Tuesday, November 01, 2011

RE: Simon Kolawole on fuel subsidy fraud

Saying, we the people should pay for our government's corruption and inefficiency, by accepting higher fuel prices which translate to:
  • Higher cost of goods and higher inflation
  • Indirect taxation on industries since the same corrupt government cannot provide electricity that we provide through generators
  • Direct destruction of jobs as businesses will need to reduce staff or pass on the cost to their employment
  • Increased crime since the poor becomes poorer and the rich will only get richer under this regime
  • And then what? the government spend less on subsidy, and the politicians have more to steal! It doesn't even translate to more money for the important stuff they are now lying about! 
Is simply..cutting our nose to spite our face. Kolawole's argument is an elitist one. The solution is to wash and hose the government down of corruption starting with the Corrupter-In-Chief in Aso Rock (and I have proof, if you need one). The second solution is designing a system that will minimize corruption. I laid out such system in my article here; which is:
  • Commercialize the 4 refineries into 4 independent companies. Hire fresh management for them using the international HR firms (Nigerians and foreigners alike..let the best men win). Take them public, selling 51% on the Nigeria Stock Exchange and London's Alternative Investment market (AIM)..Duration: 6-18 months
    • On one hand, you get new companies
    • On the other, the 51% raised can be used for capital expansion and improvement by the new management
    • Lastly, as commercial companies now majority public owned they'll act in the interest of their shareholders in London and Nigeria. Indeed, as 49% government owned, Nigeria will still benefit from the upside of the reforms and government can still have a say in how they are run..but as minority holders. This is the arrangement in Brazil, India, Egypt, China ..etc. I can go on & on 
  • Once commercialized, 
    • Continue the practice of selling crude oil to the refineries at below international market rate i.e. indirect subsidy, which allows the refinery turn profit; while putting a lid on the domestic pump price through a regulated system of tariffs similar to electricity.
    • Allocate excess refine products demand to the four operators: allowing them to organize importers to meet this demand beyond what they produce, while disbursing subsidy directly to them to meet the regulated pump price.
    • At the same time, the new regulatory regime should not allow these operators to import directly or through any subsidiary or joint venture, rather they’re to source their imports from the open market, paying market price for such while bridging this with government paid subsidy.
This system essentially means that as a commercial operator, they’re giving up certain margins to the middlemen importers in so far they don’t produce domestically; encouraging them to eliminate these middlemen quickly. Also, the fewer players feeding at the government trough of subsidies will also mean less corruption. As public companies responsible to shareholders, these companies will only act in self interest to continue to expand production to meet local demand and eliminate the middle men. At the same time, government incentives for new refinery builders including tax holidays, a capital expansion fund that provide up to 51% equity funding or loan guarantees to these builders at the Central Bank will be a more efficient way to spend $6billion than giving it to the President’s buddies. Of course one of these incentives might be a bite at the juicy oil blocs that the majors always want: no refinery no, crude oil concession, no deal. It is called negotiation.

In any case, if the PDP government knew deregulation was the right thing to do, why didn't President Jonathan campaign on this issue when he was running? I dey laugh! In any case, the man is getting is priorities wrong. He should listen to Governor Sanusi, and figure out how to get money away from the overbearing federal government into the states, reduce overhead of the federal government and begin discussing how to reconfigure the country into viable units.



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