Fuel pump price increase: Two sides of rusty coin

Recently, the Petroleum Products Marketing Company (PPMC) announced a new price band for the month of September for Premium Motor Spirit (PMS), popularly known as petrol, which spiked the pump price to N162 per litre. JUSTICE NWAFOR takes a look at the two sides of the increment debate.

Like a tornado, the announcement of the new pump price for PMS hit Nigerians sharply, piercingly and quite prickly. Really, it came hard on many, albeit surprisingly. But on the other hand, it came with no surprises for a certain segment of Nigeria’s population. Of course, it didn’t start this month, so it was quite expected. However, the lack of surprise was not exclusively independent. It was laced with some degree of awe, creating a psychological intersection of uncomfortable complacence and caged discontent.

Now, let’s take a few steps back.


Blame COVID-19

The novel coronavirus berthed in Nigerian in February this year, with the first reported case being that of an expatriate worker in south-western state of Ogun. Ever since, the cases have grown in great numbers. In fact, the number of reported cases in the country has gone beyond 50,000.

The virus came with its crippling effects. Different economies around the world, even those seen as the most robust, were literally grounded at worst, or ran below their capacities, at best. As many countries imposed restrictions on travels and movements, the transportation sector was shut down. In fact, the aviation sector — reputed as the highest consumer of crude oil was grounded.

This led to decreased demand for crude oil, glut in the market and consequent crash of the price.

Nigeria — reputed as the sixth highest producer of crude — relies heavily on proceeds from the sale of crude oil. With the crash of crude prices, the country ran into a heavy revenue crisis.

In fact, Minister of Finance, Budget and National Planning, Zainab Ahmed, at a point said the collapse would slash Nigeria’s revenue by as much as 50 per cent, capital budget cut of up to 20 per cent and an additional 25 per cent cut in annual expenditure.

But on the bright side, the crash meant that the pump prices of petroleum products should be low. After some dilly dallying, the Minister of State, Petroleum Resources, Timipre Sylva, announced that President Muhammadu Buhari had directed the NNPC to reduce the ex-coastal and ex-depot prices of the product to reflect the realities in the international market.

Henceforth, the PPPRA would come up with a monthly pricing guideline for the product, the Minister said. The next day, the agency introduced a template and reduced the pump price from N145 to about N125 per liter, effective from March 19. And then the expected, perhaps unexpected, happened — the government said it was no longer ready to continue subsidising PMS. The controversial subsidy era has come to an end.

In fact, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, said “There is no fuel subsidy anymore in Nigeria. It is zero subsidy forever.” Explaining further, he said “there would be no resort to either fuel subsidy or under-recovery of any nature. NNPC will play in the petroleum marketplace, just like another marketer in the space.”

This ushered in a regime of monthly review of the pump price by the PPPRA. For instance, the agency fixed the price at N121.50 per litre for the month of June, cutting it by N2 from N123.50 per litre it announced for May. For July, it raised the band to between N140.80 and N143.80. On September 2, the price was increased to N161 from about N150 per liter which was prevalent in August.

The government has, indeed, received some backlash on the latest increase, with some arguing that the current government has come with the measure it kicked against in 2012 when the government of former President Goodluck Jonathan attempted to remove the subsidy entirely.

In a quick salvo at critiques, the government said subsidy payment was no longer sustainable, arguing that Nigerians would be grateful to the current government for being bold enough to end the subsidy regime, which, analysts say, had been fraught with allegations of corruption and mismanagement of funds.

The increase is not peculiar to this government, findings have shown. Just a year after the return of democracy in 1999, petrol pump price was increased to N22 per litre, then to N26 per litre in 2002. A year later, it was increased again to N40 per litre and then to N50 per litre in May 2004. Two months later, it moved to N65. In 2007, it was increased to N75 but was reduced back to N65 after a while.

As a result of the attempt to end the subsidy regime, it was increased to N141 per litre in 2012 but after heavy protests especially in Lagos and Abuja, it was reduced to N97. In January 2015, it was reduced by N10 to N87. A year later, the price was increased to N141, then down to N125 as the COVID-19-induced price crash berthed.


A hydra-headed problem

Subsidy payment and its inherent challenges have beset Nigeria for a long time. Introduced in the mid-1980’s, it was aimed at keeping prices people pay for petroleum products below market levels in order to make them more affordable to the majority of the populace.

But there have been heavy allegations of corruption and hijacking of the process by a few privileged individuals, robbing the scheme of its intended aims. During the government of ex President Jonathan, there were allegations that importers of the product were overpaid.

For instance, Reuters had reported in 2012 that importers were paid for 59 million litres a day, while the country only consumed 35 million and mismanagement and theft by fuel marketers and government officials cost $6.8 billion over three years — about a quarter of Nigeria’s then annual budget.


The rusty side of the coin

Nigeria spent N2.587 trillion ($16.46 billion at the prevalent exchange rate then) on fuel subsidy in 2011 — about 900 per cent more than the N245 billion in the budget. The extra was more than a half of the 2011 national budget.

Fast forward to 2019. The country spent N1.5 trillion on subsidy, Senior Special Assistant to the President on Niger Delta Affairs, Senator Ita Enang, said in April this year. Also the former Minister of State for Petroleum Resources, Ibe Kachukwu, said in 2018 that a figure not too far from the $321 million was spent by the nation monthly and a $3.9 billion annually on subsidy payments.

Nigeria has a huge problem of infrastructural decay and poor funding of critical projects across the country. More often than not, governments at all levels complain of poor and dwindling revenue in the face of the challenges in the Niger Delta and the volatile nature of crude oil price and have made moves, they said, to block leakages and make more funds available for critical projects.

The amount the nation spends on subsidy, the government said, could be channeled to provide some of the critical infrastructure the nation needs, which would open up more opportunities for the populace and drive development. Hence, the removal at this time, Mr Kyari said, recently, was long overdue and is in the best interest of Nigerians than of the few who benefit more from the payments.


The other rusty side

Beyond the explanations given by the government as to why the removal was not just timely but targeted at freeing up funds for major projects which would benefit the populace, is the issue of trust. In the face of the hardship faced by the populace, what has the government done to make life better, which has really gotten to most Nigerians? Subsidy, on the other hand is seen as, arguably, the only dividend of democracy which cuts across all strata of the Nigerian society.

With the government’s current revenue strength, have basic amenities been provided across the country? Is there any assurance that when more revenue gets to government coffers, it would not be siphoned? These are some valid questions on the lips of many Nigerians.

2020 has been a particularly peculiar year for Nigerians with 50 per cent VAT increase, spiraling exchange rate, about 100 per cent hike in electricity tariff, consistent spike of inflation rate, the many damaging impacts of COVID-19 and now subsidy removal and consequent increase in fuel pump price.

According to Nigeria fuel subsidy report by the Centre for Public Policy Alternatives, found that fuel subsidy removal would affect mostly the poor and middle income earners who make up a large chunk of Nigeria’s 200 million population. The report found that it would spike the cost of living by increasing costs of transportation and food highly, while having a medium impact on access to healthcare and housing.

The removal has not gone down well with labour unions, particularly the Trade Union Congress (TUC), Nigerian Labour Congress (NLC) as well as the Academic Staff Union of Universities (ASUU).

TUC reacted recently and described the increment as “killing the dead”. The union’s president said the increment would only heap more burdens on the burdened shoulders of Nigerians.

“They have developed a thick skin that our pleas and cries no longer mean anything to them. No government has raped this country like the present one; ironically it has enjoyed our understanding the most.”

ASUU on its part described it as a “blow to the suffering masses of this nation.” The zonal Coordinator, Akure zone of the union, Professor Olu Olufayo, said it would bring untold hardship on Nigerians who are still trying to cope with the challenges the COVID-19 pandemic has brought on them.

“Clearly speaking, we can say that many Nigerians are today living on the edge and it takes something very little for an explosion to actually occur. While we think that Nigerian government needs to be very, very sensitive to the plight of Nigerians, by also providing good governance, and also protecting the citizens against these exploitative tendencies, we cannot come to terms on why the government will continue to increase pains on Nigerians,” President of Nigeria Labour Congress (NLC), Comrade Ayuba Wabba said while reacting to the development.


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