Fuel subsidy controversy and matters arising

Once again, the media space has been dominated by the unending controversy on the issue of fuel subsidy. It is apparent that the debate which has been raging since the return to democracy in 1999 will not abate anytime soon. Top government officials have always been lamenting that fuel subsidy is a major waste and a drain on the economy without addressing the root cause of the matter. Ironically, public officeholders that are complaining about the subsidy enjoy free fuel supply.

Another key personality who has raised concern on fuel subsidy is the former governor of Central Bank of Nigeria and Emir of Kano, Mallam Sanusi Lamido Sanusi. In his remarks at the closing session of the Nigeria Economic Summit Group (NESG), he called for the removal of fuel subsidy and impeachment of President Muhammadu Buhari for spending huge amounts of money on fuel subsidy without appropriation by the National Assembly. While making a case for the abolition of subsidy, Sanusi did not say anything on what led to the continuous importation of fuel and what brought about fuel subsidy. He did not make suggestions to overcome the nagging problem.

The recent recommendation from the International Monetary Fund and the World Bank calling on the Federal Government to remove the subsidy has brought the contentious issue to the front burner. According to the two international financial institutions, “Nigeria is the only country in the world granting universal price petrol subsidies.” Speaking at the launch of the World Bank Nigeria Development Update (NDU), the Minister of Finance, Budget and National Planning, Zainab Ahmed said the Federal Government would remove the fuel subsidy by mid-2022 and replace it with N5000-a month transport grant to be given to the poorest Nigerians. The population of the poorest Nigerians is put at 40 million. The cost of the proposed transport grant to be funded from the treasury is N2 trillion.

However, the minister added a caveat that “the final number of beneficiaries will depend on the resources available after the removal of the fuel subsidy.” While Nigeria is contemplating removal of fuel subsidy, American President Joe Biden has announced specific actions to bring down the cost of gas and oil for American citizens. Now, how did we get here and what are the implications of the proposed removal of fuel subsidy? For over two decades now, Nigeria is the only member of the Organisation of Petroleum Exporting Countries (OPEC) which is importing fuel for domestic consumption.

The four local petroleum refineries in Port Harcourt, Warri and Kaduna have been moribund for a long time despite the huge amount of money spent on turnaround maintenance. Since 1999, successive administrations have refused to do the needful by building new refineries. Instead, they dissipated so much energy on increasing the pump price of fuel at regular intervals and engaging in confrontations with the Nigeria Labour Congress. The Federal Government has consistently held on to the moribund refineries instead of disposing them to competent investors. It seems that some powerful forces are not interested in local production of refined petroleum products. They want the country to be perpetually dependent on fuel importation.

This is economic sabotage. Meanwhile, the cost of imported fuel is determined by the international price of crude oil with the addition of landing cost and other charges. This is where the issue of subsidy comes in. It is indeed a great pity that Nigeria has been a victim of leadership failure and lack of foresight over the years. Why did the Federal Government and the Nigerian National Petroleum Corporation (NNPC) allow the local refineries to die to the extent that Nigeria relies exclusively on importation of fuel for local consumption?

If the existing four refineries are technically obsolete, why is it so difficult for successive administrations to build new ones under the template of Public Private Partnership (PPP) even if it requires borrowing money for the purpose? Why must the country depend totally on fuel importation? Why can’t the IMF and the World Bank assist the government to build new refineries? Among African petroleum producing countries, Egypt has nine refineries; Libya has six; Algeria has five; and South Africa has four. The long-awaited Dangote refinery is yet to be commissioned; while the BUA refinery in Eket is also under construction. The crux of the matter is that Nigerians are clearly at a disadvantage with the continuous importation of fuel due to the high exchange rate vis-a-vis the dollar and naira.

Deregulation and removal of subsidy should not be based on fuel importation. It does not make any economic sense since Nigeria is a major oil producing country. Instead of focusing on the symptoms of a disease, there is need to address the root causes of the problem for enduring solution. Realising the importance of fuel as the live blood of the economy, the ripple effects of fuel subsidy removal on the macro economy include the following: escalation of widespread poverty due to low purchasing power and high cost of goods and services. At present, more than two-thirds of the entire population lives in misery and abject poverty.

Nigerians can no longer breathe due to economic suffocation. The cost of transportation will shoot up and become unbearable. Majority of micro, small and medium enterprises which depend on fuel for their power generating sets due to epileptic power supply will fold up. The level of unemployment in the country due to job losses will increase exponentially. Increase in criminal activities especially kidnapping for ransom and banditry. There is a nexus between economic hardship and criminal tendencies. The Federal Government needs to exercise extreme caution to avert social unrest similar to the Arab spring and economic catastrophe. The Federal Executive Council should, as a matter of urgent national priority, direct the NNPC to look for investors and partners to build new refineries. Dangote and BUA refineries are not enough to meet the needs of 200 million people. As a policy thrust, government should not allow monopoly in the petroleum sector because it will be counter-productive and exploitative.

The proposed N5000-a month transport grant for 40 million poorest Nigerians is not practicable and of no benefit to the economy. The money should be invested on new refineries. This will be beneficial to all Nigerians in the long run. Concrete action is required in this direction. There is no time for bureaucratic delay. Removal of fuel subsidy can only be tenable when local production of refined petroleum products begins. When this happens, fuel subsidy will fizzle out and the current brouhaha as well as hullabaloo on subsidy will die down.

Faramade, a program director with Journalists Against Poverty, sent this via journalistsagainstpoverty@gmail.com