How fuel price increase will worsen poverty situation

NIGERIA Governors Forum (NGF) once again brought the vexed but unending debate on fuel subsidy to the fore on Wednesday last week when at its meeting, it received a report recommending an increase in the price of premium motor spirit (PMS) from N162/litre to N380. 

The National Economic Council (NEC) had earlier in the year set up a six-man committee to look into dwindling revenues of states and make recommendations on how to shore them up. 

Members include Mallam Nasir el-Rufai of Kaduna, who served as chairman, Godwin Obaseki of Edo, Dr Kayode Fayemi of Ekiti and Mr David Umahi of Ebonyi. 

Governor of the Central Bank of Nigeria (CBN), Mr Godwin Emefiele, and the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari also served on the committee.

The report noted that NNPC spends between N70 billion and N210 billion monthly to maintain PMS pump price at N162 per litre. The committee argued that the increment would stem increasing smuggling of the product to neighbouring countries. At N385 per litre, federation account would swell by between N1.3 trillion and N2. 2 trillion per annum, it further argued. 

But some of the governors disagreed with majority of their colleagues by arguing that increasing PMS price at this time would exacerbate the poverty situation of their citizens. Even though the committee reported that Lagos, Oyo, FCT and Rivers use more PMS than other states, the states also contribute the highest percentages of taxes and customs duties. However, there are questions as to the actual level of subsidy, if it exists at all. 

For instance, what is the volume of PMS consumption per day? Why have refineries failed to work? Why must Nigerians be made to suffer for the inability of monetary authorities to strengthen the value of the currency? In February 2020, Department of Petroleum Resources said Nigerians were consuming 38.2 million litres of PMS daily thus sharply contrasting with the 52 million figure given by Minister of State for Petroleum Resources, Mr Timipre Sylva. Just a year and two months after in April 2021, data from the Ministry had been revised to show that Nigerians now consume 93 million litres per day. 

In an interview last week, Fayemi declared that subsidy management continued to be embroiled in monumental corruption. He said “there is a lot of fraud going on in the petroleum sector. No sane Nigerian believes that we are consuming close to 100 million litres per day. We believe that a lot of the product is being smuggled out of the country. We don’t even believe that we are consuming 40 million litres per day not to talk of 93 million.”

He lamented that cost of subsidy is likely to go over ₦1 trillion by the end of the year. In April 2021, NNPC advised the Accountant General of the Federation (AGF) that its projected monthly remittance to the federation accounts for May would be zero because the corporation could no longer bear the burden of under recovered price of PMS. 

“The Accountant General of the Federation is kindly invited to note that the average landing costs for Premium Motor Spirit for the month of March 2021 was N184 per litre against the subsisting ex-coastal price of N128 per litre, which has remained constant notwithstanding the changes in the macroeconomic variables affecting petroleum products pricing. As the discussions between Government and the Labour are yet to be concluded, NNPC recorded a value shortfall of N111.966,456,903.74 in February 2021 as a result of the difference highlighted above.” 

Implications 

The zero remittance from NNPC will affect the monthly allocation to states for the coming months, which may make them unable to meet their statutory obligations such as payment of salaries to workers in their respective states, servicing their debts and providing infrastructure and social services. 

Already, many states are finding it difficult to pay salaries of staff with Kaduna State in the process of sacking thousands of workers already. Observers believe that subsidy wouldn’t have been such a common word in Nigeria had NNPC been able to maintain functional refineries. Over the years, the four refineries in Kaduna, Warri and Port Harcourt have become moribund and drain pipes on public finance thus making the country completely dependent on imported products. 

Arguments for subsidy removal

Proponents of deregulation in the sector argue that it will be an incentive for attracting private refiners, boost capacity utilisation and create employment. They say it will also free resources for infrastructure development. In addition, it will engender adequate supply as private investors will be attracted into importing products. There will no longer be an issue of product hoarding, smuggling and diversion while ensuring price stability. Proponents also say deregulation and removal of subsidy will substantially eliminate corruption and create massive jobs when new investments are made by private investors. 

Nigerians against removal 

Alluring as the arguments for deregulation are, most Nigerians remain vehemently opposed to it. Most Nigerians are poor and see their situation worsening with removal of subsidy. In September 2020, Nigeria Labour Congress (NLC) called a general strike against increase in pump price of PMS describing it as ill-timed and insensitive to the sufferings that Nigerians were going through. It noted that the increase in energy cost had automatically upped the cost of doing business in Nigeria resulting in hyperinflation thus wiping out gains made by increase in the national minimum wage and threatened to force many local businesses to either close shop or relocate to friendlier business climes. It accused successive governments of failing to resuscitate public refineries or build new ones. The Congress accused the Buhari administration of failing to fulfil its promise to ensure that at least 70 per cent of consumption needs for refined petroleum products were met locally by 2018. 

“Subjecting the price of refined petroleum products to the twin factors of volatility in the global oil market and instability in our exchange rate only means that there is no end in sight to the skyrocketing price of petrol and other refined petroleum consumables. This means that Nigerians in the nearest future would be forced to pay up to five hundred naira for a liter of petrol. That is clearly unacceptable to Organised Labour in Nigeria and certainly to the Nigerian people. The workers also wanted government to demonstrate commitment to resuscitating Nigeria’s four public refineries and building new ones as a sustainable response to the perennial instability and hike in the pump price of refined petroleum products particularly petrol, diesel and kerosene.” 

Excruciating poverty 

There are fears that at Governors’ recommended price of N380/litre at least 10 per cent of vehicle owners will no longer ride their cars. National Bureau of Statistics (NBS) estimates that 40.1 per cent Nigerians live in extreme poverty. The Bureau also reported recently that 33.3 per cent of citizens in working age group are unemployed with more underemployed. 

As at April, inflation rate stood at 18.12 per cent. Food inflation on the other hand stood at 18.58 per cent. Nigerians were also the 15th most miserable people in the world in 2020 at 45.6 per cent as they are plagued by high inflation and economic stagnation. 

The World Bank has warned that more than 10 million Nigerians could be pushed into poverty in 2021 with poverty head count in 2020 at a little over 40 per cent, although the number of poor people would be set to rise from 82.9 million in 2019 to 90.0 million in 2022 due to natural population growth.” 

National poverty rate is also forecast to jump from 40.1 per cent in 2019 to 45.2 per cent in 2022, implying that 100.9 million Nigerians will be living in poverty by 2022. In January, CBN acknowledged that the N2 trillion or 4.0 percent of GDP it pumped into the economy to cushion the effects of COVID-19 also attested to the precarious situation of Nigerians when its Monetary Policy Committee asked the management of the apex bank to further expand its current stimulus packages to support the fiscal interventions to reflate and boost recovery in the economy, which stood at N2 trillion or 4.0 per cent of GDP as at January 2021. 

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