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How removal of fuel subsidy can make or break economy

by EDU ABADE and JOHNMARK UKOKO

It may not have come as a surprise to Nigerians when the Minister of Finance, Budget and National Planning, Zainab Ahmed, recently announced that the Federal Government has finally decided to remove fuel subsidy on Premium Motor Spirit (PMS) popularly known as petrol.

She had disclosed that the government was spending between N5 trillion and N6 trillion on subsidy payments yearly, adding that the payment has been making it difficult for the government to meet its obligations.

But what may have come as a shock to Nigerians is President Muhammadu Buhari’s decision to push total removal of subsidy to June 2023, immediately after the end of his administration, a decision most Nigerians see as a set up to further impoverish Nigerians and a huge challenge for the incoming government, which begins in May next year, EDU ABADE and JOHNMARK UKOKO write.

Nigeria is a m o n g the top 15 crude oil producing countries of the world, highest crude oil producing country in Africa and an influential member of the Organisation of Petroleum Exporting Countries (OPEC). Due to its position in OPEC, it gets an allocation of between 1.6 and 2 million barrels per day (mbpd), but because of several challenges, the country hardly meets its allocation consistently.

To compound the challenges, the country has been unable to refine it abundant crude oil and meet local demand for refined petroleum product including Automated Gas Oil (AGO) or diesel, Dual Purpose Kerosene (DPK) or kerosene and especially, Premium Motor Spirit (PMS) or petrol, in spite of having four refineries in Warri, Kaduna and Port Harcourt.

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Failure to refine crude oil for local consumption has been the major cause of products shortage, as the country had continued to depend on imported refined petroleum products, to the extent that it recently signed a Memorandum of Understanding (MoU) with Niger Republic-a far less-endowed country in all indices- for importation of fuel.

While the government has completely removed subsidies on Aviation Fuel or JetA1, kerosene, and diesel in Nigeria, it delayed subsidy on petrol, due largely to protests by labour unions, students of tertiary institutions and Nigerians against total removal of subsidy. It is common knowledge that petrol sold for less in the 1980s and 1990s, but successive governments had gradually increased its price from the early 2000s to its current price of between N170 and N200 per litre depending on filling stations and locations.

Over the years, filling stations owned by the Nigeria National Petroleum Corporation (NNPC), now Nigerian National Petroleum Company Limited across the country usually sell the product at the lowest price of N165 per litre, while private filling stations and retail outlets of International Oil Companies (IOCs) such as Mobil, Elf, Total, Texaco and others sell at higher prices. In spite of the fact that petrol currently sells for between N165 and N200 per litre, the Federal Government insisted that it was paying subsidy on the product, as its landing cost was said to be estimated at N500 per litre as of July 2022, no thanks to the RussiaUkraine war.

Recently, the Minister of Finance, Budget and National Planning, Zainab Ahmed, said the government was spending between N5 trillion and N6 trillion on payment of subsidy yearly. But reacting to the issue in an interview with The Trumpet, Chief Executive Officer (CEO) of the Centre for Private Practice Enterprise (CPPE), Dr. Muda Yusuf, said total subsidy removal was long overdue.

Yusuf, a development economist said, if the figures being quoted were actually being used to subsidise fuel on a monthly basis, the country does not have the wherewithal to fund the humongous amounts He said although the issues were knotty due to the way organised labour, civil society groups and the masses would react to the development, the government does not have the means to continue the subsidy payments.

Yusuf, who cautioned the government to implement the removal gradually, added that if the removal was done in one swoop, unprecedented protests might follow its implementation, especially in 2023, for which the Federal Government had planned its full commencement, a situation that might constitute a huge challenge distraction for the incoming administration.

He argued that the Federal Government ought to have removed the fuel subsidy long before now, adding that if payment of subsidy continues, the country’s economy will collapse. Yusuf pointed out that the ultimate solution to the problem is for the Federal Government to fix the country’s comatose refineries and build new ones to enable it to refine the petroleum products and meet domestic needs.

“If the refineries were functioning properly and we were refinancing our petroleum products locally, there would not have been the need to talk about petrol subsidy for or other petroleum products. We have enough crude oil in the country. Why it has become so difficult to fix the refineries is the issue. The truth is that we cannot continue to pay the huge amount for subsidy on PMS,” he explained.

Also speaking on the issues recently in Lagos, President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Ide John C. Udeagbala, said the subsidy has been taking too much of government’s revenue and that if government continues to pay the subsidies, there will be little or no funds left for infrastructure development.

He submitted that the country has to tackle the subsidy issue once and for all, if the government desires to meet its numerous obligations, adding: “The government is broke and is unable to meet OPEC’s daily crude oil allocation. If we continue paying the subsidy, it means we will have to find money elsewhere to pay for the subsidy.”

However, most Nigerians, who spoke to The Trumpet on the backdrop of the subsidy removal rejected the move and rather charged the Federal Government to fix the four refineries and approve licences to individuals to build more refineries as Aliko Dangote is doing.

Also reacting to the subsidy removal, Chairman of the Major Oil Marketers Association of Nigeria (MOMAN), Olumide Adeosun, said ordinary Nigerians, who were meant to transit to gas for powering their automobiles and generators were struggling and because pricing was yet to be fully deregulated, it creates an aberration and additional challenges for the adoption of gas, as most people still depend on cheap furl for their cars and generators. Adeosun, who was represented by Chief Executive Officer of MOMAN, Clement Isong, stated this at the National Association of Energy Correspondents (NAEC) conference in Lagos at the weekend, under the sub-theme: Energy Transition, Petroleum Industry Act, Petroleum Pricing And Way Forward For The Downstream Sector.

“It will remain extremely difficult to wean Nigerians away from cheap petrol. It is something that must be done as there are no more viable options. We are told that this year the subsidy bill to the Federal Government may be between N5 trillion and N6 trillion. Clearly, Nigeria cannot afford that.

“To wean Nigeria off this subsidy, a lot of investment must be done to sensitise Nigerians in convincing them and finding alternatives. We need to begin to remove the subsidy and mitigate the pains Nigerians will feel when petroleum prices begin to manifest their true value. “The regulator has an important role to play in guiding our future but ultimately, the best regulator is the market. The market regulates prices if you are too expensive people would not buy from you. The market regulates quality as well as customer service.

The market also rewards the best-inclass,” he stated. A respondent, Tony Imoh, who expressed reservations about the subsidy figures, maintained that the NNPC and the Central Bank of Nigeria (CBN) were just throwing up unsubstantiated figures as a way of coercing the Federal Government to completely remove the subsidy. Citing the various probes on fuel subsidy by the House of Representatives, Imoh said such probes have shown that the subsidy payment had been fraught with irregularities, adding that the Ministry of Petroleum Resources, Ministry of Finance, Budget and National Planning did know the actual number of litres of petrol being imported or consumed in the country.

He alleged that the government’s claims of subsidising fuel over the years was induced by corruption, adding that the NNPC was riddled with corruption, insisting that the minister of Finance, Budget and National Planning is not knowledgeable enough about the figures she has been displaying. Does the Minister of State for Petroleum Resources, Chief Timiprye Sylva, know the actual litres of petrol being imported or consumed in the country? Does the CBN governor know the amount of real figures of PMS imported into the country?

Why is the government waiting to end its tenure and create problems for the incoming administration? He asked. Speaking on the plan earlier on Wednesday, August 24, 2022, Minister of State for Transportation disclosed that the government has put measures in place to provide mass transit buses to alleviate the transportation challenges the people will face as a result of the planned subsidy removal. The minister said government will hand over the buses to the transport unions to manage, but it is left to be seen how the mass transit buses the government hopes to put in place will reduce the pains Nigerians will go through when fuel subsidy is finally removed.

By and large, subsidy removal may help the government to generate more revenue and meet its obligations, but the fact remains that ordinary Nigerians still do not feel the positive impact of government policies just as it is feared that President Buhari’s decision to delay total subsidy removal till the end of his administration shows a high level of perfidy capable of distracting the next President of the country in 2023.

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