Healthcare, education suffer
Rewane, Chike-Obi call for scrapping
Nigeria has been losing about N5 trillion annually for the past three and half years as a result of unofficial subsidy leakages inadvertently created by the President Muhammadu Buhari government by a failure to allow the markets determine price in three essential areas of the economy, namely petroleum, electricity and foreign, two people knowledgeable about the matter have said.
Mustafa Chike-Obi, a former managing director of Asset Management Corporation of Nigeria (AMCON), the country’s bad bank, said at a recent King’s College Old Boys Associaition’s dinner that Nigeria was easily losing about N2 trillion annually on foreign exchange subsidies, N1.5 trillion on petroleum subsidies and another N1.5 trillion on electricity subsidies. He called for a correction to be made to the policy mishap that has created the anomaly as it was not healthy for the economy.
“There is a forex subsidy of about N1.5 trillion to N2 trillion a year administered arbitrarily, solely at the discretion of the Federal Government of Nigeria without oversight and without appropriation. That subsidy has to go,” he said.
The subsidy had been created through what Chike-Obi described as an exchange rate regime that offered multiple windows, including an official window where the dollar can be bought at N305 as against the N360 for which it exchanges at the market. The N305 is a Central Bank of Nigeria rate, which creates a N55 subsidy for individuals and firms who are backed to access the dollar at the lower rate.
Bismarck Rewane, the chief executive officer of Financial Derivative Company Limited, when asked by Chike-Obi to vote with him for the scrapping of the subsidies, said he was in support, adding that all prices should be subjected to the market for a determination of their fair value.
“Subsidy has to go but it will not go until 2019 after the elections; if the next government can have the courage. Whoever is there by 2019 should do the right thing,” Rewane said.
Apart from the forex subsidy, which is a creation of the Buhari government, there are two others it inherited that it does not want to dispense with because of its obvious benefits as a way of settling the party faithfuls.
The petroleum subsidy the president initially denied existed is being presided over by him as the defacto minister of petroleum. Analysts wonder why Buhari could not put an end to the subsidy which has plagued past governments given the manner he vehemently kicked against the practice in the lead up to the 2015 elections.
Officially, NNPC has admitted that it pays N774 million daily as subsidy after several denials. Specifically, there had been buck passing between the federal government and the oil behemoth as to who bears the cost, a situation which adds opacity to the whole process. This is apart from sundry debts owed petroleum marketers in the face of government inability to fix the country’s four refineries.
Following Buhari’s election and assumption of office in 2015, government raised pump price of petrol from N87 per litre to N145 with the promise of putting an end to the corruption ridden subsidy regime. But alas, Nigerians are yet to see the end of the obnoxious regime.
Equally, citizens are also reeling under the power subsidy without seeing electricity to power their homes and businesses.
The implication of these subsidy regimes is that the country is losing trillions of naira to cronies to the detriment of investment in physical infrastructure, healthcare, education and social programmes.
The matter of cost reflective tariff for electricity has been a vexing issue since the federal government privatised generation and distribution arms of the electricity chain. Distribution companies have been up in arms bitterly complaining that the failure by the government to allow them charge tariff’s that are based on the cost of the power they buy for distribution is ruining their business.
In July 11 electricity distribution companies (DisCos) complained that they were losing an average of N48 per kilowatt hour (KWH) of electricity due to the deliberate stoppage of a new tariff in the past 30 months.
Last August the distribution companies openly complained that their investment had not been profitable and that they were ready to sell back to the federal government or any investors who was ready to take over.
Government has refused to allow the market play its role in price determination and its action has been seen as distorting the interplay of demand and supply that should guide transactions.
Chike-Obi said that with regard to electricity tariff that people in Ikoyi, Lekki and Victoria Island who can afford to pay more were being charged N50 per kilowatts when they pay N120 to N130 per kilowatts when they use their generators, which is frequently. He said there were people who are willing to pay and should be allowed to pay more with the guarantee of regular supply following investments to be made by distribution and generation companies when they receive market value for the power they supply.