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The Arithmetic of Fuel Subsidy

Transaction costs impact businesses and economies all over the globe. It is defined as the cost of operating within a market, or “the costs, other than the money, that are incurred in trading goods or services”, including, but not limited to the cost of information. Information is indeed power in all respects. The right information, in the right hands, at the right time, can reduce the impacts of moral hazard and adverse selection in business and economic operations.

The Nigerian Government in 2011, publicized the consideration of a proposal to eliminate fuel subsidy from its annual budget. As expected, this proposal has been the subject of critical analysis and discourse, on both television and radio talk shows, social networking sites, and most recently, the National Assembly. One major issue, worsening this Nigerian quagmire of policy and decision making, is the availability, veracity and integrity of information.

It remains unclear to Nigerians what the estimated daily demand of PMS is. How much do we consume each day? What part of this demand is produced and supplied locally?  What is the short-fall quantity that requires importation? What quantities were actually imported and paid for? Were quantities verified? It further remains unclear what the actual (sunk) cost of fuel subsidy for 2011 is – N1.3 trillion? N1.5 trillion? or what? The definition of fuel subsidy in itself seems to appreciate in vagueness by the day.

In this regard, and with the available information on current PMS retail price, current landing cost and ex-depot price (via PPPRA website), a scenario analysis has been run, with a permutation of numbers, in an attempt to demystify the concept of fuel subsidy and the method of evaluating its cost to government.

The analysis is seen here: The Arithmetic of Fuel Subsidy

“Lead By Example” – An Open Letter to the Commander-in-Chief by Gbenga Sesan

This post was written by Gbenga Sesan and published via www.ynaija.com. Gbenga blogs here.

November 12, 2011
Dr. Goodluck Ebele Jonathan, GCFR
President and Commander-in-Chief of the Armed Forces
Federal Republic of Nigeria
Aso Villa

Dear Mr. President,

Thank you for your continued efforts towards improving Nigeria. Though I have my opinion on the impact of your efforts, but that is not the purpose of this letter.

Sir, as a citizen of the Federal Republic of Nigeria, whose daily duty is to work with young Nigerians and ask them not to think of what Nigeria can do for them but what they can do to make Nigeria a better place, I have a problem. My problem is connected to the questions that I have had to struggle with over the years. One of the most popular is this: “You keep saying we should add value to Nigeria, but Nigerian rulers don’t care about us, so why should we care?”

Recently, a student stretched this question further: “Sir, if President Jonathan truly had no shoes, shouldn’t he at least understand the suffering of Nigeria’s 70%?” Our sessions are apolitical, so I always dwell on motivation and focus on personal development. “If we all become the best at what we do, as business(wo)men, social entrepreneurs, writers, footballers, musicians, politicians, etc, we’ll be able to connect the various islands of sanity we create in order to form a more perfect union,” I say to them.

Sir, the ongoing Fuel Subsidy removal debate has led to additional questions. “If the president can throw his wife a party in Australia and Senators earn millions of dollars a year, why does the president keep asking us, the people, to make sacrifices?” To this question, sir, I have had no answer. In fact, I also have questions. This was why I sent copies of “The Trouble With Nigeria” to you and your aides, with the hope that you’ll at least be reminded (again) of the similarity between our current dilemma and the documented tragedies of years past.

Nothing has changed, really. Yes, I know about the numbers and percentage points your aides quote to prove that things have become better under your watch, but this house is not in the best shape. Sir, I join my students and various participants at events where similar questions have been asked, to ask you a simple question: “If you really want us to make sacrifices, why have you not led by example, sir?” You are the number one citizen of the Federal Republic of Nigeria, and your “body language” carries more weight than what your senior aide posts on Facebook, or what the younger aides retweet.

Sir, on the front page of newspapers on Sunday, November 6, your words were boldly written: “Let’s Sacrifice For Our Country – Jonathan.” You were obviously hoping to ride on the message of the season, for which holidays were observed across Nigeria, but your actions are so loud that they overshadow the words that your aides speak for you. I wonder, for example, sir, why you have refused to make public your “Asset Declaration” details. If you have done so, please pardon my ignorance as I have not liked your page today, and I do not follow your tweeting spokesman.

In a nation where corruption is king, where public office is shortcut to “wealth”, sir, the least you can do is to show Nigerians that your days in Abuja have not changed you from the humble boy without shoes to a man with shoe factories abroad – that are “subsidised” by state funds. But then, you have only been in office (again) for 5 months, so maybe you’ll soon surprise us. All I can feed on is hope. Actually, that isn’t 100% accurate; I have since moved from hope to patience, which used to be known by another word, “longsuffering”.

Sir, some of your enemies said that you have allowed some Heads of State use you, I mean Nigeria’s presidential jets in the last few weeks. First, they said you dropped the Mauritian president off at home before heading back home, on your way back from Australia. It can’t be true, so I’ll not allow the accusation to make me sad. Another president, who was stuck in the Lagos rain for almost an hour, and stopped over in Lagos for private business, was also a beneficiary of our presidential jet’s services. Sir, we cannot afford to live like kings when indeed our purse shows a different reality. But then, this may be the job of your political enemies, so let’s ignore them.

If you want Nigerians to make sacrifices, start from Aso Rock! A radical cut in the cost of government will be the first sign to Nigerians that you really mean what you say. When you reduce Abuja’s pay (and allowances), and achieve considerable savings in the volume of waste known with government’s many moving parts, you will see that it’ll be easy to ask the legislature to do the same. Then, and only then, will it be justified to ask those who already skip meals to skip meals. Some of your aides will say, “what is this not-so-young man saying, it’s a tough job to do,” and my response will be simple: there will be no transformation without sacrifice, and there will be no sacrifice from those already at the mercy of the price of kerosene and petrol until the First Citizen leads by example.

And sir, while still on the subject of leadership, there is another problem: criminals believe you have no bite. This is not a new problem, since this is the same country where the Attorney General was murdered in cold blood and the mystery is still unresolved. As Nigerians unfortunately start getting used to the headlines that use words like “bomb blast”, “67 dead”, “violence”, etc, without the sadness that comes with knowing that each casualty is a human being like ourselves, it is quite scary that we are yet to see anyone brought to book. If your security appointees can’t deliver, why reward incompetence with VVIP tags? God forbid that it is true, sir, that you have outsourced your own personal security for the fear of being a target of attacks.

Nigeria is back at the age-old crossroads again (if we ever left temporarily), and you have a chance to step up to the challenge, sir. Lead by example, and you will spend less on SAs or SSAs whose job descriptions have suddenly reduced to “defend the president”. Lead by example, sir, and your words will carry more weight, even if not spoken with the aid of the media. Lead by example, sir, by cutting down the cost of government before asking Nigerians to sacrifice for a future they are not certain will offer their children the right to a social contract that guarantees the security of life (let’s even leave property for now). Lead by example, sir, and those who are waiting for your failure will edit their already typed-out columns. Lead by example, dear President Goodluck Ebele Jonathan, GCFR, and let the good luck spread to all.

Thank you.
Citizen ‘Gbenga Sesan