Deregulation and fuel subsidy removal in Nigeria: An Islamic perspective (II) The government claims the landing cost of a litre of petrol is N123.32 and the distribution margins are N15.49. The cost of a litre is therefore, N123.32+N15.49 which amount to N138.81. This is equivalent to $3.54 per gallon or $148.54 per barrel. The government allocates 445,000 barrels of crude oil to local refineries or for local consumption. This will translate to 445,000 barrels x 168 litres to give 76.44 million litres of refines petroleum products; though made up of gasoline, diesels, AGO* etc, we will assume for simplicity and easy of calculation that this 76.44 million litres are all gasoline. According to the Punch Newspaper of 15th December, 2012, the total consumption of petrol daily is 40.32 million litres well above the 33 million litres approved by the National Assembly. The allocation of 445,000 barrels per day is therefore, technically, whether refined locally or abroad should be adequate to cater for the domestic market here in Nigeria. Looking at two scenarios will facilitate and elucidate whether there is actually any subsidy on fuel in Nigeria or not. The first is to assume the refining of the 445,000 barrels by our local refineries. The cost would boil down to N33.36 per litre as outlined above. The second scenario is to assume that all the 445,000 barrels are traded by swapping with commodity companies as being currently done for the excess of the crude that could not be handled by the local refineries. The landing cost as claimed is N123.32 and when you add distribution margin it amounts to N138.81 per litre. We have to removed the international cost of a barrel of Nigerian crude oil ($107 per barrel) from this to get the net cost of imported petroleum products to Nigerian consumers. The net cost would therefore be $148.54 -$107 or $41.54 per barrel crude oil. This comes out to be a net of N39.56 per litre. The true cost of a litre of imported swapped petrol and those refined locally is therefore, between N33 and N40 per litre when the crude oil allocated to domestic refineries is at no cost. The issue of subsidy arises when Nigerians are asked to pay the landing cost which arose in the first place as a result of criminal dereliction of duty by government and the massive corruption in the turn around maintenance of our refineries. * If we refine 1 barrel (42 gallons) of crude oil, we will get 45 gallons of petroleum products. The 45 gallons of petroleum products consist of 4 gallons of LPG, 19.5 gallons of gasoline, 10 gallons of diesel, 4 gallons of jet fuel/Kerosene, 2.5 gallons of fuel oil and 5 gallons of bottoms. So why the cry on subsidy? The concept of under-recoveries, according to Sharjeel and Faraz (2013), is that if petrol is sold at a retail price lesser than the landed cost of importing petrol as an end-product at current Singapore market rates and at current exchange rate and customs duty, then the difference is a notional loss suffered by the marketers since they priced the product lower than what they could have “competitively” priced. So for instance, if the landed import cost was N138, the under-recovery would be N41 (N138 minus N97). Hence, the supposed “under-recoveries” are not real losses as we can see that the marketers and government are still making a healthy profit. What is the pump price of fuel among OPEC members? It seems that for citizens of member countries of OPEC, it is different yokes for different folks; while in some of these countries the burden of paying for petroleum products is so light, the same cannot be said of other countries. While in Nigeria, as well as a few other OPEC member countries, citizens have to pay through their noses for petroleum products, the reverse is the case in some other countries as petroleum products are sometimes cheaper than beverages. Most of these countries both OPEC and non OPEC subsidize the cost of the pump price of petrol for the benefit of the poor. * Things have not remained the same in Iraq since after the war. Since then, there has been a drastic reduction in subsidy on petroleum products. This is in consonance with the agreements for loans from the International Monetary Fund (IMF) as well as relief from debt incurred during the Saddam Hussein regime. So, since 2005, prices of fuel have been climbing up in the country. What are the Islamic views on deregulation and fuel subsidy removal? Islamic economics refers to the economic system that conforms to Islamic scripture and traditions. The central features of an Islamic economy are summarized as follows: (1) “behavioral norms and moral foundations” are derived from the Quran and Sunna, (2) zakat tax as the basis of Islamic fiscal policy, and (3) prohibition of interest (Kuran, 1986) Islamic movements and authors generally describe an Islamic economic system as being different from both capitalism and socialism, and tend to do away from the drawbacks of the system. To reduce the gap between the rich and the poor, Islam encourages trade (Quran Ch 4:29: “Eat not your property among yourselves through unfair means but let there be amongst you a trade by mutual goodwill and agreement”), discourages the hoarding of wealth (Quran 9:35; Al-Bukhari Vol. 2 Hadith 514) and outlaws Usury (Quran Al-Baqarah 2:275; Al-Baqarah 2:276-280; Al-’Imran 3:130; Al-Nisa 4:161; Ar-Rum 30:39) (the term is riba in Arabic). Therefore wealth is taxed through Zakat, but trade is not taxed. Usury allows the rich to get richer without sharing in the risk. Profit sharing and venture capital where the lender is also exposed to risk are acceptable (Ibn Majah Vol. 3 Hadith 2289). Hoarding of food for speculation is also discouraged (Abu Daud Hadith 2015; Ibn Majah Vol. 3 Hadith 2154). Grabbing other people’s land is also prohibited (Al-Bukhari Vol. 3 Hadith 632; Vol. 4 Hadith 419; Al-Bukhari Vol. 3 Hadith 634; Vol. 4 Hadith 418). Free market/trade/profit Islam promotes a market free from interferences such as price fixing, hoarding and bribery. The primary evidence of trade and business in Islam is Qur’an, Chapter two (Suratul – Baqarah), verse 275, where Almighty Allah says thus, “But Allah has permitted trade and has forbidden interest”. Also in verse 198 of the same Surah, He collaborates this injunction thus, “There is no blame upon you for seeking bounty (i.e. profit from trade) from your Lord (during hajj)”. In the same vein, the duo of Bukhari and Muslim reported in their famous books of hadith collection that the Prophet (P.B.U.H) said inter alia: “The two parties (engaging in trade) have choice to renounce on their agreement so far they are still with each other (i.e they have not left the place where the transaction took place): If they are both sincere and plain with each other, their transaction will be blessed. If they however, choose to lie for one another and attempt to be dubious, they will be denied the blessing/comfort/joy of the transaction”. (see Hadith No 2079, Vol. 4, page 391 in Bukhari and Hadith No 3836, Vol. 5, page 416 in Muslim). It is therefore, obvious that there is nothing un-Islamic about free trade. However, government intervention is tolerated under specific circumstances (Choudhury, 2000). Privatization/subsidy removal There are similarities between Islamic economics and leftist or socialist economic policies. There is consensus amongst Islamic jurists and social scientists that Islam recognizes and upholds the individual’s right to private ownership. The Qur’an extensively discusses taxation, inheritance, prohibition against stealing, legality of ownership, recommendation to give charity and other topics related to private property. Islam also guarantees the protection of private property by imposing stringent punishments on thieves. The Prophet (P.B.U.H) said that he who dies defending his property was like a martyr.Public property in Islam refers to natural resources (forests, pastures, uncultivated land, water, mines, oceanic resources etc.) to which all humans have equal right. Such resources are considered the common property of the community. Such property is placed under the guardianship and control of the Islamic state, and can be used by any citizen, as long as that use does not undermine the rights of other citizens Bakhash, 1984). Some types of public property cannot be privatized under Islamic law. The Prophet’s (P.B.U.H) saying that “people are partners in three things: water, fire and pastures”, led some scholars to believe that the privatization of water and energy is not permissible. The Prophet allowed other types of public property, such as gold mines, to be privatized, in return for tax payments to the Islamic state. The owner of the previously public property that was privatized pays zakat and, according to Shi’ite scholars, khums as well. Islamic jurists have argued that privatization of resources of oil, gas, and other fire-producing fuels, animal pasture, and water is forbidden. The principle of public or joint ownership has been drawn by Muslim jurists from the following Ahadith of the Prophet of Islam: Ibn Abbas reported that the Prophet (P.B.U.H) said: “All Muslims are partners in three things—in water, herbage (animalpasture) and fire.” (Narrated in Abu Daud, & Ibn Majah) (Wikipedia, 2012). Anas added to the above hadith, “Its price is Haram (forbidden)” (Anas, 2009). Conclusion The primary responsibility of any government is to make life comfortable for the generality of its people. The Prophet (P.B.U.H) says: “O Allah! Whoever You put in control (authority) of my people (muslims) and he makes things difficult for them is who I request you to make things difficult for. But I pray You to be lenient with whoever that is lenient with them” (see Muslim, Hadith No 1208, page 324). Governments in Europe and America adhere strictly to this provision even though they are not Islamic and currently operate Market Economy or Capitalism. They provide subsidies in form of unemployment benefits, agriculture subsidy, milk benefit to nursing mothers, elderly benefit etc. Our own government copies Market Economy but will only copy the aspects that will inflict pains and discomfort to our people. At the current pump price of N97 per litre, government is making N4 billion per day from the sale of the 70 million litres of petroleum products obtainable from the 445,000 barrels per day allocated to domestic market. Energy which according to the Hadith could be considered a Public Property should benefit majority of the populace. What government needs to do is to learn from the holy Quran Chapter 3 (Suratu Ali ‘Imran) verse 161 where Allah (STW) warns: “No prophet could (ever) be false to his trust. If any person is so false He shall on the Day of Judgment restore what he misappropriated; then shall every soul receive its due whatever it earned and none shall be dealt with unjustly” Finally, government should stop the monumental corruption, not the l subsidy on fuel; they should instead institute social welfare packages like elderly benefit, unemployment benefit, subsidy on agriculture, in addition to the current notional subsidy on fuel; should they fail to heed this warning, calamity awaits them here on earth and in the hereafter. Masalam.
Posted on: Sun, 30 Jun 2013 08:25:42 +0000
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