Subsidy saga: Govt’s stance, citizens’ dilemma



… Nigeria bleeding from subsidy payment – Kyari

‘… Irregularities make amount being spent uncertain’ 

… It’s compounded by politics – Economist

‘…A pro-people policy on crude refining key’

… Ignorance fuelling oppositions – Sylva

The issue of fuel subsidy removal remains a thorny one with each administration engrossed in the debate. Notwithstanding Nigeria’s economic realities, its fiscal authorities are at a crossroads over the desirability or otherwise of the policy; BENJAMIN UMUTEME reports.

The story of Nigeria’s oil and gas sector and its entire value-chain has continued to defy explanations. With oil sale as its main source of revenue, the country has yet to fully utilise the over $300 billion realised, in three decades, from the sale of crude.

As a major oil-producing nation, Nigeria still continues to import refined products for its domestic needs. From Premium Motor Spirit (PMS), popularly known as petrol, to AGO (diesel) and kerosene, many still ask why the 10th major oil- producer globally has continued to import refined fuel. This is as the several turn-around-maintenance over the years has not been able to bring the five refineries that are almost in comatose state back to life. The country has since been left with no choice other than to fund importation of fuel at a subsidised rate.

A situation where some non-oil producing countries import crude oil from Nigeria, refine and sell the same to Nigeria is an indication that something is fundamentally wrong with political leadership in the country. The refineries in the countries are at different levels of disrepair and, therefore, cannot meet local demands, just as it’s been argued that oil cabals make more money through importation and distribution of oil than its production.

It’s also been argued that the economy and political institutions which have become woven around this system would take quite an effort to extricate. 

The conundrum, the fluctuation

The removal of petroleum subsidy has been in the front burner of debates for decades; however, it has taken a worrisome dimension since the return to civil rule in 1999, given the frequency of the demand and constant public outcry over subsidy management. Fuel price was first increased from five kobo to 9.5 kobo per litre and since then, it has become a recurring decimal in the polity. Subsequently, on October 2, 1994, the price was increased from N3.25 to N15, but on October 4, the following year, it dropped from N15 to N11.

Again, in 1998, Gen. Abdulsalami Abubakar increased it from N11 to N25, but reduced it to N20 on January 6, 1999. By the time he left office in 2007, the Chief Olusegun Obasanjo-led administration raised it from N20 to N75.

However, after Obasanjo left office, the President Umaru Musa Yar’Adua-led government felt it wise to reduce the price to N65. In his case, President Goodluck Jonathan increased it to N143, but subsequently reduced it to N97 after many days of protest, killings and destruction of public property. Last year, with the global price of crude dropping, the Minister of State for Petroleum Resources, Timipre Sylva, announced that subsidy on petrol would finally go.

This is as the Group Managing Director (GMD), Nigeria National Petroleum Corporation (NNPC), Mele Kyari, reiterated that market forces would begin to determine the price. Alas, it was not too long before the government reverted to status quo with the NNPC once again funding subsidy. Experts have argued that with the refineries not working, it would be inconsiderate for the government to remove the subsidy. 

Crude price burden

Speaking at a recent media parley, the minister of state for petroleum resources told journalists that the rising cost of petroleum products was not healthy for the country. Toeing the same lane at a recent virtual event, the NNPC GMD warned that rising prices of crude oil in the international market could cause major challenges for resource-dependent nations like Nigeria. He added that oil prices had started exiting the comfort zone set by the NNPC and were becoming a burden.

According to Kyari, the payment of petrol subsidy had made NNPC unable to contribute to the Federal Account Allocation Committee (FAAC) on two occasions.

He expressed concerns that as commodity prices rise buyers of Nigeria’s crude may be compelled to accelerate their investment in renewable sources of energy, thereby leaving the industry in a quagmire.

“In a resource-dependent nation like Nigeria when it gets too high, it creates a big problem because your consumers shut down their demand. Demand will go down and obviously even as the prices go up, you will have less volume to sell.

“So, it’s a chicken and egg story and that’s why in the industry when people make estimates for the future they always make it about $50 to $60. Nobody puts it beyond $60,” he said.

Impact on economic growth

Recent checks revealed that the federal government spends as much as N1.3 billion as subsidy for fuel. Speaking at a News Agency of Nigeria (NAN) Forum penultimate week in Abuja, Sylva made case for the removal of fuel subsidy, arguing that the petroleum sector should be deregulated. The minister insisted that the country’s economic progress would remain slow except a market-driven pricing of products was put in place.

“A situation where you produce something at a certain cost and you have to sell it at a lower cost to people because you are taking some of that burden off the people is not the best.

“It is a very desirable thing but it is also not too sustainable because what happens is that you produce it for N10, you sell it for N5; tomorrow, you produce it again at N10, you add N5 from somewhere, produce it again at N10 and sell it for another N5.

“So, the losses increase and compound on a daily basis and those accumulated losses have brought us to where we are.”

While noting that subsidy was part of what made the refineries to stop operating, the minister said, “Part of the reasons the refineries were not working is subsidy because a refinery that is producing something at a certain cost and selling at a loss, how can it sustain itself. If you are producing something and they are selling at a certain subsidised price, it cannot work. That is why you see that the sector is not growing at all.”

The former Bayelsa state governor also used the opportunity to blast Nigerians stating that the lack of understanding of the real issues about subsidy had led to serious opposition to its removal. He wondered why Nigerians have continued to oppose deregulation of petrol when other products such as kerosene and diesel have been deregulated.

“It is actually in the interest of the common Nigerian to ensure that some people do not just profiteer on them, which is what has been happening. But at the end of the day, I believe that it is better for us because if we are able to deregulate, then we can save money.

“First, you can imagine the savings we will make as far as Foreign Exchange (Forex) is concerned and, of course, it will bring down the pressure on forex.

“People will be able to access Forex for imports, the government will not be the one providing foreign exchange for the importation.”

According to him, since the government will no longer be subsidising, the money which is over a trillion naira yearly, would be gained, instead of being burnt in cars, and would then be used for development.

“You can imagine how much money the federal and state governments will have at their disposal if there is deregulation.”

FG’s concerns

In the same vein, the GMD NNPC disclosed that the country was bleeding from continuous subsidy payment. According to Kyari, the federal government can no longer sustain the payment of subsidy that accompanies the volume put at 100 million litres.

“From the truck out report from the PPPRA database we have seen collapse of load out average move from 70 million litres to 60 million litres just in one month. That means we can do with less than 70 million, the balance, I don’t know where it goes to but we know for sure that it is not consumed in this country.

“In very recent data, we see what we really want in the beginning of May and June. There was a day we got about 103 million litres of PMS within one day across the depots.

“We know it is not required, we know it is inappropriate and we also know that something wrong is happening that somebody is chasing something.

“But we in NNPC are not in control of that; we are not in every depot, we don’t keep products in all the depots. But when the volume goes down, it comes down to us. When there is tight supply, it comes back to the NNPC and we solve the problem.”

Experts’ reactions

Speaking on the issue, the managing director of SD&D Capital Management Limited, Gabriel Idakolo, told Blueprint Weekend that with so many irregularities in the sector, it has become difficult for the government to ascertain the amount it spends on subsidies.

He said, “There are several irregularities in the system and the Nigerian State cannot presently state the statistics of petroleum import to Nigeria.  The actual consumption of petroleum products in Nigeria is also not ascertained to determine the amount of subsidy the Nigeria government pays to importers.

“The NNPC refineries have been running below capacity for over 20 years and the government has not done anything about it. There is also high level corruption surrounding petroleum subsidies which has made it difficult for the government to solve the problem of subsidy.

“The petroleum products directly impact the daily living of Nigerians and removal of subsidy without commensurate cushion will increase the hardship in the country,” he said.

On his part, a political economist and development researcher, Olamilekan Adefolarin, in a chat with this reporter said the politics around fuel subsidy has made it difficult for the government to address the subsidy issue.

He said, “Subsidy removal on PMS and the deregulation of the downstream sector is one of the oldest and most fundamental issues of governance, politics and economy in Nigeria. Since 1999, no civilian administration has been proactive enough to tame the problems in our petroleum sector; rather they compound the challenges in that sector through anti-people policies that ended up reversing whatever gains or progress that should have impacted the economy.

“Interestingly, the statement from the NNPC GMD and that of minister are not new and Nigerians are already aware of the Nigerian state failure. Regrettably, the Nigerian State is complicit and remains the number one stumbling block to finding solutions to the subsidy saga.

“The question around the four refineries rehabilitation and turn-around-maintenance over the years has proven their inept and fragrant resource wastages. In addition to this is the politics and corruption in the oil and gas sector perpetuated by the ruling class who are enjoying the proceeds of subsidy.”

Remedy

Adefolarin suggested that to address the situation, the government must come out with a pro-people policy especially as it relates to refining crude. He noted that policy that “encourages the refining of crude oil in Nigeria is the appropriate policy the government must ensure it deploys to put an end to petrol importation.”

This, he said, must translate to building and owning a new refinery on behalf the citizens and encouraging private individuals to build, even as he expressed the optimism that state governments could do likewise with modular refineries.

“Equally, to end this quagmire there is the need for the government, especially the national assembly, to pass the petroleum industry bill (PIB) for the president’s assent so as to reduce the politics around the law.”

In his view, Idakolo insisted that the NNPC in conjunction with the PPMC and other regulators needed to generate actual statistics of petroleum import to enable the government to plan adequately.

“The subsidy must be removed on the long run but it must be after we have been able to achieve self sufficiency in petroleum products distribution through the optimisation of the five Nigerian refineries.

“We should also collaborate with private refineries, especially Dangote Refinery, which will come on stream by 2022. Perpetrators of the subsidy scam must be prosecuted by the government.”