"The prices of everything will increase, transport, housing, school fees, food, etc. The common man will not be able to survive. We will say no and oppose bad government policies. We will say no and oppose IMF (International Monetary Fund) policies." Mrs. Ganiat Fawehinmi, Jan 3, 2012.
Is 'Fuel Subsidy' removal an IMF policy? Is Mrs Ganiat Fawehinmi right? Yes. The present 'Fuel Subsidy' removal is an IMF program/policy. The IMF has promoted and supported fuel subsidy removal as government policy in most developing nations. It is part and parcel of the IMF liberalization policies and programs which it imposes on developing nations whenever the opportunity arises. Let me explain. I will limit this analysis to the last 10 years (2002-2012) for brevity. I will focus on 'fuel subsidy' removal.
'Hide nothing from the masses of our people. Tell no lies. Expose lies whenever they are told. Mask no difficulties, mistakes, failures. Claim no easy victories…..' Amilcar Carbal . - Unity and Struggle.
IMF working papers and staff position papers are discussion tools for IMF policy formation. They start off with the usual disclaimer that the positions and conclusions in the papers are those of the authors and not of the IMF or its policies. These papers are circulated for discussions within IMF and the World Bank. Sometimes, an IMF executive board workshop or seminar is organized around the ideas expressed in them. These discussions, meetings, seminars and workshops form the foundations of IMF policies. So, all we have to do is find the roots of the fuel subsidy campaign in the past IMF working papers and the subsequent implementation of these policies in developing nations with special attention to Nigeria. I will proceed to do just that.
In 2002, Sanjeev Gupta and a few colleagues in the IMF wrote a working paper on domestic petroleum pricing in oil producing countries. (Gupta, Sanjeev, Benedict Clements, Kevin Fletcher and Gabriela Inchauste, 2002, "Issues in Domestic Petroleum Pricing in Oil Producing Countries", IMF Working Paper 02/140 , Washington: International Monetary Fund). Sanjeev Gupta is the Deputy Director in the Fiscal Affairs Department of the IMF. Prior to this, he was the Assistant Director in the African Department. Gupta and his colleagues argued that petroleum product prices were heavily regulated. Domestic petroleum product prices were below international prices and this implied foregone revenue. The foregone revenue constitutes a hidden subsidy for its citizen (price - gap methodology). This hidden subsidy benefited high income more than low income groups. The solution was to pass international prices into the domestic market and increase fuel prices. They therefore recommended the imposition of international prices on the domestic petroleum product market and the removal of fuel subsidies. They advised on how to identify political opponents of the fuel subsidy removal program, how to do a publicity campaign, how to set up a program aimed at using the money generated, how to time the subsidy removal, how to make promises of transport buses, education, health, roads and give money to the poor if necessary. Their paper is the blueprint of the Fuel subsidy removal program that the FGN is unleashing on Nigerians today…step by step. It is all in the IMF working papers
Issues in Domestic Petroleum Pricing in Oil-Producing CountriesLet us look at this economic argument closely. We will leave the FGN and IMF corridors of power and enter the realms of household economics where ordinary Nigerian farmers, workers, students, market women, housewives, unemployed make rational economic decisions. A Nigerian farmer produces yams for household consumption and sales. This price-gap theory might argue that the yams that the farmer uses to feed his household constitute a hidden subsidy because he has forgone revenue or profit by not selling the yams in the market. Transparency demands that the hidden subsidy be acknowledged and recorded in the household budget and family members made to pay market prices for their meals. The theory might further argue that grownups benefit more than children (they eat more). Hence, the household yam subsidies should be removed and special programs (run by a honest uncle) should be put in place to help the children. A publicity program would be needed to explain the yam subsidy removal program to the mother and all other powerful family opponents. I do not need to go much further. Soon, the household members will demand market prices for their labor in the farm (market wages) so they can pay market prices for the yams they eat at home. The wife would demand market wages for the housework. The farmer's household will collapse. Every rational farmer knows that you first feed the family and it is only the excess that you sell in the market. No amount of Leontief Input-output model, Social Account Matrix (SAM) or Computable General Equilibrium model (CGE) can explain away this basic common sense fact.
Not long after Gupta IMF paper was published, the FGN decided to increase the price of crude supply to the NNPC from $9.50 per barrel to $18 per barrel. International spot oil prices for Bonny Light Crude were $25.15 per barrel. NNPC was now invoiced by the FGN in US $ for domestic crude allocations (445000 barrels of oil per day) and expected to pay the Naira equivalent to the Federation Accounts using CBN quoted exchange rates. This is where and how they created a non-existent subsidy. Since NNPC had no money, it paid the amount received from petroleum product sales minus the subsidy into the Federal Accounts. NNPC sent PPPRA a bill for the subsidy. NNPC then requested the Ministry of Finance to pay the subsidy amount from the PSF into the Federation Account. The FGN was left with this buck passing of a fuel subsidy payment. The IMF was not finished.
In 2003, Shahabuddin Hossain of the IMF African department wrote an IMF working paper on fuel subsidy in Nigeria (Hossain, Shahabuddin Mosherraf , 2003, "Taxation and Pricing of Petroleum Products in Developing Countries: A framework for Analysis with Application to Nigeria.", IMF Working Paper 03/42 , Washington: International Monetary Fund). He pushed the same ideas as Gupta with the same arguments. He recommended measures to protect consumption of the poor and politically powerful to stop any strong protest and social unrest after subsidy removal. Using Nigeria as an example, he calculated the fuel subsidy and called for a 115.4% increase in the price of petrol (from N26 to N56 per litre), a 89% increase in the price of diesel and a 37% in the price of Kerosene. He claimed that these were not specific suggestions for policy reforms in Nigeria. Maybe it is just coincidental, but a 115.4% increase of N65 /litre is N140.01/litre.
Taxation and Pricing of Petroleum Products in Developing Countries: A Framework for Analysis with Application to NigeriaA few months after Hossain's IMF working paper was published, the FGN increased petrol prices from N26 per litre to N55 per litre using some of the arguments in his paper to support the decision.
In 2006, David Coady published another working paper on fuel subsidy removal. ( Coady, David, Moataz El-Said, Robert Gillingham, Kangni Kpodar, Paulo A. Medas, and David Locke, 2006,
The Obasanjo executive increased fuel Prices to N100 per litre when he was leaving office in 2007. The Yar'Adua executive decreased it to N65 per litre in the face of mounting opposition from labor and Nigerian civil society.
David Coady was back in 2007. (Baig, Taimur, Amine Mati, David Coady, and Joseph Ntamatungiro, 2007, "Domestic Petroleum Product Prices and Subsidies: Recent Developments and Reform Strategies," IMF Working Paper 07/71 Washington, International Monetary Fund). In this paper, the authors developed the strategies for imposing fuel subsidy removal. First, the subsidy is made explicit (NNPC to pay international prices).
Secondly, the expenditure is reflected in the budget. This creates a seemingly fiscal budget crisis. Then, a propaganda program is started. The support of State governments and local governments for fuel subsidy removal is obtained by promising to give them their share under revenue sharing formula. A program for the poor is published. Care is taken to get the timing and size of the price increase right in order to minimize social unrest and resistance. A publicity campaign for public trust and political support is unleashed on the populace. The whole strategy is laid out elaborately in this working paper
In 2008, the Executive Directors of the IMF held a Seminar on Food and Fuel Price Subsidies: Issues and reform options. The seminar was based on staff papers written by the Fiscal Affairs Department of the IMF. The papers included Food and Fuel Price Subsidies: Recent Developments, Macroeconomic Impact and Policy Responses and Food and Fuel Price Subsidies: Issues and reform options. The IMF executive directors supported the fuel subsidy removal program and divided responsibility with the World Bank. The IMF would focus on the macro-fiscal impact of subsidies and subsidy removal while the World Bank would assist countries in the design and implementation of subsidy removal programs.
IMF Public Information Notice (PIN) No. 08/135, October 10, 2008 The Executive Directors of the IMF Hold Seminar on Fuel and Food Price Subsidies—Issues and Reform OptionsThe IMF and World Bank pushed for adoption of thier fuel subsidy removal policies in the September 2009 G-20 leaders meeting in Pittsburgh, USA. The G-20 supported fuel subsidy removal worldwide. They called on the IEA, OPEC, OECD and World Bank to provide an analysis of the scope of the energy subsidies and suggestions for the implementations of the initiative.
David Coady and his colleagues pushed very hard in 2010 with the same arguments advocating price-gap methodology and fuel subsidy removal programs worldwide. (Coady, David, Robert Gillingham, Rolando Ossowski, John Piotrowski, Shansuddin Tareq and Justin Tyson, 2010, "Petroleum Product Subsidies: Costly, Inequitable, and On the Rise," IMF Staff Position Note 10/05 Washington, International Monetary Fund) and (Arze del Granado, Javier and Coady, David, 2010, "The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries", IMF Working Paper 10/202 Washington, International Monetary Fund).
Petroleum Product Subsidies: Costly, Inequitable, and On the RiseThe Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries
"However, it is worth noting that the price - gap methodology has shortcomings. OPEC is of the opinion that the benchmark price to be used in the case of energy resource well-endowed countries should be the cost of production. Consequently, OPEC could not associate itself with the above estimation of fossil fuel related consumption subsidies." OPEC/IEA/OPEC/OECD/WB Joint Report, June 2010
The report prepared by the IEA, OPEC, OECD and World Bank was released in June 2010. (IEA, OPEC, OECD, World Bank Joint Report, "Analysis of the Scope of Energy Subsidies and Suggestions for the G-20 Initiative", Prepared for submission to the G-20 Summit Meeting, Toronto, Canada, 26-27 June 2010, June 16, 2010). OPEC rejected the price - gap methodology of the IMF, World Bank and IEA . OPEC insisted that fuel prices should be calculated on the basis of the cost of production in oil producing nations. Nigeria is an OPEC member and petrol prices calculated on the basis of the cost of production is N39.30 a litre.
In 2011, the Ministry of Finance carried out a review of the economy based on the IMF price - gap methodology. The FGN insisted that the fuel subsidies must be passed on to the consumers. It advocated fuel subsidy removal and the implementation of the IMF plan. It carried out the IMF inspired publicity to the best of its ability. It involved the NNPC, the Ministry of Petroleum Resources, the State Governors (revenue sharing) and other arms of government as planned by the IMF. It even prepared a list of projects called Subsidy Reinvestment and Expenditure Program (SURE) as advised by the IMF and published it. It set up a committee to disburse funds. It did everything according to the IMF play book. It talked to labor and some opinion leaders in civil society. But, Nigerians did not accept the arguments or fuel subsidy removal program. So, the FGN forgot the Nigeria people and imposed the fuel subsidy removal program as a New Year gift. We have gone into details to show the IMF roots of the fuel subsidy removal policy and program in Nigeria because we, as a people, deserve the truth. Knowledge is power. We mask no difficulties and claim no easy victories. Victory is certain when we stay firm and resolved.
Izielenagbon @yahoo.com
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