Petrol subsidy: Has market forces taken over?




When the federal government reversed itself on the planned subsidy removal, Nigerians rejoiced that they won’t have to pass more through  more hardship. But the reality on ground is that there is unofficial deregulation going on across the length and breathe of Nigeria; BENJAMIN UMUTEME writes.

When in January this year the federal government announced it would be stopping the payment of subsidy on petrol by July, all hell was let loose. The government was criticised for not been sensitive to the plight of Nigerians whom it promised to improve their lot.

The Nigerian Labour Congress and its affiliate bodies threatened fire and brimstone saying they would shut down the country.

In a communiqué signed by NLC President Ayuba Wabba, Labour said it would not fold its hand and watch the federal government inflict more pain on suffering Nigerians.

“The NEC, therefore, resolved to reject and resist the planned increase in the pump price of petrol by the federal government, as it described it as extremely insensitive to the acute hardship being experienced by Nigerian workers and people,” Wabba said.

The federal government panicked and backtracked on its decision to implement the new policy saying it would continue to liaise with all stakeholders to find a common ground.

The implication of the reversal is that the amount earlier set aside for fuel subsidy rose by N3 trillion.

A trip around Nigeria will reveal that it is only in Abuja and probably Lagos that petrol is still being sold at the official price of N165. Despite this reality, many wonder why the government is still reluctant to stop subsidy on petrol? 

Subsidy now a burden

Analysts have argued time and again that subsidy has become a burden to the government as revenues that should have been used for critical infrastructure are spent on subsidies. 

In chat with Blueprint Weekend, MD/CEO, Dreamheight Global Consult Ltd, Agaba Wilson Agaba, said the rationale for subsidies have long been defeated admitting rather that it has become a ‘bone in the throat of government’. 

He noted that not only has the fuel subsidy failed to achieve the goal for which it was implemented, but it has also become extremely difficult to eliminate for a variety of reasons. 

“Over the years, particularly after the inception of the current republic in 1999, certain politicians have purposefully miscommunicated the economics of subsidies to Nigerians to achieve political advantage. They tell Nigerians that the only benefit they receive from the government is fuel subsidies and that the government aims to shift funds earmarked for fuel subsidies to private pockets, therefore the attempt to eliminate subsidies.

“Another reason why fuel subsidies have proven so difficult to abolish is corruption. Corruption pervades the whole sector, and those who profit from it are incredibly powerful. They are spread across the upper segment of the government and political elites. Subsidies benefit a range of stakeholders by inflating figures for oil imports and overcharging the government for import costs. They used their political connections and power to thwart removal attempts.

“A third factor is that the general public has a misunderstanding about fuel subsidies. Nigerians have come to believe that the removal of fuel subsidies will cause them unimaginable misery. This is understandable given that many of them have lost faith in government projects, no matter how well-intended. Furthermore, the protests against the elimination of oil subsidies serve as a rallying point for many of the people’s grievances against the government. This explains why the government prefers to borrow to fund the budget rather than eliminate subsidies.

“Lastly, various administrations have not had the political will or courage to jettison the subsidies because they failed to uplift Nigerians’ economic conditions. It would have been politically easier to remove fuel subsidies if the government had provided jobs, entrepreneurial opportunities, and other forms of economic empowerment.

“Finally, owing to their failure to improve Nigerians’ economic conditions, successive administrations have lacked the political will and bravery to discontinue fuel subsidies. If the government had provided jobs, entrepreneurial opportunities, adequate transport infrastructure and a comprehensive public mass transport system, as well as other forms of economic succour, it would have been easier for the government to eliminate fuel subsidies,” the Business Consultant said. 

In the same vein, Political Economist, Aliyu Ilias told this newspaper that the government seems to have forgotten the basic economic impact of not having uniform pricing across the country. 

He told this reporter that he was in the South East and the price of petrol was way beyond the normal N165 per litre. 

“And recently, I came back from Oshogbo and its environs, and there is nowhere you will get petrol for N165. It is quite clear that with the increase in global oil price, Nigeria is built at between $70-$80 per barrel. 

“For me, the federal government should make sure they remove subsidies so that we can move forward. 

“However, the major challenge is that when the present administration came, they said they will fix the refineries. If they’ve started fixing or building a new refinery, we should have one, so that one can cushion the demand that we have. It’s a serious problem and it’s quite appalling that at this level Nigeria is still suffering. 

“But the fact still remains that some people are benefiting from this. We still agree that it is only NNPC that is importing but that does not have any effect on pricing, it’s only in Abuja if you go to the boundary of Niger, Nasarawa and Kogi, they sell beyond N165. It’s a common thing that happens everywhere. You are tempted to agree with the people that sell it because of how they get the fuel. So, subsidy removal remains sacrosanct and it’s just the way to go. 

Looking at it from another perspective, Development Researcher, Adefolarin Olamilekan told Blueprint Weekend in a chat that the federal government needs to put other things in place before it talks about subsidy removal. He noted that with the various economic indices not speaking favourably, it would not be proper for the government to stop subsidies. 

According to him, it will be “irresponsible on the part of the government to discontinue or stop subsidizing fuel when it has failed to do the needful, in putting the four own refineries to work, encourage private investment in refinery building not just modular refinery alone, collect refinery licence from those given in the last 10 years who have refused to build and give it to serious people.

“It will be difficult to stop subsidizing fuel rights now, with all prevailing economic variables resulting in high cost of living and surging cost of doing business,” the political economist added. 

Crazy figures’

What continues to baffle millions of Nigerians is why the nation’s four refineries have refused to work in spite of trillions of naira spent on Turn Around Maintenance (TAM). 

On several occasion, the World Bank and the International  Monetary Fund (IMF) have warned that Nigeria was shooting itself in the foot by continuing to pay subsidies. The boldest attempt by the government was in the 2022 budget, but again, it was quickly jettisoned. 

And Researcher at SBM Intelligence Cheta Nwanze, was very blunt when he said, “I don’t see any government, even the one that comes in after 2023, having the political will to change the system,” 

With authorities unable to give an accurate account of how much petrol is consumed by Nigerians, it again opens more room for people to speculate. 

Speaking on the Nigerian Television Authority (NTA) the Minister of State for Petroleum Resources Timipre Sylva, expressed doubts over Nigeria’s daily petrol consumption figures, describing them as crazy and opaque.

“And sometimes, the figures you hear are crazy. I mean, when they tell you 90 million litres a day, I mean, they’re crazy figures. So I mean, for me what is the sum total of all this? We’ve been interrogating these numbers for 20 years.

“We continue to interrogate these figures because we all know that there is a problem here, it’s opaque . The opportunity, the premium is not coming to the government and it is not going to the poor people. It is going to select people who are feeding fat on these things.

“So why don’t we just get rid of this thing? Okay, we should interrogate this thing, but I mean, to me that is not the solution. Why don’t we just get rid of this whole subsidy so that we know that this problem is over once and for all.

Baffling

Analysts opine that except the government comes up with a credible method of assessing the number of litres of petrol that is consumed in Nigeria, it might continue to run round in circles.

According to them, the last report released on the National Bureau of Statistics on petroleum products consumption revealed an irony in petrol consumption. 

Ilias said: “If you look at the last data released by the National Bureau of Statistics, it shows that Borno State is consuming more fuel than the FCT, is that not funny? That is simply a pointer to the fact that people that sell fuel in Borno are taking it outside Nigeria and selling it at exorbitant price because there is no way Borno State will consume more fuel than FCT. FCT has more people that are not staying there, coming in daily from Nasarawa, from Kogi, and from Niger State. So for me, it has serious consequences. 

“We are consuming more than normal. That is why if you go around Abuja and any other place in Nigeria, you will see big filling stations under lock and key, they are using these stations to get allocation but they take that allocation outside the shores of Nigeria. So, I expect our Customs to do more. If we continue like this, it’s going to be a serious issue,” he further said. 

“I am not surprised that no one knows the precise number of litres of fuel consumed by Nigerians because there is no established methodology for estimating fuel consumption rates in the country. While I agree that this should be an additional incentive to remove subsidies, I also believe there is a need to establish a credible method of assessing Nigeria’s actual daily fuel consumption.

“We could use the import figure or the amount lifted from the depots daily, but those figures may not be valid due to a variety of obvious reasons such as corruption and unethical practices. A suitable solution would be to properly register all filling stations in the country and to set up a portal where all station managers would be required to submit their daily sales volume. These data may now be collated centrally and observed for a reasonable timeframe to calculate national daily fuel use. Even this strategy is predicated on the idea that all station managers will be responsible and honest, and that border towns will not buy from Nigerian filling stations and export to neighbouring countries,” Wilson Agaba told this reporter. 

Adefolarin noted that as helpless as this situation may be, the government was just being economical about it. 

“Where does the several data from NNPC on the millions of litres released into the system daily, weekly, monthly, quarterly and annually come from?

“Another is to understand that not knowing the amount of litres of PMS consumed show the level of incompetence of people managing the sector. Although, you have to blame the entire system for this,” he said pointedly. 

Opacity in oil, gas sector

Many have argued that payment or removal of petrol subsidy is not the issue but the sector’s opacity. 

According to them, the oil and gas sector and it’s entire operation is shrouded in mystery. 

“While it is true that the opacity associated with fuel subsidies is a major issue, it is also crucial to note that even if the subsidies were transparent, they would still have a considerable negative impact on the Nigerian economy at this moment. What we need to do is strive toward the complete abolition of fuel subsidies. However, the government must first invest heavily in public mass transportation systems,” Agaba proffered.

For Ilias, the opacity in the sector was depriving the government of the much needed revenue. 

“If you look at what happened in February, FAAC shared the least amount that you could ever see in the last 4 years. What does that mean? It means that the government cannot cater to the needs of the citizens. I must tell you that in the next 3-6 months, States and the federal government will not be able to pay salaries again. We need to take urgent action to ensure that the country can pay salaries because revenue is dwindling. And oil price is not to our advantage because we are rent seeking, we cannot decide oil price. We take our oil outside to refine, people that buy it from us determine how much they sell it and the global market determines how much they sell to us. So, we are not benefiting, we are only rent seekers. And consequently, we don’t have power to control the amount, so we don’t have more revenue. 

“So for me, the government should find ways to remove the subsidy,” he insisted. 

Wriggling out of the quagmire

In order to move forward, Agaba believes the government should launch huge public awareness efforts to educate Nigerians that the elimination of fuel subsidies benefits the poor and eliminate one of the many benefits that the Nigerian elites unjustly enjoy.

“Over the past ten years, the authorities have tried to remove these subsidies several times. Each time, they have had to backtrack in the face of public anger, which has been whipped up by the unions”

While for Adefolarin, the government should take advantage of the the 18 months to at least make one or two of the nation’s refineries functional. 

“Secondly, Dangote refinery should serve as a boost to other investors to get licences from the government. And this could also afford the government a stake in such investment. 

“Thirdly, corruption and all forms of malpractices must be tackled with all intent of law and political will. 

“Fourthly, the government must be sincere in having accurate data of the litres of fuel we consume daily or monthly as the case may be,” he said. 

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