How electricity, petrol subsidies under-develop Nigeria, by Jerry Uwah

The federal government has practically run out of ideas on how to manage the crushing burden of electricity and petrol subsidies.  The two subsidies are imposed on the system by an odd combination of corruption, incompetence and lack of political will power on the part of successive governments in the last 40 years. With the price of crude oil fluctuating between $75 and $80 per barrel, the landing cost of imported petrol has sailed perilously close to N205 per litre.  When the costs of logistics and retailers margin of about N14.50 per litre are factored in, the open market price of petrol hovers around N220 per litre.  Viewed from the official pump price of N145, government now spends about N75 on every litre of petrol consumed.  The situation would persist for at least three more years as government refuses to either privatise the refineries or get the multinational oil firms to fund the rehabilitation of the crippled refineries on repair-operate-and-handover basis.  Government’s four refineries have become one huge conduit for siphoning public funds into private pockets.  Kaduna refinery has been idle for several months while the remaining three in Warri and Port Harcourt are only limping along to justify the huge salaries drawn by their workers.  The Nigerian National Petroleum Corporation (NNPC) records tens of billions of naira monthly as trade losses from the operation of the refineries.  Nigeria’s only hope of attaining self-sufficiency in refined petroleum products is now anchored on the 650, 000 barrels per day refinery being built by the Dangote group in Lagos.  The original date of 2019 earlier fixed for the coming on stream of the refinery is becoming increasingly illusive.  There are fears that Africa’s largest refinery might not come on stream earlier than the last quarter of 2020.  With Nigeria now rated the global headquarters of abject poverty, no one in the federal government would think of raising the pump price of petrol. The crushing burden of petrol subsidy is responsible for Nigeria’s inability to invest in its human resources. It consumes what is needed to fund education and healthcare.  With petrol subsidy hovering around N75 per litre and NNPC’s dubious consumption figure of 60 million litres per day, government spends close to N4.5 billion daily on petrol subsidy.  That puts the annual cost of petrol subsidy at anything from N1.6 trillion.  The federal government’s allocation for education and health in the 2018 budget is N898 billion.  That is just about half of one year petrol subsidy. That explains why even the rich could no longer find bed in government hospitals when they are critically ill.  The senseless burden of petrol subsidy is behind the decay in the education sector. It keeps 13. 5 million children of school age out of school because their impoverished parent cannot afford the high cost of private schools as the few public schools are over-crowded. The avoidable subsidy on petrol is responsible for the ugly situation where universities could not admit some candidates who scored as high as 290 in the 2018 Unified Tertiary Matriculation Examination (UTME) even as the cut-off mark was decreed at 200. For political reasons, Nigeria operates one of the lowest petrol pump prices in the world. A litre of petrol sells for 1.6 euro (about N640 at current exchange rate) in the Netherlands and Belgium.  The two European Union countries do not import petrol but the pump price is high because of government’s tax which is used to fund education and healthcare.  Students in Netherlands higher institutions are paid stipends that enable them fund their education. Parents do not fund their children’s education.   Nigeria also spends aimlessly on electricity subsidy.  The electricity distribution companies (DisCos) complain that they buy electricity at N82 per kilowatt hour from the power generation companies (GenCos) and sell to consumers at an average of N37.  That leaves a deficit of more than N40 per kilowatt hour which is partially responsible for the crushing debt burden of N1 trillion on the neck of the impoverished DisCos. A normal three-bedroom bungalow in urban Nigeria would consume 500 kilowatt hours monthly if power is supplied 24 hours a day. That amounts to N11, 000 at current tariff.  A similar consumption in the Netherlands attracts a whopping 110 euro or N44, 000 at current exchange rate.  
Electricity is cheap in Nigeria because government uses it to bribe consumers to ignore the monumental corruption and inefficiency that has robbed the populace of essential infrastructure. After selling the generation and distribution arms of the defunct Power Holding Company of Nigeria (PHCN) to incompetent, cash-strapped firms that cannot add value to what they inherited, the federal government still spends heavily in the power sector. Political expediency has rendered electricity tariff hike practically impossible.  However, Nigeria can only enjoy regular power supply when someone is bold enough to charge the market value of the service.  Electricity and petrol subsidies are two forms of colossal wastes that have contributed immensely to Nigeria’s rating as the world’s headquarters of abject poverty.  If Nigeria refines the petrol it consumes, the open market price could drop to N100 per litre.  That would allow government to impose fuel tax of N10 per litre and earn substantial income to fund education and healthcare.