the
following disclosure of corrupt or unethical practices, among others:
o
That despite the increase in
international oil prices and Nigeria’s export volumes, there has not been a
commensurate improvement in the country’s external reserves.
o
Non-compliance with laid down policies
and procedures.
o
NNPC is invoiced in US$ for domestic
crude allocations but is expected to remit the equivalent Naira value to the
Federation Account.
o
Exchange rates used by NNPC to make
payment to the Federation Account were lower than the average exchange rates
published by the CBN during the review period.
o
The exchange rate variances (shortfall
that should have been in the Federation Account for domestic crude cost) were
as follows:
§
2007: N25.7bn
§
2008: N33.8bn, and
§
2009: N26.7bn
·
Crude oil sales and collection of
proceeds were not promptly captured on the accounting system. They were
typically captured after two months in arrears.
·
The cycle time for the remittance of
domestic crude cost into the Federation Account took, on average, 110 to 120
days, as against the 90 days credit line offered to NNPC.
·
Product import prices are based on
projected in-house estimates, irrespective of prices quoted by suppliers.
·
Contracts for the importation of
petroleum products were awarded companies not listed in the approved
prequalification list used for the 4th quarter of 2008.
·
Delays in discharge of products
resulted in significant demurrage payments. This averaged 31 days for products
imported between January 2008 and june 2010.
·
Low capacity utilisation of the
refineries – 2008 (25.3%) and 2009 (11.2%), due to partial or complete shutdown
occasioned by pipeline vandalism.
·
NNPC’s subsidy claims and PPRA’s
verification were based on volume of products available for sale or volume of
products imported and actual production as against duly verified volume of
products lifted put of the depots or volume of products actually sold. This
arrangement carried the risk of payment of subsidy on locally refined products,
contrary to the established intention.
·
There were under-remittance of domestic
crude sales proceeds into the Federation Account, as follows:
o
2007: N2bn
o
2008: N10.3bn
o
N2009: 16.2bn
·
Sub-optimal utilisation of depot
storage facilities that are in good condition.
·
Petroleum product losses through
pipeline vandalism stood at 110.38 metric tonnes in 2009 alone amounted to
Nb.1bn, apart from additional cost on pipeline repairs.
·
Lack of an integrated inventory
management system to monitor and capture inventory across all depot locations.
·
Discrepancies, incomplete and
inaccurate recording of product import receipts.
·
Ineffective credit management
procedures, resulting in outstanding receivables from credit marketers and
which could increase the risk of bad debt and loss of revenue.
·
Lack of documents supporting
transactions due to inadequate filing.
The
inconsistency of the claims by various personalities, ministries, departments
and agencies of government at the House of Representatives Probe of the subsidy
issue has been captured graphically and circulated on the internet as contained
in a paper by Odumakin[4],
as follows:
“Farouk Lawal: What is Nigeria’s
daily fuel consumption?
Diezani: 52
million liters
NNPC: 35
million liters
DPR: 43
million liters
PPPRA: 24
million liters
Okonjo: 40m
liters
Farouk Lawal: What was the subsidy
for 2011?
Diezani: 1.4
trillion
Okonjo: 1.3
trillion
CBN: 1.7
trillion
Farouk Lawal: Can we have the KPMG
REPORT?
Okonjo: I
have to go through the report first
Diezani: I
have not seen the report
Farouk Lawal: What is the production
capacity of our local refineries?’
NNPC: 30%
PPPRA: 20%
DPR: 13%
Diezani: 15%
Farouk Lawal: Does Nigeria pay
subsidy on locally refined Products?
Diezani: It
depends
NNPC: The
lay man cannot understand how it’s done
PPPRA: Yes
DPR: No
Farouk Lawal: Why is Kerosene still
scarce?
Diezani:
Because its use by the aviation industry as aviation fuel
NNPC:
Because there is no subsidy so NNPC overstretched its resources
PPPRA: It’s
not properly deregulated
Farouk Lawal: what is the balance in
the subsidy accounts?
Diezani:
It’s a virtual account
NNPC: There
is no account in existence as the lay man will look at it
PPPRA: The
account is a technical one
CBN: There
is no account with us for subsidy
Okonjo: The
account exists but not with a bank
Abracadabra, the more you see the
less you understand!”
FIGHT
CORRUPTION, DON’T UNDERMINE PURCHASING POWER
Increasing the price of petrol and
other petroleum products would amount to undermining purchasing power, which
would have adverse effects on the state of the economy, employment and poverty
levels, and so on. Therefore, rather than increasing the price of petrol, with
a view to raising funds with which to provide so called palliatives, it is
better for the government to go after the looted funds, which are already
documented in various official probe reports. According to the IMF, over $700bn
had been realized as oil revenue since 1960. Eighty per cent (80%) of this sum
accrues to only 1% of the population[5].
Owolabi Bakre[6]
has reviewed some of the key incidences of official corruption in Nigeria,
which we summarise in a tabular form below.
|
Amount
|
Looter: Regime/persons affected
|
Source/Authority
|
|
US$12.4
billion
|
Amount
realized from oil sale during the Gulf War under Gen. IBB
|
(see Okigbo’s
Report, 1994)
|
|
over
US$30billion
|
Estimated
amount stolen during the regime of Ibrahim Babangida
|
(see Daily
Independent, November 9, 2007).
|
|
US$34 billion
|
Gen. Sani
Abacha’s looted funds, which Obasabjo froze in 2002.
|
(see Sikka,
2003)
|
|
US$2billion
|
Amount looted
by Mohammed Abacha
|
|
|
(US$126m or
N19bn
|
Transmission
substation contract secured by Abdulsalam Abubakar Energo
Nigeria
Limited.after leaving office
|
(see Vanguard
Online, March 13, 2008). Without any evidence of
performance
as stipulated by the due process, Abubakar further used his influence to
collect
N13billion (US$86,000,000) out of the contract price, but has so far achieved
less than
five per cent implementation (see Report of House of Representatives
Committee on
Power and Steal, 2008).
|
|
(US$86,000,000
|
collected by
Abubakar, out of the contract sum even before performing 5% of the contract.
(see Report of House of Representatives
Committee on
Power and Steal, 2008).
|
(see Vanguard
Online, March 13, 2008).
‘Nigerians
should thank God that Abdulsalam Abubakar did not rule more than nine months
- Dr. Christopher Kolade Probe Panel’s report set up to probe his
administration’
(see Daily
Sun, June 10, 2008).
|
|
US$16 billion
|
Obasanjo,
(1999-2007) (see Senate Committee
on Power and
Energy Report, 2008).
|
In
collaboration with many local cronies and some multinational companies, more
than fifty
per cent of the money was siphoned into personal accounts abroad (see Senate
Committee on
Power and
Energy Report, 2008).
Some of the
local and foreign companies that got the
contracts to
provide electricity did not start the project while they have been paid more
than fifty
per cent of the agreed contract cost. Some were even overpaid for work not
done at all. (See Director of National Independent Power Project, 2008).
|
|
US$29 billion
|
Amount
allegedly withdrawn by Obasanjo from the Federation Account without recourse
to the National Assembly
|
(see Senate
Committee on Finance, National Planning and Appropriation Report, 2006).
|
|
N555 billion
(US$4.44
billion)
|
The amount
former President Obasanjo could not account for while the NNPC that was under
his personal control for eight years - 1999-2007.
|
(see Tribune,
August 13,
2007).
|
|
N502 billion
or US$4 billion
|
top officials
of the NNPC under the
ministerial
control of former President Obasanjo
|
(see Daily
Sun, August 13,
2007).
|
|
about
N1.3trilion (US$9,285,714,285)
|
Ministry of
Works, under the former Minister of Works, Chief Tony Anenih
|
(see Daily
Independent, May 14, 2008).
|
|
N300 billion
(US$2,142,857,143)
|
Ministry of
Works, under the former Minister of Works, Chief Tony Anenih
|
(see
Daily
Independent Online, May 12, 2004).
|
|
N46bn; US$36m;
£24m; DM462,000;EURO148m and SEK4m
|
Contracts
awarded by the Nigerian Ports Authority (NPA) between 2001 and 2003, which
were allegedly marred by large scale frauds, widespread financial
recklessness, and massive inflation of contract prices.
|
(see This
Day, February 22, 2006)
|
|
Contract for
railway modernisation project inflated by US$5.8bn and awarded to a Chinese
firm called, China Civil Engineering Construction Corporation (CCECC) at the
cost of US$8.3bn. Whereas it should should cost about US$2.5bn.
|
Under
President Obasanjo regime
|
(see Punch,
June 15, 2008).
|
|
|
|
|
|
|
|
|
According to Osisioma[7]
effective management of resources essentially requires the 6Ms – men, machines,
money, materials, methods and minutes, meaning time. But I wish to add the 7th
‘M’, Morals, the requirement to demonstrate honesty and transparency as
required in Section 15(5) of the 1999 Constitution, which prescribes that the State
shall fight all forms of corrupt practices and abuse of office. Without doubt,
any leadership or government, which is incapacitated to fight corruption, is
simply a failure, particularly in the context and midst of overwhelming
poverty, and is not fit to continue to rule.
ABOLITION
OR REDUCTION OF POVERTY: THE WAY FORWARD
In order to attain the key objective of
Vision 20:2020, which is reduction of extreme poverty, I propose the following,
among others:
·
Opposition to increase in the prices of
petroleum products and Insistence that there is no subsidy on petrol in
Nigeria.
·
Reduction in income inequality
·
Agitation for Increase in National
Minimum Wage based on the principle of Wage indexation
·
Build revolutionary working people’s
movements
Below, we examine each one more
closely.
OPPOSITION
TO INCREASE IN THE PRICES OF PETROLEUM PRODUCTS AND INSISTENCE THAT THERE IS NO
SUBSIDY ON PETROL IN NIGERIA
In the interest of reducing extreme
poverty or abolishing poverty altogether, we have to continue to oppose
increases in the prices of petroleum products.
First, what is the likely effect
of increasing the price of fuel?
In
the theory of taxation, expert scholars have theoretically and empirically
found that subsidies on publicly supplied goods and services are ‘negative
taxes'. (Newbery and Stern, 1987:531-532). A reduction in the rate of subsidy
is an increase in the rate of tax while an increase in the rate of subsidy
means a reduction in the rate of tax. Hughes (1987:533) also explains that
taxes imposed on goods and services used as intermediate inputs into the
production of other goods or services necessarily affect the prices of those
other goods and services. These two perceptions of Newbery and Stern (1987) and
Hughes (1987) are relevant in appreciating the effects of perennial increases
in the prices of petroleum products on living standards, particularly because
energy prices affect the prices or profitability of a wide range of goods and
services. In other words, reduction or removal of subsidies on petroleum
products is not just a tax on petroleum products; it is also an indirect tax on
other goods and services. This explains why the conclusion that can be drawn
from the continual increases in the prices of petroleum products is that it has
undermined the quality of life of the people.
IS THERE SUBSIDY ON PETROL?
President
Jonathan claims that there is subsidy on petrol and that it is not sustainable
to continue to subsidise domestic consumption of petrol. It is therefore
necessary to examine whether or not petrol is actually subsidised.
Government’s
claim for the existence of subsidy is as follows. That the selling price of
petrol (PMS) per litre is below the cost of production, distribution and the
allowable profit margins. Therefore, the subsidy element is the difference,
which the government bears.
In
order to determine the validity of government claim, we have to answer the
following major question with facts and figures: Is the selling price of petrol (PMS) per litre below the cost of
production, distribution and the allowable profit margins? To answer this major
question, we have to consider the cost elements.
The
available facts, figures and calculations below show that the selling price of
petrol per litre is not below the cost of production, distribution and
allowable profit margins when we consider the crude oil refined internally in
Nigeria; rather, the selling price is higher than the cost of production,
distribution and profit margins, as far as the crude oil refined internally is
concerned. Therefore, the conclusion is that the claim that subsidy exists
cannot be validly sustained. In actual fact, the oil merchants are making what
economists call ‘supernormal profit’ per litre of N31 (N65-N34=N31).
The
above conclusion is based on the following facts and reasoning:
1. The total costs of a barrel of petrol, plus
allowable profit margins, amount to $35.68
2.
This means
that the cost of a litre, plus profit margins, is $0.21 (i. e. $35.68 divided
by 168, as there are 168 litres in one barrel).
3.
In Naira
terms, at the exchange rate of US$1:N160, the cost of a litre of petrol, plus
profit margins, is N33.90 or N34.00, approximately.
4. At the selling price of N65 per litre, which
is higher than N34.00, petrol refined internally in Nigeria is overpriced and
there is no subsidy.
The
full details of the cost elements of one barrel of petrol (from crude oil
refined in Nigeria’s refineries), as supplied by Dr. Agbon (saharareporters.com/article/real-cost-nigeria-petrol-dr-izielen-agbo)
who is an expert in this area, and which have not been disputed by government
officials are as stated below:
1. Finding/Development cost per barrel, $3.50
2.
Production,
storage and transportation, $1.50
3.
Cost, up to
refinery gate (i.e. addition of (1) and
(2) above $5.00
4.
Refining
cost $12.60
5.
Pipeline
distribution cost $1.50
6.
Distribution
margins (for retailers, transporters, dealers,
Bridging funds and administrative charges,
etc $16.58
7. Total
cost plus margins $35.68
When
the total cost plus margins of $35.68 per barrel is converted to Naira at an
exchange rate of $1=N160, a barrel in Naira terms will cost N5,708.8 or N33.98
(or N34 approximately) per litre, since 1 barrel equals 168 litres.
The
above calculation that shows N34.00 being the cost of a litre of petrol, plus
allowable margins tends to be supported by the Petroleum Trust Fund Decree 1994
in which General Sani Abacha statutorily confirmed that the cost of a litre of
petrol, plus allowable profit margins, was N5.68, in 1994. The selling price of
a litre of petrol was pegged at N11 in that Decree on the provision that the
balance of N5.32 was to go into the Petroleum Trust Fund for social amenities
and infrastructural development. In that year, General Abacha, under the heat
of strike actions, reduced the price of petrol from N15.00 to N11.00. Also,
under President Obasanjo, the official Report of the Special Committee on the
Review of Petroleum Products Supply and Distribution, published by the NNPC in
2000 showed cost and margins per litre of petrol to be N21.00, even though the
summation in the Report erroneously stated N22.00 per litre.
IS THE SELLING PRICE OF PETROL (PMS) PER LITRE BELOW THE
COST OF PRODUCTION, DISTRIBUTION AND THE ALLOWABLE PROFIT MARGINS WHEN WE
CONSIDER THE IMPORTED PETROL, ON THE BASIS OF CRUDE OIL SOLD OR EXCHANGED IN
TRADE BY BARTER?
Even
when we consider the imported petrol, the argument that subsidy exists cannot
be sustained. It will be fraudulent on the part of government not to subtract
the proceeds from crude oil allocated for domestic consumption from the landing
cost before determining whether or not there is subsidy. It will amount to
doubling the costs for the Nigerian consumer if the proceeds from the 275,000
barrels of crude oil, out of the 445,000 barrels reserved for domestic
consumption, are not deducted from the landing cost.
Let us recall that
1. 445, 000 barrels of crude oil per day are
reserved for domestic consumption.
2.
The local
refineries have capacity to refine only 170,000 barrels of crude oil per day
out of the 445,000 barrels of crude oil.
3.
The
remaining balance of 275,000 barrels of crude oil (445,000 minus 170,000) are
supposedly refined abroad (and products imported into the country).
4.
The
projected price of a barrel of crude oil for 2012 is US$90 (see government
propaganda materials as reported in the press http://thenewsafrica.com/2011/12/19/subsidy-evil-day-postponed . Indeed, a more recent projection[8]
has shown that the average price of crude oil for 2012 will be between US$95
and US$100. In a rationale society, any increases in the price of crude oil in
the international market should be a blessing to the country and not a curse.
Nigerians should not accept the dubious fiction in the name of facts,
which suggests that no value should be placed on the 275,000 barrels of crude
oil reserved for domestic
consumption before arriving at the so called ‘landing cost’.
REDUCTION
IN INCOME INEQUALITY
In order to reduce extreme inequality
as advocated by NEPAD, MDGs and Vision 20:2020, income inequality has to be
reduced. The recurrent expenditure of government would be reduced significantly
without the need to sack workers if there is reduction in income inequality.
According to calculations by the
radical, pro-people Pastor Tunde Bakare, the average cost of maintaining a
national legislator in Nigeria is N320million or $2.1million per year or about
N27million per month, in a country in which the official (as opposed to the
actual) minimum wage is just N18,000 per month or N216,000 per year, a ratio of
1: 1,500. The calculation of the average cost of maintaining a national
legislator is presented below:
Number of
Senators = 109
· Number of Members of the House of
Representatives = 360
· Total Number of Legislators = 469
· 2012 Budget Proposal for the National
Assembly = N150 billion
· Average Cost of Maintaining Each
Member = N320 million
· Average Cost of Maintaining Each
Member in USD = $2.1 million/year
Indeed,
on the basis of international comparison, the Nigerian Senator earns about
seven (7) times what the US President earns. Whereas the US President earns $400,000
per year, or N60million, inclusive of all allowances, the Nigerian Senator
earns N163million or $1.10million per year, at the exchange rate of $1:N150.
The average salary of the Nigerian Senator per year is about N11million while
the allowances amount to N152million (NB: Pre 2012 Budget). Indeed, the cost of
a Senator’s car (Toyota Land Cruiser Jeep) alone for the current year is $100,724
or about N16million (The Nation, online version, 12 February 2012), in a
country where minimum wage is N18,000 per month or N216,000 per year!
ADVOCACY
FOR INCREASE IN NATIONAL MINIMUM WAGE BASED ON THE PRINCIPLE OF WAGE INDEXATION
A key lesson to
be learnt from measures being taken internationally in stimulating the economy
is raising of the minimum wage. For example, in the U.S., the Federal minimum
wage was raised, with effect from 24 July 2009 from $6.55 (N1,048.00) per hour
to $7.25 (N1,160.00 at the exchange rate of N160:$1) per hour. Though most
States have their own minimum wage rates, employers are required to pay
whichever is higher. According to a CNN report (cited in Vanguard, 27 August 2009: 33), an economist with the US Economic Policy
Institute (EPI) asserted that the wage increase would inject $5.5 billion worth
of extra spending into the US economy over the next year. But in Nigeria, the N18,000
minimum wage has not been implemented fully even by the Federal Government, in
spite of the recent increase in the price of petrol.
Apart from the need to raise minimum
wage, it is becoming critically important to advocate the principle of wage
indexation, called ‘scala mobile’ in Italy. It means wages rising as inflation
rises. It should be borne in mind that given the rabid commitment of the Federal
government to implementing neoliberal agenda in Nigeria, there would be further
increases in the prices of petroleum products. Unless wage indexation is
adopted, poverty will become deepened and widespread than what we experience
currently. Wage indexation could also be a check on the rapidity of fuel price
increases by the government, when it is appreciated that any price increase
will automatically have an effect on the wage bill.
It should be noted that according to a
business intelligence analyst, Abimbola Tooki, in an online publication,
Nigeria pays the least minimum wage among the top 10 global oil producing
nations and members of OPEC, as follows:
|
Country
|
Minimum
Wage (Equivalent in naira)
|
|
Nigeria
|
N18,000
|
|
Kuwait
|
N161,500
|
|
Iran
|
N101,240
|
|
Venezuela
|
N95,600
|
|
Saudi
Arabia
|
N86,500
|
|
Algeria
|
N55,900
|
|
Libya
|
N23,800
|
|
Iraq
|
NN25,800
|
Oman and United Arab Emirate are said
to be paying higher minimum wage rates.
BUILDING
REVOLUTIONARY WORKING PEOPLE’S MOVEMENT
The most important lesson of the 2012
nationwide strike against increase in the price of petrol from N65/litre to
N140/litre is that there is a need to build a revolutionary working people’s movement
that can unapologetically make political demands. Such a Movement will comprise
the most revolutionary and committed class conscious rank and file workers and
youths, in and outside of the trade unions, cutting across students, artisans,
employed and unemployed individuals, in the factories, offices, markets and
communities. The Movement has to be based on a socialist transformation of society.
Unless such a strong mass based Movement is built, future struggles will
continue to be at the mercy of the national leadership of organised labour,
which may continue to declare that its major concern is economism and that it
lacks the mandate to make political demands.
The role and attitude of the national
legislature have confirmed that while it may be tactical to pressure
legislators to pass resolutions and make laws to protect the poor, the
parliament cannot be relied upon to safeguard the interest of the working
people in an enduring way. Whereas the Senate and the House of Representatives
passed resolutions supporting reversal back to N65/litre, the leaderships of
the National Assembly later turned into mediators between labour and the Executive
Arm of the Federal Government. Rather than commencing impeachment proceedings
on the grounds that the Executive Arm of Government contemptuously ignored
their resolutions and fraudulently spent N1.3trillion (instead of N240bn which
was appropriated for 2011) as subsidy as at November 2011 without a
Supplementary Bill, the leaderships of the National Assembly saw their role as
that of a disinterested neutral body. The reality is that in the final
analysis, the bulk of the membership of the National Assembly is committed to
the neoliberal agenda of deregulating and privatising the oil and gas sector of
the Nigerian economy. Therefore, salvation does not lie in relying on the
parliamentary road to social change. While activists and intellectuals must be
at the forefront of every struggle for reformist marginal demands for
improvements in the quality of life, we must emphasis at all times that only a
revolutionary socialist transformation of society is the only solution to the
current capitalist horrors.
The
purpose of government is the protection of the poor and the vulnerable members
of the society. Beyond this, there is no justification for the existence of the
social institution called ‘Government’. This protective function of government
is in the nature of a trust, a contract.
As long as this obligation is fulfilled by government, whatever law or policy
made by government is binding. However, the moment government fails to protect
the wellbeing of ordinary people, the people have the right to oppose the
government and its policies. Such policies automatically lose validity, worthy
of being observed only in the breach while the government itself loses
legitimacy. This is the essence of Section
40 of the 1999 Constitution – the right of association and peaceful action
to protect interests. Section 40 of the Constitution is the only constitutional
safeguard against governmental tyranny, state terrorism and despotism. It is
therefore a constitutional right to protest peacefully to bring about social
changes. It is those who make peaceful change impossible that make violent
change inevitable. The Nigerian masses will need to reinvent and adopt the
elements of the 1776 American
Declaration of Independence when the revolting colonies which later on
constituted the USA broke away from the suzerainty (hegemony) of Britain
declared, inter alia, as follows:
“We
hold these truths to be self evident that all men are created equal, that they
are endowed by their creator with certain inalienable rights, that among these
rights are life, liberty and the pursuit of happiness. That to secure
these rights, governments are instituted among men deriving their just powers
from the consent of the governed. That whenever
any form of government becomes destructive of these aims, it is the right of
the people to alter or abolish it, and to institute a new government,
laying its foundation on such principles and organizing its powers on such form
as to them shall seem most likely to effect their safety and happiness”
Any
person, any party, any social class automatically loses the right to continue
to rule the moment it cannot guarantee the welfare and security of the people.
This is the implication of S. 14 (2) (b) of the Constitution of
the Federal Republic of Nigeria, which states that the security and welfare of
the people shall be the primary purpose of government. Section 16 (1) (b) goes further to prescribe that
government shall control the (national) economy in such manner as to secure the
maximum welfare, freedom and happiness of every citizen on the basis of social
justice and equality of status and opportunity.
Section 14 (2) (a) of the 1999
Constitution states that sovereignty belongs to the
people of Nigeria from whom government derives all its powers and authority.
Finally,
in response to those who argue that President Jonathan is merely implementing
the programme upon which he campaigned and was elected, it has to be made clear
that Section 224 of Nigeria’s Constitution
does not permit any political party or candidate to implement any policy or
programme that is at variance with constitutional provisions. It states: ‘the
programme as well as the aims and objects of a political party shall conform
with the provisions of Chapter II of the Constitution’. Chapter II of the Constitution
mandates government to own and control the major sectors of the economy so as
to maintain the capacity to provide for the wellbeing and socio-economic rights
as the Fundamental Objectives and Directive Principles of State Policy.
I
thank you for your attention.
Femi Aborisade
Wednesday,
22 February 2012
[1]
Being Paper Delivered at the First Departmental Annual Lecture Series/Award of
Academic Excellence of the Department of Purchasing and Supply, Adeseun
Ogundoyin Campus, The Polytechnic, Ibadan on Wednesday, 22 February 2012.
[2]
See Eneh, O. C. 2011. Nigeria’s Vision 20:2020 – Issues, challenges and
implications for Development Managment. Asian
Journal of Rural Development, 1:21-40.
[3] The Punch, Tuesday, 21 February 2012,
p.2.
[4]
Joe Okei-Odumakin (2012). ‘FUEL
SUBSIDY REMOVAL: MYTHS, REALITIES AND THE WAY FORWARD’ paper presented at the
symposium organized by Socialist Workers League On Tuesday 21st February, 2012
@ Lecture Theatre, Faculty Of Arts, University Of Ibadan.
[5] (Cited in Watts,
2009)
[6]
Owolabi M. Bakre (2009). Looting by
the Ruling Elites, Multinational Corporations and the Accountants: The Genesis
of Indebtedness, Poverty and Underdevelopment of Nigeria’ School of Accounting,
Finance & Management University of Essex Wivenhoe Park, Colchester CO4 3SQ United
Kingdom.
[7]
Osisioma, B.C. (2001), ‘Financial Ethics: The Issue of Identifying
and Eliminating Wasteful practices in the Public Sector’, The
Nigerian Journal of Banking and Finance, Issue No.4, March.
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