Tuesday, 21 July 2015

PAT UTOMI SUPPORTS REMOVAL OF FUEL SUBSIDY

Professor Pat Utomi
Professor Pat Utomi, an expert in political economy and entrepreneurship, is a very brilliant and knowledgeable scholar that Tectono Business Review values very well. In this interview with him, he totally supports the removal of fuel subsidy and speaks on other issues of national important. Sit back and enjoy it.

Is it a must for the Federal Government to remove fuel subsidy?
I think fuel subsidy is a source of enormous haemorrhage from the federal treasury; a haemorrhage that is benefitting a few people — scam artists. And the marginal delivery of value to the Nigerian people is questionable because, in most places in Nigeria, we are not getting people to pay those (official) prices anyway. In essence, I am not sure we can justify what is going into it, whereas you could take the same resources to do a lot to transform the economy, and maybe invest in an environment that would create more jobs, etc. But if I were to do it, and I could, I would find a way of taking a portion of that money and paying directly via a cash transfer to the poorest of the poor so that they can use it to buy their own fuel as they see fit or subsidise their transport. The big problem is that we have chosen not to have a proper headcount or biometric data of citizens, in spite of national identity cards and programmes like that.

Indonesia just went through a similar process of removing huge subsidies. That was the first thing that the current president, Joko Widodo, did after he was elected. And there cannot be a more masses-oriented leader than him, who is basically a small guy from a small business that rode his bicycle around and so on. He is a man of the masses, yet he realised that it was important to remove the subsidy. However, they were able, with the support of some international aid agencies, to pay money directly to the poorest of the poor. In our place, a similar strategy could be thought of. Unfortunately, we still have this challenge of ‘Where are the people? Who are the people?’ Before we know it, some agents will go and share these monies and pocket them like the scammers in the oil industry are doing.

But it is widely believed that fuel subsidy removal will be an enormous burden on the majority of Nigerians. Is this true?
In many parts of Nigeria, if you make sure that there is availability of the product and so forth, the competition can only force prices down. The reason that people are comfortable with what they (marketers) are doing now is because there is a quasi-monopoly — an oligopoly of sorts — which is taking advantage of the ordinary citizen. But if there is competition, as you saw in telecommunications, we are going to get to a scenario where, in a short period of time, prices will drop from competition. I do believe that the net effect over a short period of time will not be higher prices, I am almost confident of that. In fact, around December last year, when prices dropped to the upper 40s (in dollars), if we had removed it (subsidy) and encouraged competition and refused to give licences without ensuring that the quality was right, prices would have to be forced down. They would have come down significantly from where they are now, if the government had given such an order.

I was in the United States last December on New Year’s Eve, when I was driving to catch a flight from the Midwest to New York. I remember that my host was shocked, positively, that petrol prices had fallen below $2 (per gallon). The price used to be about $5; it suddenly dropped to a mere $2 a gallon (about 4.5 litres). Basically, the same should happen here in the oil industry, just like it happened with per-second billing and general pricing of the telecommunications business.

The Nigeria Labour Congress, during the fuel scarcity in May that lasted for about two weeks and nearly crippled the country’s economy, warned that there was a conspiracy to remove subsidy on fuel and this could plunge the nation into crisis. What do you think?
That is absolutely incorrect. I think we like to get ourselves into these strange debates (based on) personal interests. Those who are benefitting from these subsidies are the ones pushing all kinds of people to create these kinds of arguments that they are profiting from; it is not true. People have been paying N150 and waiting in queues for hours; then you tell the person that if you remove subsidy, prices would be very high. It is not true. Simple logic shows that it cannot be that high. But so long as we ensure that there is competition, it will get lower than today’s prices, if crude (oil) prices are not going up.

Are you saying the oil marketers are the ones to blame for this disinformation?
There is no question in my mind that they are a part of it. Not all of them; there are different kinds of players in every market. You can’t paint everybody with the same brush. But there is no question that there are people who are making out like bandits and the first rule of change is that those who profit from the old order will do everything to prevent a new order from coming about.

Members in both chambers of the National Assembly had moved motions to remove fuel subsidy during the recent fuel scarcity, but the motions were voted against. Do you think the fuel subsidy removal plan can get past the lawmakers, seeing as they are obviously against it?
I am not sure where the laws of our country say that the National Assembly has to vote on the price of Bournvita, and fuel is just as much a product as Bournvita. Why should the National Assembly get involved in the price of any product, even petrol? We have had some people during the course of our history who dabbled into such things and that is part of what has caused some of our problems today. I don’t know what the National Assembly has to do with whether or not fuel subsidy should be removed.

Why are fuel scarcity and the consequent hike in prices of petroleum products so common in Nigeria nowadays?
Precisely, it is because it profits some people. Why is it not common in next-door Benin Republic, which is poorer and does not produce crude oil? Why do they not have queues (at fuel stations)?

What do you think the Federal Government should do with the resources, if fuel subsidy is removed?
This business of what it (proceeds from subsidy removal) will be used for is what is creating all these problems. The whole country is a basket. There are leakages from everywhere. Whatever government exists to do for its people, the government should do it and revenues that come to the government, whether from taxes or from royalties, should go into serving the people to improve the quality of their lives. It should go into providing infrastructure, ensuring that there is adequate regulation to enable businesses to grow and provide jobs for people. All of those things are part of what the government should do.

Looking at the inability of some states to pay the salaries of their workers, what do you think is the best option for the Federal Government to take?
I think that we need to first review and rethink our fiscal federalism. I think that the time has come to have some very clear conditionality attached to the receipt of revenues, especially debt management revenues. And what we should do in that regard is ensure better behaviour so that we do not get into this situation again.