Well, subsidy is gone, and many Nigerians are really pissed! And some don’t know what to think. So, here’s a quick rundown of why subsidy divides opinions.
How subsidy is supposed to work:
Assuming the cost of buying and transporting fuel from foreign refineries to local filling stations in Nigeria is N90 per litre. However, the government wants to keep the price at N87. Obviously, if marketers sell at N87 per litre, they’ll lose N3 per litre.
So, the government pays marketers an additional N30 per litre, so that the marketers can sell to consumers at N87 per litre, and still make a profit of N27 on every litre. Now, that’s how it’s supposed to work. But, it doesn’t work that way.
Here are 3 examples of how subsidy really works:
1) Assuming Chief ABC collects a contract from the FGN to import one million litres of fuel. If he goes to buy fuel, it will cost him a total of N90 million. So, government will pay him an additional N30 million, so he can make a cool profit of N27 million if he sells at N87 per litre. So far so good.
However, Chief ABC doesn’t want to import the fuel. So, he sells the contract to Alhaji XYZ at N20 million. When Alhaji XYZ brings the fuel, Chief ABC uses the documentation to collect additional N30 million from the government as subsidy, and then shares with Alhaji XYZ.
Now, since Alhaji XYZ buys the fuel at N90 million, he adds the N20 million he initially paid to Chief ABC, which means the cost of the fuel to Alhaji XYZ is now N110 million, that is N110 per litre, if we discount his share of the subsidy largesse.
To make a profit, Alhaji XYZ sells the fuel to consumers at N140 per litre, making a profit of N30 per litre, or N30 million in total. Nigerians lose!
2) Another way subsidy “works” in Nigeria is when Alhaja JKL collects a contract to import one million litres of fuel, which will cost a total of N90 million at the world market. She will collect the additional N30 million subsidy money from the government so that she can sell at N87 per litre and still make a profit of N27 per litre.
But, here’s the rub… Instead of importing one million litres of fuel as her contract states, she imports only half-a-million litres, which means she will collect double the amount she was supposed to receive as subsidy, i.e. N15 million more!
When she brings the fuel into the country, the petroleum regulatory agency of Nigeria (popularly known as DPR) sends Officer EFG to inspect the consignment. Alhaja JKL pays Officer PQR a bribe of N5 million to shut his mouth, so he can report to the DPR office that Alhaja JKL imported one million litres as her contract states. Nigerians lose!!
3) Another scenario: Chief LMN collects a contract to import one million litres of fuel. He buys the fuel at a total cost of N90 million, and collects N30 million from the government so he can sell at N87 per litre to make a total profit of N27 million.
However, instead of selling all of the one million litres to consumers as stipulated in his contract, Chief LMN sells only 100,000 litres at N87 per litre. He then sells the remaining 900,000 litres to a black marketer at N120 per litre, who then sells the fuel to consumers at N150 per litre. Nigerians lose, again!!!
In conclusion, no matter how much the government tries, or you and I blow grammar on Facebook, the political and business elites will remain the only beneficiaries of fuel subsidy.
I, therefore, conclude that fuel subsidy fuels corruption. It bleeds our economy of almost a trillion naira every year! Or, 15% to 25% of our annual budget.
Enough is enough! If you feel the same, let’s support the government to stop this impunity!!!
Dr M Aminu