22 June 2015, Abuja – The National Association of Energy Economists (NAEE) at the weekend said that without careful sequencing of key energy policies to minimise economic loss, the new government of President Muhammadu Buhari may not successfully solve Nigeria’s energy challenges.
NAEE at a briefing in Abuja told journalists that for Buhari to solve the country’s energy challenges, his government must seek to build and sustain institutional transparency in the energy sector.
They explained that instead of concentrating on distributing legacies in the form of political appointments to satisfy interests, the new government should seek to strengthen key economic institutions like the Nigerian Electricity Regulatory Commission (NERC), Central Bank of Nigeria (CBN) amongst others to undertake their responsibilities without recourse to political interests.
NAEE said that with over N6 trillion reportedly spent to subsidise domestic petrol consumption in the country since 2006, it has being economically illogical to continue with subsidy because it amongst other ills benefits the rich more rather than the income redistribution it was intended to achieve.
The group posited that though there was nothing wrong with government’s intervention in economic systems, such intervention must however be significantly more beneficial to the society than the economic losses it brings.
NAEE President, Prof. Wumi Iledare, explained that the current subsidy regime has shown that the economic losses far outweighs it’s benefits to the nation.
He stressed that the policy is elitist and has no positive effect in the redistribution of income to the poor. Iledare added that if such regime must continue, it must ensure significantly higher benefits than it offers now.
“There is nothing wrong in government intervention, however government must make sure that when they intervene, economic losses must be minimised if not removed completely,” Iledare said.
He stated that: “Every regulations have their costs and benefits. So, if there is going to be energy regulation then the benefits of the regulation must be significantly higher than the losses of the regulation.”
“The purpose of petroleum subsidy is to correct inequity in income distribution. Government must be aware that when you peg the price of economic good like petrol, you can expect three things to happen: One, there will be shortages of that economic good and that is why from time to time you always have shortages of petroleum products.
Two, you are going to have series of illegal activities like you saw people selling petrol in cans during the last crisis. You have black markets which happens when you go to a pump and rather than the N87 per litre, you had it displayed N110 per litre. These are illegal activities because they are breaking the law.
Three, because you do petroleum subsidy, you are going to have significant welfare loss. This is because there are unintended consequences because the subsidy regime is an elite capture phenomenon,” he explained
Iledare also held that fuel subsidy in the country is, “not minimising economic loss to the nation as a whole and that is why you see queues, black market and it stretches further, that is why the roads are bad, colleges are not well funded because subsidy is taking a big proportion of national budget.”
His position was backed by the immediate past president of the group, Prof. Adeola Adenikinju, who noted the subsidy issue is one that the new government needs to make immediate decision on.
Adenikinju stressed that the country was facing challenges in petrol distribution because, “that is where we have the elite and the elites have a way of protecting their interest. The government is handicapped in addressing the issue.”
“Our finances have become crippled because we pay so much on subsidy. One of the key issues, in terms of policy direction, that this government has to confront very early is the pricing of petroleum products especially the Premium Motor Spirit (PMS).
They have to look at the evidence and see what the facts say. Studies have shown us that the rich benefits more from subsidy but when you remove subsidy the poor are worst hit.
“So, if the poor are worst of when you remove subsidy what are those things you have to do to cushion the effect and that brings in remedial issues,” Adenikinju added.