After what appeared to be a state of confusion regarding the price of fuel, the Group Chief Executive Officer of Nigeria National Petroleum Company (NNPC) Limited has confirmed the full deregulation of the downstream sector of the Nigerian Petroleum industry with petrol now selling at market price following the removal of subsidy by President Bola Ahmed Tinubu.
The President had, in his inaugural speech, declared that “fuel subsidy is gone.”
The Group Chief Executive Officer of NNPC Limited Mr Mele Kyari said Tuesday that the pronouncement by the President on the removal of fuel subsidy was right and in line with the provisions of the Petroleum Industry Act 2022.
Fielding questions from State House correspondents after a meeting with the President in Abuja, Kyari said the reality is that the federal government cannot continue to subsidise premium motor spirit because it is owing the NNPC Limited N2.8 trillion for subsidy.
“The Petroleum Industry Act (PIA) says that six months after the enactment of the Act, Petroleum Motor Spirit would be priced at its commercial value so there will be no subsidy six months after the enactment of the PIA,” he said. “That means that there shouldn’t have been a subsidy by February 17 2022, because the Act was enacted on 17th August 2021. But the government and the National Assembly in their wisdom provided for subsidy in 2022 despite the provision of the PIA.
On Wednesday, the NNPC Limited, in a statement issued by its Chief Corporate Communications Officer Mr Garba Deen Muhammad said the pump prices at its retail stations have been adjusted.
In the end, after the adjustment of price was confirmed, Nigerians were left to groan as the price went up to an average of N540 per litre. This situation is, indeed, more than enough to make people cry.
Yet, there is evidence that suggests the implementation of full deregulation of the downstream petroleum industry has a win-win potential for both operators and a vast majority of Nigeria’s 200 million people, who see cheaper fuel as the only benefit they get from a state that built no social-safety net for its citizens during the oil boom.
Business leaders are unanimous in their view that full deregulation would, in the long run, benefit ordinary Nigerians and positively change the industry’s fortunes forever if the government put the right structures in place.
For instance, the federal and state governments should agree and communicate how to restructure the components of the petrol pricing template to exclude petroleum equalisation funds and introduce levy fees for road development to be shared by the different tiers of government.
Apart from pulling out from deciding petrol prices and allowing market rule, federal and state governments should establish an agency to monitor and report on the application of proceeds from petrol prices.
After all, it should be noted that the policy of public sector dominance of the downstream petroleum industry has, for a long, blocked private foreign direct investments, which could have created quality jobs and reduced pressure on foreign exchange.
Of course, it is painful for Nigerians to remove subsidies on petrol, but decisions must be made and jobs must be created for our teeming youths. In fact, it is based on the realisation that leadership is not about making popular choices but taking economically sustainable decisions that the President should be commended.
Full deregulation may be a short-term pain but it is also definitely a long-term gain in improving investments and solving infrastructure challenges.
Thus, the federal government and organised labour should have a collectively longer-term view of the economy and be conscious of the systemic ramifications of the consequences of policy choices.
Rather than spend N10.7 trillion, as was the case in the past, on fuel subsidy within 10 years, Nigeria could construct, at least, 13 refinery plants with 100,000 barrels per day (bpd) capacity valued at $2 billion.
The wasteful spending of N10.7 trillion would also have built mortgage homes valued at N15 million each, a development that can play a big role in reducing Nigeria’s housing deficit projected at 20 million.
Other experts believe that implementing full deregulation became inevitable, especially at a time Nigeria’s macroeconomic environment is getting significantly worse.
To add to the woes of Nigerians, many of who are struggling to pin down jobs in a country where one in every three people is unemployed, inflation is also galloping.
Food, on which Nigerians spend over half of their income, is the major driver of the spiralling inflation. Food prices stood at 22.72 per cent in April from 22.95 per cent in March, the highest in 15 years.
That has put basic food out of the reach of many in Nigeria where the people living in poverty are almost half of the population at 87 million, enough to match the population of Spain and Canada combined.
The volatile exchange rate has also eroded the purchasing power of Nigerians with the Naira going through two devaluations last year alone.
On the whole, it is hoped deregulation will bring succour to Nigeria’s downstream sector and consumers of petroleum products, who have had to bear the brunt of induced scarcity and the opportunity cost spent on oil subsidy that could have been used in the health sector or provision of infrastructure services to the citizenry.
With full deregulation, the Nigerian government can also free itself from the burden of subsidy that can be reinvested into infrastructure development, education and healthcare, among others, to enhance the living standards of the average Nigerian.
The Tinubu led-government should, therefore, be commended for unfolding the long-overdue plan for complete deregulation and transformation of the downstream sector which, apart from eliminating the long-standing fuel subsidy albatross once and for all, will release the much-needed cash to fund infrastructure development in the country, attract new investments to the sector, foster competition between operators and promote efficiency in the entire value chain.
Getting the Naira redesign policy correct
In his inaugural speech this week, President Bola Ahmed Tinubu spoke about the country’s monetary policy, particularly the controversial Naira redesign by the Central Bank of Nigeria (CBN).
“Whatever merits it had in concept, the currency swap was too harshly applied by the CBN given the number of unbanked Nigerians,” the President said. “The policy shall be reviewed. In the meantime, my administration will treat both currencies as legal tender.”
Call it a full-circle movement or a 360-degree journey and one would not be far off the mark. Such has been the story of the naira redesign policy of the Central Bank of Nigeria.
In October 2022, CBN Governor Mr Godwin Emefiele announced the apex bank’s plan to redesign and circulate a new series of three banknotes out of the existing eight.
The redesigned N200, N500 and N1000 notes were due for circulation on December 15, 2022. Emefiele said the pre-existing notes would remain legal tender until January 31, 2023.
The CBN governor said that the decision was reached due to persisting concerns with the management of currency in circulation — particularly those outside the banking system.
Five months later, Nigerians were directed to go back to using the old notes pari passu the new notes till December 31, 2023.
Between October 2022 and March 2023, a lot has happened. First, Mrs Zainab Ahmed, the immediate past Minister of Finance, Budget and National Planning, said that the CBN did not consult the ministry on the policy.
Second, former president Muhammadu Buhari said that the CBN had his backing to redesign the naira notes and there was no going back on the redesign of naira notes.
But, soon after that, the CBN instructed commercial banks to work on Saturdays to enable customers to return old naira notes.
Indeed, a lot happened but only the right things should happen henceforth. The back and forth on the issue of the Naira redesign issue must come to an end.
However, it should be noted that currency management is a key function of the Central Bank of Nigeria, as enshrined in Section 2(b) of the CBN Act 2007. Indeed, the integrity of a local legal tender, the efficiency of its supply, and its efficacy in the conduct of monetary policy are some of the hallmarks of a great CBN.
Besides, the general practice across the globe is that a central bank should normally redesign its currency between five and eight years. From the onset of this currency redesign programme, the CBN made it clear that for over 19 years, it has not undertaken this important currency and liquidity management function that has important ramifications for the effectiveness of the monetary policy.
Again, the policy is aimed at increasing financial inclusion in the country by reducing the number of the unbanked population and supporting the efforts of security agencies in combating banditry and ransom-taking in Nigeria.
And, to some reasonable extent, the policy has achieved some measures of progress in tackling the aforementioned problems while inconveniences caused by the implementation of the policy cannot be underestimated.
It is on this note, therefore, that while it will be wrong to jettison the Naira redesign policy because of its apparent shortcomings, the Tinubu-led administration should continue with it but, at the same time, tweak the policy to produce better results.
