Electricity and fuel price economics, other stories
By: Celestine Mel
Olu owns a 14-seater bus that he uses to transport passengers from Lagos to Abuja. He charges each passenger N5,000 for the 7 hour journey. Each trip gives him a gross income of N70,000 out of which he spends N14,500 on 100 liters of fuel, ‘settles’ police with N5,000 and spends another N5,000 on sundry things such as recharge card, food, ‘gworo’, chewing gum, vulcanizer, ‘agbero’, etc. At the end of each day, Olu goes back home with an average of N45,500.
On September 1, 2020 he stopped at an NNPC gas station in Ibadan to refuel on his way to Abuja. The attendant told him that fuel price has changed. He was “forced” to pay N162 for one liter of fuel, instead of the previous N145. That is a staggering 11.7% more! Olu screamed: “Buhari is stupid.” “He is mad!” “He is crazy”! “Buhari has finished Nigeria!” “E no go better for am! Etc. All through the journey, Olu never stopped cursing the “wicked” President Buhari for “destroying the Nigerian economy”.
Upon arrival at Abuja, he reloaded his 14-seater bus again for the next day’s trip back to Lagos. This time, Olu “forces” each passenger to pay a new fare of N10,000 due to the increased cost of fuel – a staggering 100% difference! By this, Olu raised his gross earning to N140, 000.
Again at Ibadan, he stops for 100 liters of fuel at N16,200. He settles police (who have also adjusted their égunje) with N10,000; spends another N10,000 on sundry items – water, food, “gworo”, chewing gum, vulcanizer, “agbero”, etc. (all of them have doubled their own prices too). When the day is over, Olu goes back home with a net income of N103, 800. Instead of the old net of N45, 500. All other people within the value chain go back home with more income than they previously did: the fuel seller, policeman, recharge card seller, food vendor, gworo seller, chewing gum seller, agbero, down to the vulkanizer. Each person earned more and spent more.
During the weekend, Olu needed a haircut. The barber charged him more than the previous time. Olu’s “madam” went to shop for food supplies. She realized that most prices have also increased by a factor of 13.5% (NBS inflation rate). She was able to buy all she wanted at the new “outrageous” prices because Olu (who first charged “outrageous” fare) gave her a little more money this time. And the merry goes round.
The only people who do not benefit from this “outrageous” new reality imposed by rising fuel and electricity price changes are those who are on fixed income (salary earners) and those who are unemployed. According to the NBS Q2 2020 data, 27.1% of Nigerians are unemployed while 13.5% are on fixed income (those who pay tax). Put together it means 40.5% of Nigerians are on fixed income or unemployed. They are the ones that bear the brunt and wickedness of the new price levels because they have no product to use in factoring the new pain. Not producers. Not traders. Not transporters. Not service providers. Certainly not majority of Nigerians.
So what should be appropriate demand of labour? Can we afford to revert to the old prices? I will attempt to answer.
It would make better sense for labor to ask that employers increase wages to reflect the new reality, instead of asking for price reversal. This is so because there is no model that shows that any forced reversal would lead to cheaper prices of other goods and services, or availability of petroleum products at the service stations. Our history confirms this. Also, since the new price regime has brought more ‘wealth’ to majority of the people, it would be an uphill task to force the chewing gum seller, gworo seller, bus driver or any other member of the chain to reduce his price. Thirdly, labor represents at best, 40.5% of the population. If the change is good for 59% of the population, then government needs to think of the best response to cushion the impact on the 40.5 rather than go back to the start and further plunge the entire country into poverty especially given the drainpipe that the so-called subsidy system was.
This writer commends the plan to exempt poor and vulnerable people from the electricity tariff increase. That is a good first step, only that the metric for measuring “poor” is up in the air. For instance, there are many villages and shanties inhabited by the extremely poor in Maitama, Jabi, Utako, Jahi, Gwarinpa, Guzape, Asokoro, Wuye, Etc areas of the FCT. Can they afford the new tariff? Also, electricity companies do not seem to have the motivation to recover their bills beyond tasking those who ordinarily pay to them with the new tariff. They need to drive up their recovery effort so that every consumer pays for what he/she consumes. I am of the opinion that the problem of DISCOs is not the tariff but their collection. My experience in the AEDC area bolsters this point. I will share it here.
The AEDC person who came to install prepaid meter in my brother’s house told him to pay N50,000 if he needed the meter to be adjusted to read slowly. My brother rebuffed the illicit attempt. But his neighbor paid. As I write this, the neighbor’s meter has been virtually static, even when my brother spends an average of N40,000 per month (pre-tariff increase) to keep his house powered. I am sure, there are thousands of consumers in the business area and indeed, the whole country who have ‘benefitted’ from this scheme. And that is a problem for the DISCOs. Similarly, most houses in the Mushin area of Lagos do not pay anything to EEDC yet, they burn high wattage bulbs round the clock in their premises and shanties. Same for most of the other heavily populated centers around Nigeria. Who pays for these?
Now, back to fuel. The government spends huge money on subsidy just as it spends a fortune to keep political office holders in comfort. Since subsidy is gone, it follows that the cost of governance must also be visited with a scalpel. I read this week that one of the aircrafts in the presidential fleet is up for sale. That is good. The government should go beyond that to cut down on the waste that is endemic in the cost of governance. Our legislators are still the highest paid in the world. Why? Our governors still move around with long expensive convoys. Why? Police officers still collect égunje openly at checkpoints. Why? PPPRA, DPR, PEF, and such other agencies related to the corrupt (but now discarded, I hope) fuel subsidy scheme are still operating and drawing salaries. Why?
We all want this country to work. I know, President Buhari wants it to work even more, especially because of the rousing support and wave of optimism that swept him to power. It is disingenuous for people to keep painting his sincere effort at reviving the country as one from a sadist out to inflict pain. He could not derive joy from seeing people in pain. I am close enough to understand that he desires an El Dorado for all of us. It is just that these hard decisions must be taken to free up resources for development and projects.
Just as citizens are expected to bear the burden of the new reality, government at all levels (including government institutions) need to also think of making the burden lighter. The proposed strike action by TUC and NLC is not in the best interest of anybody. Stakeholders must play their part so that we see a brighter tomorrow. For the sake of Olu and his bus.
- Celestine Mel is a chartered banker and IT projects lead.
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