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Fuel Crisis


18 May 2015

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Nigeria: Fuel Shortages Show Need for Public Ownership of Oil Industry

H.T Soweto

For weeks now, a drought of fuel has hit Nigeria, ironically Africa's top economy and largest crude oil producer. Queues have returned to petrol stations. Transport costs are rising. Where fuel is available, it goes for as much as N130 per litre and double of this price on the black market. This less than two months after outgoing President Goodluck Jonathan, just before the March 28 general elections that he lost, announced a reduction of fuel price to N87 from N97.

The economy is grinding slowly to a halt with long lines waiting wistfully at bus stops and workers turning up late or not at all for work. The informal economy made up of artisans and shop keepers is hardest hit. Against the background of the collapse of electricity supply despite privatization, artisans and shop keepers rely daily on generators to power appliances and make a living. Without fuel, it is impossible for this layer of the working masses to make their daily bread.

This scarcity on top of a 50% crash of crude oil price on the world market and the consequential financial crisis it has set off illustrates just how unsustainable is Nigeria's lack of control of its oil assets much of which is in the hands of foreign and local multinational oil companies and marketers. The current scarcity is not caused by the global trend in the crude oil market. Starting from last year, crude oil price crashed internationally - negatively impacting the economies of key oil exporting countries. Contrariwise, this scarcity is caused by the refusal of oil marketers, who import refined fuel products into the country for domestic use, to continue to do so until the Federal Government pays what it purportedly owes them in subsidy payments. Subsidy, the difference between the landing price of fuel and the fixed domestic price, is paid for by the State to guarantee cheaper price of imported petrol.

Profiting from artificial scarcity

In essence, what we have is an artificial scarcity – an action taken by a group of oil marketing and storage companies who for years, and in connivance with politicians, have been ripping off the country billions of naira in opaque subsidy payments. A probe launched into the subsidy payments in 2012 in response to the demands of the mass movement and strike early in January that year revealed much rip-off and embezzlement to the tune of $1.1billion. But except for a few arrests and circus trials, it has been business as usual for oil marketers, government officials and politicians.

Despite being an oil-producing Nation, Nigeria relies on imports for over 70% of domestic fuel needs. This is primarily because the country's few refineries are not functioning at optimal capacity. Over 5 decades after oil was discovered in commercial quantity, Nigeria can only boast of four refineries with a combined oil distillation capacity of 445, 000 bbl/d. But even with this amount if compared to total local petroleum consumption in 2014 of 305, 000 bbl/d, it should mean that Nigeria does not have to import fuel at all. However in 2013, the "combined refinery utilisation rate was 22%" (US Energy Information Administration). This significant shortfall has to be taken care of by importation meaning that much of what the country gains in crude oil sale and foreign exchange earnings is in turn lost to fuel imports and subsidy payments.

Nothing better illustrates this capitalist absurdity than the current situation. According to the Major Oil Marketers Association of Nigeria (MOMAN) for instance, the Federal Government owes importers and storage companies the whopping sum of N200 billion ($1billion) in subsidy payments (ThisDay newspaper, 14 May 2015). This is after the initial payment of N154 billion in April. A large part of the balance of N200 billion - about N69 billion according to the marketers - is for forex differentials claimed. What accounts for this huge forex differential is the devaluation of the Naira as the government could not further stem its freefall against the dollar with a dwindling foreign reserve. From N168 per dollar last November, a dollar now exchanges for N199.90 at Central Bank of Nigeria (CBN) approved interbank channels. But the freefall of the Naira continues. This means that even if the Federal Government is able to pay the marketers their outrageous claims, the next few months of fuel imports will see an accrual of similar monstrous claims.

In the long run and at some point, this would become unsustainable as the debts pile up. Already alarm bells are being sounded by the Finance Minister that the country has exhausted half of this year's borrowing allowance. Cash-trapped, many States have defaulted in upward of six (6) months of public workers' salaries. Tragically, the capitalist ruling elite who have a "take-the-money-and-run attitude" do not see it in their interest to build the capacity of the country to refine its own fuel (a capital-intensive project) since they already benefit enormously from the current state of affairs which ensures huge profit for oil marketers with little capital investment.

Labour must act now

The Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) need to intervene decisively in the current situation beginning with a mobilisation for a one-day mass action especially to register the displeasure of the working masses to the fuel shortages. The labour movement must insist that a bunch of oil marketers cannot hold society to ransom while still making enormous profit.

For instance, all filling stations now sell fuel, when it is available, for as much as N130 while the official price is N87. Also fuel is being hoarded in the underground tanks of petrol stations whose operators prefer to sell to black marketers instead of the people. What the labour movement must do is to organise enforcement committees at community levels made up of workers, civil society activists and community youths to enforce price control at filling stations and also ensure that the products are discharged and not hoarded. Petrol stations discovered to be hoarding fuel should be closed down immediately by the enforcement committees with the backing of the people. In addition, the labour movement should demand a public probe by a committee, made up of elected representatives of trade unions, experts, social movements and civil society, into the subsidy payments as well as the activities of the NNPC and its subsidiaries. Other demands which the mass action should raise is the urgent need for the upgrading of the capacities of the refineries and building more as well as the taking into public ownership of the oil industry under democratic control and management. The mass action must also raise demands on other critical social issues like non-payment of salaries in most states and the power outages.

Rising Anger

Understandably, there is so much anger in society at the turn of event. The actions of the oil marketers is understood as nothing but sabotage and this has only further fuelled hatred of the outgoing government and the Minister of Petroleum, Diezani Madueke, who is sitting atop unarguably the most corrupt public institution, the Nigeria National Petroleum Corporation (NNPC). But this anger which at other times would have found expression in strikes, protests and demonstrations is being tempered by huge hope and expectation, albeit illusory, that it would come to an end on May 29 – the day the winner of the 2015 presidential election, Muhammadu Buhari will officially take power. This is in keeping with a trend that has become popular since Buhari won elections – the placement of so much hope and expectation in the incoming government, the belief that May 29 is the beginning of the end of all pain and suffering borne for 16 years under the outgoing Peoples Democratic Party (PDP) such that Buhari himself has now started to urge for restraint and understanding that he is not a "magician". But this rising hope and expectation in essence means that the working and poor masses expect the incoming government to take stiff and radical actions against the oil marketers and other beneficiaries of the opaque oil industry.

This expectation of the masses is completely in order even though this could have been misplaced given the pro-capitalist character of the incoming administration. Since 1958, the oil industry in Nigeria has completely been in the hands of big business – both foreign and local. Not for one day since 1958 have the people of Nigeria nor of the oil-producing communities genuinely had a say in how crude oil which accounts for over 70% of revenue and over 95% of foreign exchange is run and managed. Nigeria's oil industry is principally made up of a bunch of International Oil Companies (IOCs) and a few Nigerian companies who are laws to themselves without any real control and monitoring of their activities by relevant agencies of government. The NNPC which is supposed to play regulatory roles is as enmeshed in the sharp practices of the industry as the oil companies. There are reports of NNPC conniving with oil companies to shortchange the country of billions of dollars in taxes and royalties. As such, side-by-side with the unchecked exploitation of Nigeria's collective wealth and the repatriation of profit out of the country, the oil companies are equally causing damage to the environment and pollution of farmlands and water sources in the Niger Delta region leading to loss of livelihoods and disease outbreak. In the fuel supply chain of the oil industry, the oil marketers and importers call the shots.

The Petroleum Industry Bill (PIB) now before the National Assembly which is being touted as the solution to the oil sector is weak in terms of regulation and ensuring Nigerians own and control their oil wealth. Essentially the bill proposes the deregulation of the oil sector which means tightening of the nuts of private-interest control. But such is the opaqueness with which the oil industry is run and the free hand the oil companies have from time immemorial enjoyed that this weak bill has been frustrated at parliament for years now by powerful interests opposed to the few weak regulations and oversight it proposes. Profit is the lifeblood of capitalism and where it gets it the most with little or no restrictions it considers an Eldorado that must be sustained at whatever cost.

NNPC - A Cesspool of Corruption

A recent but shoddy probe into the accounts of the NNPC reveals what the public have long suspected - that the NNPC is a conduit pipe for embezzlement and looting of state funds by both military and civilian rulers of Nigeria. The probe for instance showed that the NNPC has a blank cheque to spend any amount from the proceeds of crude oil sale without any oversight or control from any quarter, not even the National Assembly.

The forensic audit carried out by Price Waterhouse Coopers (PwC) was meant to unravel the veracity of the allegation made by past Central Bank Governor Sanusi Lamido Sanusi that $20 billion dollars of crude oil sales was unremitted by the NNPC to the federation account. Suffice to note that Sanusi was unceremoniously sacked by President Jonathan for bringing this to light. While the final report claimed that only the sum of $1.48 billion was missing, other findings of the audit are quite disheartening and show the extent at which the capitalist ruling elites have sabotaged the economy by their rapacious corruption and insatiable greed. In its findings, the PwC unearthed a model of doing business which it described as "unsustainable". For instance, PwC found that while the total gross revenue generated from FGN crude oil liftings within the period between 1st January 2012 to 31st July 2013 amounted to $69.34 billion, the total cash remitted was $50.81 billion. The NNPC had spent the difference on so-called operational costs and subsidy. As a result "the Corporation is unable to sustain monthly remittance to the Federation account and also meet its operational costs entirely from the proceeds from domestic crude oil revenue. As a result, they have had to take on third party liabilities to bridge funding gap" (Guardian newspaper, 13 May 2015).

Meanwhile the audit was conducted into a period when crude oil price averaged $122.5 per barrel. The PwC went on to speculate that if the NNPC continues doing business at that rate and with current 50% crash in oil price, the Corporation can expect to exhaust all proceeds of domestic crude oil sales on maintaining its overhead costs and so-called subsidies, without a kobo remitted into the Federation Account, and still require third party liabilities to meet costs of operations and subsidies. There is also controversy over whether or not the huge amount the audit discovered was reportedly spent by the NNPC on kerosene subsidy within the same period is legal given the fact that late President Yar'Adua had cancelled the subsidy.

If this much was unearthed in a shoddy audit which PwC admitted in its final report to have been conducted without "access to the full accounts and records of the Nigerian Petroleum Development Company (NPDC) - the exploration and production subsidiary of the NNPC", then one can only imagine what could have been revealed if a real probe into all hidden accounts and business deals of the NNPC were to be conducted.

What Can The Incoming Government Do?

On queues at filling stations, it is not uncommon to hear someone perhaps angered by the long wait or the insults of petrol station attendants or the rising cost of fuel to cry out loud: "Buhari will deal with all these by May 29". The new government has a big responsibility to meet the aspirations of the people but to do this satisfactorily require measures that would challenge profit-interest and crony capitalism. But to this effectively would be tantamount to asking for the moon from a pro-capitalist government.

For instance the enormous corruption and sharp practices unearthed in the NNPC is actually a function of the central role oil plays in the sustenance and maintenance of Nigeria's neo-colonial capitalist ruling class. For reason of arriving late on the stage of history, the capitalist ruling class is managing a weak capitalism which is caught up in a relation of dependence on the advanced capitalist countries. This relation of dependence finds its manifestation in the position of Nigeria as a raw material-exporting (crude oil, cocoa, rubber, etc.) nation while it in turns imports finished goods and services, skills, technology, fashion, entertainment etc. from the industrialised capitalist world. This is why crude oil export accounts for over 70% of Nigeria's revenue.

The relation of dependence foisted by imperialism in conjunction with the rapacious corruption of the capitalist ruling elite also accounts for Nigeria's chronic underdevelopment despite the abundance of human and material resources needed to develop society. According to Oil and Gas Journal (OGJ), Nigeria has the second largest amount of proven crude oil reserve in Africa after Libya estimated as of January 2015 at 37 billion barrels. Yet the same country is unable to guarantee very simple basic needs of its people. According to the US Energy Information Administration, Nigeria has one of the lowest rates of net electricity generation per capita in the world with an approximately 100 million people, out of a population of 170 million, without access to electricity.

Therefore while curbing corruption, reforming the NNPC and the oil sector, diversifying the economy and developing the capacity to refine fuel for our own domestic consumption are all significant reforms that would all constitute great advances over the sordid past yet these would not fundamentally make Nigeria's economy buoyant enough to be able to satisfy the needs of its long-suffering working and poor people if international oil companies and profit-interest continue to call the shots in the oil sector and the nation continues to depend entirely on import for its demands for finished goods, technology etc. Therefore the sine qua non for placing Nigeria on the highroad of development is to break from the relation of dependence by doing away with the imperialist domination of the economy as well as capitalist relation and introducing a rational economic plan to begin to reorganise society to meet the interests of the working and poor majority. This is where the argument for public ownership of the oil industry under democratic control and management retains its validity today. Despite any limited measures it takes, this necessary fundamental change cannot be achieved by the incoming government of Buhari as it supports the capitalist system.

Public Ownership of the Oil Industry

It is the lack of public ownership, control and management of the oil industry that makes it possible for a group of marketers to hold to ransom the entire country by refusing to bring fuel products into the country. This is also why the industry is unaccountable to the people. Also as a result of the dominance of profit-interest in the oil sector and the role of imperialism, successive capitalist governments have not being able to build the courage to revamp Nigeria's refineries so that fuel for domestic use can be refined here in the country because this in essence would lead to the ending of the profit of the local and international oil cartels and marketers. Only a government that is not in the pocket of oil cartels and marketers can take this step. Unfortunately successive capitalist governments have often been elected with campaign funds and donations from the oil industry which goes to any length to make sure its interests are well protected.

But if it was a Socialist government that is to come into power from May 29, 2015, the first step it would take to arrest the drift of Nigeria's economy over the precipice would be to take into public ownership the oil industry under the democratic control and management of the working people, followed by the banks, finance and a state monopoly of foreign trade. The local and international oil companies would be nationalised and their assets in Nigeria taken over by the state, with compensation paid on the basis of proven need, to prevent capital flight and for use in the service of the people. To replace the NNPC, the new government would establish a new body run collectively by a board whose members who must be individuals with working experience in different fields of the oil industry however not appointed as in the past, but elected by workers unions and the oil-producing communities. Instead of private interest, the state shall be responsible for crude exploration, production, lifting and sale. To ensure self-sufficiency in the refining of crude oil and halt the wasteful practise of subsidy payment, the State shall immediately invest in building new refineries and revitalising the four existing ones.

These key steps if now linked on an economy-wide basis to public ownership of banks, finance and state monopoly of foreign trade can then open up the possibility of introducing a rational plan of the economy to permit diversification, industrialisation, creation of living wage jobs with union rights, improvement in electricity generation through investment in eco-friendly energy sources and provision of free education and healthcare, a massive public works to build safe and decent homes, building of roads and transportation infrastructures and opening up the rural areas through investment in agriculture and allied industries etc.

Socialism is the alternative

We strongly defend the potency of public ownership under democratic control and management as an economic and political measure to push Nigeria back from the brink for the simple reason that it is the only way to break the back of capitalism whose profit-interest is fundamentally what has held back Nigeria's development.

Meanwhile by public ownership, we do not mean either the form of nationalisation seen in Nigeria and other countries which allowed local elites to loot public assets or Stalinist authoritarian, bureaucratic rule. By Socialism we do not mean what occurred in the former Soviet Union when, from the mid-1920s, a developing elite took control, blocked democratic control and management by the people themselves so that the privileged layer could maintain their rule. The former Soviet Union at the time of the revolution in 1917 was a very undeveloped and poor country, far behind the countries of Western Europe then, with pre-capitalist modes of production existing side-by-side and sometimes predominating over the capitalist mode of production. However due to the nationalisation of the economy, within a period of a generation, the former Soviet Union was able to develop it industry and economy at a lightening rate to become second largest economy after the United States.

But this development did not continue, increasingly the authoritarian rule stifled the economy and society. A far-sighted revolutionary Leon Trotsky who, together with V.I Lenin, was one of the original leaders of the 1917 Russian socialist revolution argued from the 1930s that, despite its growth, the Soviet Union would eventually collapse unless a political revolution replaced the rule of the Stalinist bureaucracy with a genuine workers' democracy. In a very insightful piece, Trotsky wrote that "workers democracy is as important to socialism as oxygen to a human being". Unfortunately, exactly as Trotsky had warned, the former Soviet Union eventually collapsed out of internal contradictions in 1990 and capitalism was restored with brutal consequences for the working and toiling masses of that region.

Therefore if public ownership of the oil industry and economy is not to end up like the case of the former Soviet Union or, to recall experience closer home, like the past State-owned corporations in Nigeria like NEPA, NITEL, Water Corporations etc. that eventually became ineffective and crony institutions as a result of the way they were run bureaucratically, genuine control and management by the working people must be established. This can only be possible when workers and the mass of the people are allowed to have a say in how the economy and political system is run. This means no appointments; all principal officers of a public company must be elected by workers of that company and the wider labour movement, and also be subject to immediate recall when found wanting. This is the best way to ensure the people are involved in how their affairs are run.

But to achieve all of the above will require the working class building its own independent voice and political party. While Buhari may take steps against some vested interests in an attempt to clean up the oil industry, the reality is that there is a limit to how far he can go if he continues, as unfortunately he and many around him do, to believe that change is possible within the system of capitalism. Only the working masses organising independently and rising in their millions can put a decisive end to the pillage of our collective patrimony through ending capitalism and putting in place a workers' government armed with democratic socialist policies.