COMMENTARY

Nigeria, which way to go?

By Kingsley Omose

In a post made sometime in October 2011, I had warned that the
decision of the 36 State Governors to refuse NNPC and PPPRA to make deductions for fuel subsidy from the Federation Account for September 2011 fuel imports was going to result in a stalemate at the start of January 2012. The Governors followed it up by refusing deductions for October, November and December 201
 
Prior to the blocking of the fuel subsidy deductions by the 36 State
Governors, there was an understanding between the Federal and State
Governments that NNPC and PPPRA will have first line charge on monies
in the Federation Account before the remainder is shared using the
sharing formula between FG, State Governments and Local Governments.

With State Governments under intense pressures to appease the NLC and
tUC by paying the N18, 000 minimum wage passed into law by the
National Assembly and signed by President Jonathan, it is to increase
receipts from the Federation Account that State Governments have
turned to, to pay their ballooning wage bills, and this has been
achieved principally by stopping deductions for fuel subsidy by both
PPPRA and NNPC

What this means is that even if President Jonathan wanted to, the
Federal Government cannot unilaterally fund fuel subsidy deductions
from it's share of the Federation Account without reverting to the
prior understanding and arrangement with State Governments for NNPC
and PPPRA to have right of first deduction from the Federation Account
to fund fuel subsidy.

Should State Governments agree to the return to the status quo, ie for
NNPC and PPPRA to have right of first deduction from the Federation
Account to fund fuel subsidy payments, it means that most of the state
governments will not be able to continue paying the new minimum wage
and in some cases meet their escalating operating costs as they have
been enjoying their full statutory allocations since September 2011.

Again, even if President Jonathan and the State Governors decide to
resort to the status quo by funding fuel subsidy deductions from the
Federation Account by allowing NNPC and PPPRA have a right to first
line deduction, that arrangement is clearly unconstitutional, illegal
and void ab initio as the law of the land only allows for sharing of
Federation account proceeds by the three tiers of government

Should the Federal Government be foolhardy enough to assume full
responsibility for funding fuel subsidy, then provision will have to
be made for fuel subsidy payments in the 2012 Budget presently pending
before both chambers of the National Assembly to cater for payments to
fuel importers through PPPRA and NNPC.

There is however one little snag with this arrangement that will see
fuel subsidy payments being provided for in the 2012 Budget, that is
where to find the $8billion or N1.5 trillion to pay for the monumental
cost of this single item that easily compares with provisions made for
Recurrent and Capital Expenditures in the 2012 Budget proposal.

One way to pay for the $8 billion or N1.5 trillion costs for fuel
subsidy in 2012 will be through borrowings, because this will increase
the deficit content (amount that the Federal Government has to borrow
above revenue projections) of the 2012 Budget, and especially as
borrowings were used to fund substantial parts of the 2011 Budget that
has see total debts balloon to $40 billion, of which $35 billion are
local debts

Another way of paying the $8billion or N1.5trillion fuel subsidy costs
for 2012 is for the Federal Government to increase its revenue
receipts either by increase crude oil production beyond the OPEC
approved quota to say 3 million barrels per day or by increasing its
benchmark price for crude oil on which basis the 2012 Budget was
computed from $70 a barrel to say $100 a barrel, and use the extra
gains to fund our addiction to cheap imported petrol.

Again the only snag with increasing crude oil production (OPEC
permitting) or raising the crude oil benchmark for the 2012 Budget is
to pray that crude oil prices stay stable at current levels or
actually increase due to some international crisis such as the
Israelis opting to take on Iran over its development of nuclear
weapons, but should crude oil prices fall below current levels or the
approve benchmark we are in for some calamitous times.

Suggestions by some that funding for fuel subsidy in the 2012 Budget
can be obtained from drastically reducing the estimates for Recurrent
Expenditures from the current level of 75% of the total budget to say
30%, while they sound good and populist are not feasible without
massive staff retrenchment and drastic reductions in the numbers of
Ministries, departments and Agencies of the Federal Government.

Without pretending to be a prophet, the Federal Government will be up
in battle against the Nigeria Labour Congress and the Trade Union
Congress should there be any move to source fuel subsidy funding
through retrenchment and reduction in the over 400 Ministries,
Departments and Agencies of the Federal Government, and ironically, it
is these same unions that are spearheading the battle for retention of
fuel subsidy.

But the long and short of it is that it will be almost impossible to
source the fuel subsidy funding of $8billion or n1.5trillion either
from Recurrent Expenditure or from capital Expenditure, or even a
combination of both so that Nigerians can continue their long running
romance with cheap petroleum products that has made millionaires,
billionaires and trillioniares from importers of petroleum products
and their sponsors.

With the political enemies of President Goodluck Jonathan scenting
blood and opportunity to take advantage of the opposition of labour
unions and many Nigerians to the removal of fuel subsidy, and the
hardline stance being taken by the labour unions again with the
support of many Nigerians against the removal of fuel subsidy, the
stage is set for the mother of all confrontations in Nigeria.

I do not in any way envy Mr. President because he has his work cut out
for him but then again men have always had to confront giants in their
lives and while it is those who come out successful that people come
to celebrate, what really counts is the decision to take a stand on
the issue of what to do about fuel subsidy removal, and the steely
resolve to see through such decision in spite of contrary
circumstances.

As for me, the unfolding events do make for a feeling of déjà vu
because of their similarity with the events of the early 1980s when
faced with ballooning recurrent expenditure which exceed its foreign
exchange earnings, the government of Shehu Shagari foot dragged in
imposing appropriate austerity measures, with the effect that the
resultant fall in international crude oil prices eventually caused the
collapse of the Nigerian economy.

I pray I am wrong.