Last week the World Bank warned that Nigeria would spend N3 trillion on petrol subsidy in 2021. That is about 400 per cent of what the federal government spends on health and education annually.
Government has defiantly ignored the warning because electricity and petrol subsidy is government way of bribing the populace to overlook the horrendous looting by politicians and top civil servants. It is the mutual impunity that sustains the precarious balance that keeps Nigeria from a cataclysmic plunge into anarchy. No one would dare to tamper with it.
The federal government keeps petrol at half the market pump price to prevent inflation from surging above 30 per cent, while the populace grudgingly ignores the massive looting and weird opulence of government officials in exchange for cheap petrol and electricity.
There are three major reasons for the crushing burden of petrol subsidy in the federal budget. The first is the rising price of crude oil in the international market. The price of crude oil now hovers around $85 per barrel.
That is supposed to be good news for Nigeria. Ironically, leakages left by the federal government by way of failed refineries makes Nigeria a net importer of refined petroleum products.
Nigeria spends most of what it earns from oil price increase on refined petroleum products imports. it gains practically nothing from crude oil price hikes because crude oil is cheaper than refined petroleum products.
The second reason for Nigeria’s embarrassing cost of petrol subsidy is the depreciating streak of the naira. The naira always depreciates.
It depreciated from N116 to the dollar in 2007 to N160 the dollar in 2012 when oil was trading at an average of $105 per barrel. With the devious multiple exchange rate operated by the Central Bank of Nigeria (CBN), nothing can stop the depreciation of the naira.
With oil price currently at $84 per barrel, the landing cost of petrol is higher than in 2012 when oil price was $105 per barrel and the naira traded at N160 to the dollar.
Now the landing cost of petrol is close to N300 per liter because the naira is trading at almost three times the exchange rate in 2012.
The third reason for the mounting cost of petrol subsidy is the most calamitous. It is the Nigerian National Petroleum Corporation (NNPC), the corporate monster that straddles as operator and regulator of the oil industry.
Since private importers of refined petroleum products swindled the federal government of N2 trillion in 2011 over petrol subsidy, government unwittingly granted NNPC the sole right of importing petrol, the only refined petroleum product with regulated price structure.
Now it is obvious that NNPC is worse than private importers. While private importers had to collaborate with government officials to collect subsidy on petrol cargoes that never reached the shores of Nigeria, NNPC does it single-handedly by exaggerating Nigeria’s daily petrol consumption figures.
From a daily consumption figure of 38.2 million liters announced in February 2020 by the defunct regulator, Department of Petroleum Resources (DPR), NNPC has arbitrarily hiked the figure to 102 million liters per day.
It charges the subsidy on that figure as against the actual consumption rate of 38.2 million liters. By that single act, NNPC has surreptitiously raised Nigeria’s 2021 petrol subsidy by N1.8 trillion.
NNPC swindles the federal government with impunity because of the incongruous monopoly it enjoys on petrol importation. When Femi Falana, a senior advocate of Nigeria (SAN), challenged NNPC’s daily petrol consumption figures and demanded to see import documents supporting such figures, the corporation dismissed Falana’s demand with claims that what he wanted were confidential trade figures not covered under the Freedom of Information Act. No one has ever dared the swindlers since then.
The N3 trillion to be spent on petrol subsidy in 2021 is about 33 per cent of government’s estimated revenue for the year.
When government spends N3 trillion on petrol subsidy and ploughs another N3.2 trillion into debt service, what is left from the estimated revenue is less than N3 trillion.
That explains why Nigeria is plagued with one of the world’s highest maternal and child mortality rates. It simply does not have the money to invest in healthcare delivery. It also explains why 13.5 million children of school age cannot find seats in cheap public schools.
Petrol subsidy is a self-inflicted injury and the federal government is even worsening the situation rather than improving it. The four refineries have not processed even a barrel of crude oil in the last two years but government spends close to N300 billion annually on them.
The average monthly pay of a refinery worker is more than the annual pay of a level 8 officer in the civil service. Even as the refineries remain dormant, they have been recruiting and pumping up wage bill.
Zainab Ahmed, Nigeria’s minister of finance, said last week that petrol subsidy would end by June 2022.
That projection is predicated on the expectation that Dangote Refinery under construction in Lagos would come on stream in July 2022. We have had similar projections before. As minister of state for petroleum, Ibe Kachikwu announced that petrol importation and subsidy would end in 2019 when Dangote Refinery was earlier expected to come on stream.
Unforeseen occurrences delayed the completion of the giant refinery and extended the duration of petrol subsidy indefinitely.
Mele Kyari, group managing director of NNPC, preposterously fixed the end of petrol subsidy for March 2020. Some 18 months into that deadline, petrol subsidy is only surging.
Kyari has since swallowed his words as he goes down the annals of the petroleum industry as one of the false prophets who presided over the affairs of the gargantuan corporation now known as the synonym of corruption.
Zainab Ahmed may just be lucky to be the finance minister under whose watch the devious scheme known as petrol subsidy would grind to a grandiose halt.
Aliko Dangote is bent on getting his dare-devil refinery on stream in July 2022. Godwin Emefiele, the CBN governor, was so sure of the new date that he elatedly told foreign investors in New York that the naira would appreciate massively and that Nigeria would be saving 30 per cent of its annual foreign exchange when Dangote Refinery comes on stream in July 2022.
Nigeria would probably gain more from the refinery than Dangote. It would not only be saving $10 billion spent annually on refined petroleum products imports, it would save N3 trillion on petrol subsidy.
Dangote Refinery would effectively end NNPC’s swindling of Nigeria.