Dangote Refinery & Nigeria’s Fuel Subsidy Regime (FSR): A letter to Mr. President.

Mr. President,

State House,

Aso Rock Villa.

Abuja.

Your Excellency,

It is not a sheer quirk of fate that you assumed the most exalted office in the Federal Republic of Nigeria as the 16th Head of State/President and Commander-in-Chief (C-in-C) of the armed forces in a time like this, exactly 7days after Alhaji Aliko Dangote commissioned the world’s largest single-train refinery on the 22nd of May 2023. It is a confirmation that providence has bequeathed to you the resources you need to revive Africa’s largest economy which is currently gasping for breath. The refinery which sits on 2,635heactares of land and has the capacity to refine 650,000 barrels of crude oil into 50million liters of petroleum, 15million liters of diesel, and 10million liters of kerosine daily was built at an estimated sum of USD$19billion. It is expected to generate 435-megawatts of electricity, create 135,000 direct and indirect jobs, and save the government between USD$25billion and USD$30billion annually. How beautiful this is sir!

Starting on a ‘dirty’ slate?

Before I continue with the discussion on the oil sector, please permit me to deviate a bit. You earlier asked us not to pity you, that you asked for the job; are you sure about this sir? Anyone who volunteered to clean Buhari’s mess deserves a lot of pity as most of the indices are not ‘smiling’. The National debt is currently about USD$172billion, debt service to revenue ratio is 96.3% (Worldbank recommended 25%), inflation rate is 22.04%, exchange rate is N464.36 to USD$1 (and up to N750 in the parallel market), debt to GDP 35.3%, GDP per capita is USD$2,228, unemployment rate is 41%, Human Development Index (HDI) is 535, ease of doing business (EoDB) is 56.9%, over 20million children are out of school, and infant mortality rate is 54.740 deaths per 1000 live births. I don’t want to scare you with the gory of other figures.

Fuel Subsidy Regime Racket (FSR)

Now, back to the oil sector. Some of us heaved a sigh of relief when you declared in your inaugural address that ‘fuel subsidy is gone’; however, please excuse the cynicism of those who did not as the statement has become a cliche in the recent past. Subsidy has seemingly turned out to be a monster with 9 lives as it has resurrected with different names like SURE-P, equalization fund, transport palliative, etc. It was consequently heart-warming to note that your first port of call was the ‘almighty’ FSR which General Olusegun Obasanjo introduced with the promulgation of the Price Control Act in 1977 to cushion the oil price shock (Great inflation) of 1973 occasioned by the Arab-Israel (Yom Kippur) war earlier in that year. You will agree with me that the FSR is, no doubt, the biggest scam in Nigeria’s 109years of existence. Between 2016 and 2023 alone, the sum of N11.7 trillion (USD$26bn) has been spent on subsidizing the affluence of the elites as only a few members of the lower class buy gasoline. In 2022, USD$9.7billion (about N4.39trillion and 26% of 2022 budget) was spent and another USD$9.1billion (19% of 2023’s budget of USD$47billion or N21.83trillion) would have been spent on the racket in 2023. Biblically speaking, God gave Mr. Kyari and Mr. Dangote USD$20billion worth of talent to invest for 2years, Dangote invested his in the 7th largest refinery in the world while Mr. Kyari buried his own in the earth of ‘subsidy’. One of them is obviously not a good manager of our commonwealth and resources.

What is sauce for the goose is sauce for the gander.

In response to your ‘subsidy is gone’ declaration, the NNPC adjusted its prices to reflect the ‘market realities’ by directing its retail arm to sell PMS between N488 and N557/liter.  Other petroleum product marketers reciprocated the gesture by setting their prices as high as N700/liter. This, as projected, is having a ripple effect on all other sectors of the economy; the workers' minimum wage of N30,000 has been reduced to the barest minimum.  While we laud your nerve to cast out the subsidy demon, Nigerians would however beam to see the sacrifice of the high cost of living replicated across the board. We cannot tell the masses to endure the anguish and suffering while our government and public administrators continue to feed fat on our common patrimony. The former Central Bank Governor, Sanusi Lamido Sanusi ounce announced that 25% of Federal Government’s overhead goes to the National Assembly alone, a meager 541 (0.0002%) out of N220million+ people. Senator Shue Sani also admitted that the senators earn close to N15million/month, for coming to work thrice in a week. This is more than the salary of 10 Professors put together. All ostentatious privileges currently enjoyed by public officials should be scrapped immediately, from the presidency down to the least civil servant. No more foreign trips, long convoys of vehicles and entourages, ridiculous bonuses and allowances, medical tourism, domestic aid, and other frivolous expenses. The leaders need to show the masses how to make sacrifices for the common good of our nation. We cannot curtail civil unrest, industrial actions, or dissenting voices with force, persuasion, or ignoble shows of fame.

What USD$10billion/annum can do

Sir, it is not enough to remove the fuel subsidy; the question is where the annual USD$10billion would ‘go’ after its removal, private or public pocket? We do not want to see a repeat of the Maina-led Pension Reform Task Force, Elumelu’s power sector investigation committee, or Abacha’s recovered loot where the managers of our ‘windfall’ from fraudulent practices got their fingers trapped in the same cookie jar. So, what can USD$10billion do? Mr. President, this translates into about N4.6trillion which is 45% of our expected revenue of N10.49trillion or 41% of our deficit in the 2023 budget. With a deficit of 51%, it is obvious that the 2023 budget is seemingly doomed on arrival. It is consequently imperative to invest these savings from FS in capital infrastructures/projects that would ameliorate the impact of the new pump price on the populace and, most importantly, drive industrialization. We cannot afford to spend it on consumption or any form of frivolity. Nigerians are not demanding, we are only asking for necessities like good schools, affordable foods, good drainage facilities, stable power supply, affordable shelter, quality healthcare facilities, and motorable roads, among others and we believe you can squeeze the trigger with the windfall.

Cutting NNPC to size

Squeezing the trigger without keeping a tab on the fat cat is a misnomer. The group Chief Executive Officer (GCEO) of the Nigerian National Petroleum Company (NNPC) Limited, Mr. Mele Kyari recently submitted that the federal government was ‘owing’ NNPC the sum of N2.8trillion used in ‘supporting the subsidy regime’. Why is this huge sum of money sitting in the NNPC’s account and how did the company get so powerful enough to lend the country money? It was reported that these payments were made through its cash flow without any recourse to the national assembly. Recall that in 2014, the then CBN Governor exclaimed that the Ministry of Petroleum Resources and the NNPC failed to remit up to $20billion into the national chest (this was almost 69% of that year’s budget of USD29billion); there is no doubt that the NNPC and other regulatory agencies in the ministry are cesspools of corruption. Today, despite the fact that the Petroleum Industry Act of 2021 limited its trading share to 30%, NNPC is still the sole importer and the main regulator of Nigeria’s oil sector, this is a very dangerous combination as it defeats the principle of transparency and accountability. Recently, its GCEO claimed that Nigeria consumed about 68million liters of PMS on a daily basis and that the majority of the 98million liters sold out daily by NNPC were 'shipped' across the border; this assertion was quickly debunked by the Nigerian Customs Service (NCS). It consequently implied fictitious payments on oil subsidies.  Apart from the accountability issue, the NNPC’s power and unchecked influence in the oil and gas sector is a disincentive to foreign and local investment, no investor would invest in a market where its regulator is equally its main competitor; the agency needs to be cut to size by assuming the full regulatory role and leaving oil marketing to private players.

Plugging the Cesspits

In 2022, over 58 illegal connection points on the nation’s oil pipeline were discovered in Delta and Bayelsa states and weeks later a 4km oil siphoning pipe was also uncovered in the Forcados area of Delta state. Sir, a 4km pipe is not a 4-inch pipe, how come this ‘mysterious pipe’ existed for decades and nobody saw or reported it? This shows how organized the country’s oil syndicate is. Mr. Kyari confirmed that oil theft had been thriving in Nigeria for over 22years with a daily loss of 600,00barrels of crude oil; at a current price of USD$78/barrel, this amount to USD$45million per day or USD$16.4billion year. Mr. President, if you can plug this hole alone, we can pay up to 21% of our national debt. Another drainpipe of corruption in the oil sector is the ‘turn around maintenance’ of our refineries, so far, about USD$26.5billion has been drained through this hole, yet none of them is working up to a quarter of its installed capacity. There is an urgent need to investigate these contracts and prosecute people whose actions and inactions brought the refineries to their knees.

Maintenance of Government-owned Refineries

While we bask in the euphoria of Dangote’s refineries, it is also instructive that we don’t neglect ours. The 4 refineries in Kaduna, Warri, and Port Harcourt (2) with dpd capacities of 110,000barrels, 125,000barrels, 60,000barrels, and 150,000barrels, respectively should be concessioned to serious investors so that they can complement Dangote refinery’s output. NNPC recently signed a maintenance services agreement with South Korea’s Daewoo Engineering and Construction (Daewoo E&C) for the repair of Kaduna Refinery after posting a loss of about USD$50million in 2021. The key performance indicators are to increase the efficiency of the refinery by 60% within a timeline of 24months and a budget of USD$741million. This should be monitored closely in order to ensure that the deliverables are at par with the set objectives.

Conclusion

In conclusion, while the Dangote refinery has come at a time like this, we need to understand that this may not necessarily mean the panacea to the nation's economic woes. In fact, there are some who expressed anxiety about handing over our economy to a single person. Be that as it may, there are serious works to be done. Energy shouldn't be the only mainstay of our economy, we still have agriculture, mineral resources, science & technology, sport, tourism, and entertainment that are under-tapped. This is why the capacity of the soon-to-be-announced members of your cabinet will be a key success criterion. We would love to see people of substance, track record, and unquestionable character at the helm of affairs; please resist the temptation or 'persuasion' to sacrifice merit on the altar of political patronage or compensation.

God bless the Federal Republic of Nigeria.

Please accept the assurance of my warmest regards.

Taiwo Idowu.