Dear All:
Les Leba, as quantitative and incisive as ever, recommends, instead of depending on a possibly elusive subsidy savings:
1. plugging the daily crude oil thefts (valued at N1.2 trillion) which after security protection can yield N900 billion;
2. reducing government bureaucratic financial bloat (with a savings of N500 billion);
3. distributing dollar-derived earnings directly to all tiers of government (with a savings of N320 billion);
4. introducing consumption-selective VAT and comprehensive tax drive (with an additional earning of N500 billion);
5. overhauling Customs Service (with an additional boost of N200 billion)
Except for No. 3, which I don't agree with, these are entirely doable - without losing sight of SURE (and un-SURE (ie the traditional budget)) money.
Questions always are:
1. What priority in this list - 2, 5, 1, 4, 3 ?
2. When - 2012, etc.?
3. Who - same beaurocracy, Kolade-like, etc.? For it appears that anywhere there is money, there is a new leakage point, and the "police" need to be "policed."
And there you have it.
Bolaji Aluko
-------------
N1.3 Trillion Subsidy Savings As Pie in the Sky!
JANUARY 24, 2012 · in RATIONAL
BY: LES LEBA
These may be troubling times, but may also be seen as interesting times in
the annals of our country. Just when Nigerians thought that things
couldn't get much worse after the Xmas Day mindless bombing and 'mass'
murder of Christian faithfuls in the FCT, seven days later on 1st January
2012, Nigerians were ambushed with over 100% increase in pump price of
petrol.
Both events had the common object of destabilizing the security and welfare
of our countrymen; while the Boko Haram incident was carried out by a
faceless group with a hazy agenda, the fuel subsidy imbroglio was
instigated by none other than our own democratically elected government,
who subsequently rolled out armoured tanks and military personnel to deny
some Nigerians their constitutional right to assemble or rally for the
purpose of peaceful protests. In both cases, sadly, innocent Nigerians
lost their lives. The disparate figures of the estimated economic loss
from the one-week strike range from about N700bn by our CBN Governor,
N300bn from our Finance Minister, and N207bn from the National Bureau of
Statistics (NBS).
However, in view of the usual business slowdown in January because of
extended holidays, we may be persuaded to accept the most conservative
figure of N207bn from NBS., as nearer the truth! Indeed, with industries
and the economy performing at less than 50% capacity, we can be optimistic
that this loss will be quickly recovered if government can bring about an
enabling environment that would stimulate economic activity and growth in
2012. But, how, pray, do you put a value to the human lives that were
wasted from both faith based and government induced killings of innocent
Nigerians?
Ultimately, the fatalities will not bring Boko Haram nearer their declared
objective of total dissociation from Western education/culture, nor has it
brought government nearer to the objective of subsidy removal.
Well, even if Boko Haram's objectives remain hazy, our government's goal
was well-defined as the expectation of potential consolidation of N1.134trn
savings from removal of fuel subsidy.
In the rest of this article, we will examine whether government's goal was
achievable or realistic ab initio, and later consider if the expected value
of N1.134trn could have been garnered from other sources, without the
volatile reactions evoked by subsidy removal.
Firstly, government propaganda misfired very early, when they erroneously
created the impression that total subsidy value of N1.134trn would accrue
to federal government, so that government's capital vote in the 2012 budget
would be supplemented to accommodate more extensive infrastructural
enhancement and improvement in social welfare.
The erroneous public expectation was quickly dispelled with emerging
government propaganda, particularly from Subsidy Reinvestment and
Empowerment (SURE) blueprint's breakdown of federal government's share of
the subsidy fund as a mere N478.49bn, while states and local governments
may receive N411bn and N203bn respectively! In the spirit of federalism,
the Federal Executive arm of government cannot dictate the expenditure
patterns of other federating units; thus, federal government can only plan
for its share of N478.49bn.
Furthermore, there was no overt indication that the states and local
governments had any abiding understanding that their share of the subsidy
savings would be used specifically for capital infrastructure enhancement,
as deemed expedient by the federal authorities.
Nonetheless, removal of fuel subsidy would increase fuel price by over
100%, and make fuel smuggling unprofitable! Volume of fuel imports and
consequently value of subsidy savings would be reduced in 2012 by over 50%
as fuel consumption falls to about 12.7 billion litres annually in place of
the bloated figure of 21.5 billion litres due to porous leakages traceable
to smuggling in 2011; thus, in the light of revelations in NNPC's testimony
at the ongoing investigation by House of Reps, the initial expected total
savings of N1.134trn for the SURE programme will fall by over N672bn (8.8bn
litres smuggled excess X N76.38/litre erstwhile subsidy). Meanwhile,
federal government's share of the reduced net savings of N462bn (1.134trn –
N672bn) will be just N194bn (42% of total), rather than government's
projection of N478.49bn! The impact of N192bn on capital infrastructure
enhancement cannot be as impressive as what the public would expect from
direct application of the much larger sum of N1.134trn.
Thus, the imbroglio and ugly divide between government and the people, and
tragic deaths of dozens of innocent citizens was primarily for the
realization of a potential revenue that was barely $1.25bn (N192bn) in
2012! Now, the follow up question at this juncture is whether even the
deflated subsidy savings of N192bn into federal coffers for infrastructural
enhancement is in fact a realistic proposition!
The public hearings in the House of Reps may assist us in answering this
question. The presentation by NNPC Management suggest that NNPC Act
empowers the corporation to pay subsidy refunds directly to itself as well
as to approved third party importers after formal authorisation by Ministry
of Finance, without recourse to federal budget provisions with regard to
subsidy. This payment mode explains why appropriation bills only reflect
modest subsidy provisions usually below N300bn; yet, for several years, no
one questioned direct funding of the additional hundreds of billions of
subsidy payments in excess of appropriated amount! Thus, in 2011, while
subsidy provision was just N245bn, NNPC unilaterally in concert with the
finance Ministry paid out N1.134tr!!
Legal experts would need to clarify if the constitutional provision in
Section 162 with regards to disbursement of consolidated revenue is over
ridden by the provision of the NNPC Act.
In those countries where adherence to the rule of law is the rudder of
public administration, such a constitutional breach would attract severe
sanctions, which may include impeachment of the Head of Government!
Regrettably, such violations have gone unpunished in Nigerian; for example,
we recall President Obasanjo's authorization of about $16bn expenditure for
expanding power generation and transmission infrastructure without prior
approval of NASS. We also recall that NASS approval of the sum of $18bn
paid to the London /Paris Clubs for the controversial debt exit, came well
after the disbursement of this monstrous value; Obasanjo's punishment for
such serious constitutional infractions was barely a slap on the wrist.
The above political considerations notwithstanding, let us now return to
the question of whether or not the reviewed more conservative projection of
subsidy savings of N192bn is in fact realistic! NNPC admits to paying
subsidy values to itself as well as other government approved oil importers
upon formal notice of fuel discharge locally rather than on volume trucked
out of the farm tanks. The revelation by Mr. Reginald Stanley, Executive
Secretary of PPPRA (Petroleum Product Pricing & Regulatory Agency) that up
to 31st December 2011, subsidy payments were made to importers for yet to
be consumed/trucked out fuel stocks, is an indication that this arrangement
certainly became a source of malpractices, and fuel supplies soon exceeded
regular demand by over 24 million litres daily (amounting to N670bn subsidy
payments for the excess in 2011). Inevitably, subsidy calculations based
on discharge volumes outstripped the actual national consumption rate as
tank farms increased in number and capacity to accommodate fuel imports
even by those operators, who did not have requisite distribution facilities
as demanded by the PPPRA Act!
The earlier projected net federal savings of N192bn from subsidy removal
may also become a pie in the sky, if NNPC subsequently reveals that subsidy
values directly paid in the past by the corporation, were derived from a
dwindling capital base rather than from its surplus or profits!! It is no
secret that direct subsidy payment and unbridled corruption have impaired
NNPC's efficiency and profitability over the years; subsidy removal might
just help NNPC to keep clean accounts and balance its books,
refurbish/build refineries and increase oil exploration and exports. In
this event, NNPC's ability to make additional payments to the federal
treasury will be severely constrained and even the severely deflated
subsidy savings expectation of N192bn may not in fact be available.
So, the imbroglio of subsidy removal may have cost dozens of lives and the
estimated loss of N207bn of trading income may all have been for nothing,
just like the Boko Haram killings!!
In conclusion of this piece, we will briefly examine alternative income
sources that could provide revenue in excess of SURE's total expectation of
N1.134trn from subsidy removal!
To start with, government can do much more to reduce the leakages in our
crude oil export earnings. SHELL, the multinational oil giant, and a major
stakeholder in Nigeria's upstream petroleum sector lately reported that at
least 10% of Nigeria's crude export (i.e. about 220,000 barrels a day at an
average price of $100/barrel) valued at over $7bn (N1.2trn) is stolen every
year (i.e. more than the projected subsidy savings of N1.134trn)! In this
event, government should invest at least, a billion dollars in
increased/improved policing operations to eliminate or reduce the scale of
looting, such that over $6bn (N900bn) additional revenue would accrue to
the federal treasury.
Secondly, Nigerians are appalled at the apparent excessive waste in
government's recurrent budgets, which stands at N2.47trn in the 2012
appropriation bill. Meanwhile, a cursory comparison with previous budgets
would expose serial expense duplications for various supplies and
services. Savings from efficient collapse of a bloated bureaucracy could
also easily contribute an additional sum of about N500bn (i.e. less than
20% of the usually heavily padded recurrent budget) to the federal treasury.
Thirdly, if government adopts the instrument of dollar certificates for the
payment of dollar-derived revenue to three tiers of government, useless
government borrowings and high debit service charge of N560bn in 2012,
particularly for the spurious control of excess liquidity regularly
unleashed by CBN, will become unnecessary,. At least $2bn (or N320bn) can
accrue additionally to government from reduction of debt service charges!
Such deregulation of the forex market will also intrinsically deregulate
the fuel market, without attrition, as an increasing stronger naira brings
fuel prices crashing down with single digit interest rates, lower single
digit inflation rates, increasing demand, industrial growth and employment
as collaterals.
Fourthly, a selective VAT regime that taxes the excessive consumption
lifestyle of the rich and a comprehensive and efficient tax drive could
boost federal revenue with at least N500bn (less than 25% improvement on
current IRS performance) annually.
Finally, Federal Customs Service can also be overhauled and repositioned to
improve its current revenue performance by 20% and bring in an additional
N200bn or more into the federal treasury.
The cumulative contributions from the above revenue sources would far
outstrip the amorphous concept of a projected total savings of N1.134trn as
speculated by government's economic team with their proposed removal of
fuel subsidy. The good news is that these other revenue sources will not
lead to attrition and heat the polity as we witnessed last week!
___________________________________________________________________
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