Looking beyond fuel subsidy removal, palliatives provision

In this piece, JOSEPH INOKOTONG posits that the governed should interrogate the government on how the proceeds garnered from petrol subsidy removal are utilised, instead of agonising over rising prices, which neither the people nor the government can alter much in a deregulated sector.

The removal of subsidy on Premium Motor Spirit (PMS) also known as fuel by President Bola Ahmed Tinubu has attracted varied reactions from Nigerians. Many people have applauded the action as a deft move to stop the age-long hemorrhage that was associated with the system, and in the process, paved the way for more revenue accruals to government coffers. Others view the policy as calculated efforts by the Federal Government to impoverish the poor who have been worst hit by its negative impacts due to the delay in instituting necessary measures to cushion the hardships wrought on the populace.

The increase in the pump price of PMS as a result of the deregulation of the downstream sector of Nigeria’s oil industry seems to have attracted scathing remarks from a cross-section of the society that appears to have forgotten that market forces determine prices in a deregulated economy, and that of Nigeria cannot be an exception. The people have refused to recognise the fact that under the prevailing situation, the price of fuel will continue to either go up or down depending on certain economic variables like the price of crude oil in the international market, the exchange rate of the Naira to other currencies, etc.

However, there are germane and legitimate concerns that Nigerians should concentrate on, rather than worrying about price increases since neither the people nor the government has control over pricing in the deregulated sector. One such thing to ponder is the real rationale behind the Government’s call for review of the belated palliative of N8,000 conditional cash transfers to vulnerable members of society. Nigerians should demand from their government why it has been on a seemingly endless mission to provide the economically disadvantaged segment of the population with necessary palliatives to reduce the current fuel subsidy removal-induced hardship. International experience in using social protection in the wake of fuel subsidy reforms is not a novel practice because other countries have done it successfully.

The World Bank reports that social protection policies have successfully been implemented parallel to fuel subsidy removals in many countries, like the Philippines, Indonesia, and Ghana.

The Philippines’ experiences illustrate the successes that can be attained through carefully sequenced reforms, the Bank stated, explaining that the country implemented fuel subsidy reforms gradually in the 1980s and 1990s, starting with the implementation of an oil stabilisation fund in 1984, followed by transitional subsidies, and culminating in market-based fuel pricing in 1998. To mitigate the effects of the reforms, the Philippines implemented targeted cash transfers and transitionary, targeted subsidies to help low-income households adapt to the change. Parallel to strengthening social protection policies, that country also invested in communications to raise awareness of the benefits of the reform.

In the same vein, in the early 2000s, the World Bank said, Indonesia spent just 0.3 percent of its GDP on social assistance programmes, while gasoline and diesel subsidies far exceeded this at about 4 percent of GDP. Social protection programmes gradually expanded, however. The country’s flagship scheme, BantuanLangsungTunai (BLT) was introduced in 2005 and gradually increased its coverage from one-third of Indonesian households to 80 percent of the population by 2012. In 2013, Indonesia began phasing out its fuel subsidy. Recognising the importance of a social compact to compensate for the effect of this reform, four social safety net schemes were merged and relaunched the following year. Coverage in the informal sector was expanded as well. These policies proved effective at protecting the poor and economically insecure, and allowed the subsidy reform to save 0.4 percent of GDP.

Also, Ghana, Nigeria’s next-door neigbour had its own programme to alleviate the hardship caused by petrol subsidy reforms. Prior to fuel subsidy reforms, the World Bank said Ghana spent over three percent of its GDP on petroleum subsidies, more than double its education expenditure. In 2013, the country deregulated most petroleum product prices, except for pre-mix fishing and residual fuel oil. In conjunction with this, Ghana implemented a national cash transfer programme called Livelihood Empowerment Against Poverty (LEAP), which targeted the poor and economically insecure. LEAP benefited from a pre-existing social registry and digital payments system. This social protection policy curtailed the impact of the deregulation on the poor and reduced national inequality. In November 2022, the residual fuel oil subsidy was suspended as well.

President Bola Tinubu had unveiled his administration’s plan for a monthly N8,000 transfer to 12 million of the poorest households in the country for six months, in a bid to cushion the effects of the removal of fuel subsidy. There have been reports of the President ordering the release of grains from strategic reserves for onward distribution to the public to curtail food inflation.

The National Assembly had granted speedy approval to President Tinubu’s request for N500 billion for fuel subsidy palliative. The request sought to amend the 2022 Supplementary Appropriation Act so as to extract N500 billion from the budget.

In December 2022, the National Assembly passed a supplementary budget of N819 billion earmarked for Agriculture – N69 billion, Works – N704 billion, Federal Capital Territory Administration (FCTA) – N30 billion, and Water Resources – N15.5 billion. However, as a result of President Tinubu’s request, the latest breakdown of N819 billion Supplementary Appropriation Act showed that N500 billion would be expended on fuel subsidy palliatives and N185.2 billion for the Ministry of Works; N19.2 billion was set aside for the Ministry of Agriculture, N100 million for Ministry of Water Resources and N35 billion for the National Judicial Council. The FCTA would get N10 billion; while N70 billion is for the National Assembly members to support their working conditions.

Interestingly, at present, the government has earned huge revenue for it to deploy in making life more meaningful to Nigerians. In all its ramifications, money does not seem to be a hindrance in providing succour for the economically disadvantaged. The question Nigerians should be asking their government is to know what the monies have been used for.

Last week Thursday, the Federation Account Allocation Committee (FAAC) shared a total sum of N907.054 billion June 2023 Federation Account Revenue to the three tiers of Government. The government has not had it so good as it did last week in terms of revenue shared by FAAC for a long period. From the total distributable revenue of N907.054 billion, the Federal Government received N345.564 billion, State Governments got N295.948 billion and the Local Government Councils pocketed N218.064 billion. A total sum of N47.478 billion was shared with the relevant States as 13 percent derivation revenue. Gross statutory revenue of N1,152.921 billion that was received for the month of June 2023 was higher than the sum of N701.787 billion earned in the previous month by N451.134 billion. The gross revenue available for the month of June 2023 from the Value Added Tax (VAT) was N293.411 billion. This is higher than the N270.197 billion available in the month of May 2023 by N23.214 billion.   The sum of N320.892 billion went to government coffers from Exchange Difference revenue.

Affirming the gargantuan sum of money that accrued to the Federation Account, the FAAC’s communiqué stated, “In the month of June 2023, Companies Income Tax (CIT) recorded tremendous increase. Import and Excise Duties, Value Added Tax (VAT), Oil and Gas Royalties increased significantly”.

Following the upward trajectory of revenue accruals to the Federation, the Federal Inland Revenue Service (FIRS) announced a total tax revenue collection of N5.5 trillion for the half-year period of January to June 2023, indicating the highest tax revenue collection ever recorded by the Service in any first six months of a fiscal year. Mr Muhammad Nami, Executive Chairman of the FIRS while commenting on the outlook for the remainder half of the year, assured that the country should expect “better days ahead” in terms of tax revenue collection. “We believe that the performance in the second half of the year would be better considering the continuing improvement to our tax administration processes and positive impact of current government’s policies on the economy.”  The Executive Chairman said.

Also, the Nigerian National Petroleum Company Limited (NNPCL) said it remitted N123 billion to the federation account for the month of June 2023. This is the first time in 18 months that the NNPCL is remitting revenue to the federation account.

During the FAAC meeting on January 17, 2023, NNPCL said it deducted N152.85 billion as a shortfall for the importation of fuel (subsidy) in November 2022, and due to deductions for subsidy payment, the oil company had zero contribution to the federation account in that month. It was reported that in January, February, and March 2022, petrol subsidy payments gulped N210.38 billion, N219.78 billion, and N245.77 billion, respectively. In April, May, and June, the country was reported to have spent N271 billion, N327.07 billion, and N319.18 billion, respectively. It is on record that for months, the NNPCL made zero FAAC remittances as subsidy payments hit N3.3 trillion in 11 months.

Under this scenario, the logical question is why are the four refineries in the country not working to their optimal capacity. If they have become absolute that cannot be fixed, why can’t the government sell them off as scrap instead of retaining and paying staff who are not working in the real sense of the word? How many years does it take to build a new refinery? What has happened to the modular refineries? Is it economically viable to continue to import PMS perpetually? Why has the price of diesel remained relatively stable for about three months now while that of petrol keeps rising? These are pertinent questions the governed should seek the government to provide answers to, and not fret unnecessarily over an increase in the pump price of petrol.

These notwithstanding, the enormous stream of revenue flowing into the government treasury signify a good start-up, a pointer to the fact that the economy is being steered on the right course.  In the Nigeria Development Update (NDU) June 2023 titled “Seizing the Opportunity”, the World Bank called for a business unusual approach, which entails bold and urgent policy reforms on key areas to enable Nigeria to break the cycle of low growth, high poverty, slow job creation, and fragility.

Meanwhile, the President of the Christian Association of Nigeria (CAN), Archbishop Daniel Okoh has taken the bold step of urging the Federal Government to undertake well-considered policies that would ease the sufferings and hardship millions of Nigerians are undergoing over the removal of fuel subsidy. He agreed that though there was a general consensus for the removal of fuel subsidy to boost economic growth and expel the massive corruption trailing its regime, it was equally agreed that the removal should be done in a manner that would not subject Nigerians to untold hardship.

He said: “While Nigerians were trying to adjust to the initial increase in the fuel price to N540 and its consequential effect on the cost of transportation, food, goods and services, and the general cost of living, another hike alluded to market forces took the price to N617. This has placed an enormous burden on the already struggling masses, further widening the gap between the rich and the poor and drastically eroding the purchasing power of ordinary citizens, and making it extremely difficult for them to afford the basic necessities of life. The situation is just unbearable for millions of Nigerians who were already suffering poverty. While CAN acknowledges the complex and difficult decisions that government must take to manage the nation’s economy, there is an urgent need to prioritise measures that will alleviate rather than exacerbate the existing poverty level and hardships of Nigerians. It is therefore imperative that economic policies are formulated and implemented with utmost care and consideration for the prevailing hardships experienced by Nigerians. We, therefore, appeal to the government as a matter of urgency to consider the following recommendations, among others.

“Government should engage with critical stakeholders in a meaningful dialogue to explore sustainable solutions to the current situation. It is pertinent to develop comprehensive economic policies that promote inclusive growth, job creation, and social well-being.

“Government should focus on diversifying the economy, reducing dependency on volatile commodities, and promoting investments in sectors with the potential to create sustainable employment opportunities. This will not only bolster economic resilience but also contribute to the overall well-being of citizens.

“The fuel subsidy palliatives being considered by the government should go beyond cash transfers to consider introducing mass transport across the states to reduce the cost of transportation. The multiplier effect of this will be profound. Government should take measures to reduce the price of fuel. Such measures should include the removal of unnecessary levies and taxes on imported petroleum products, the stabilisation of the foreign exchange market, and putting back our local refineries to functional and effective use.

“While we agree that there is no gain without pain, the pain must not be unbearable. Consequently, we again urge the government to take into account the impact of its policies on the most vulnerable segments of society and ensure they are not disproportionately burdened and subjected to unnecessary hardships. Government must listen to the concerns of the Nigerian people and implement sound economic policies that prioritise the well-being of all citizens. By addressing the prevailing hardships caused by the recent fuel price hikes and high inflation, we can pave the way for a brighter future for Nigeria. We appeal to Nigerians for more patience while urging the government to take urgent steps to ameliorate their sufferings. Let us work together to build an economy that is inclusive, resilient, and offers opportunities for every Nigerian to thrive.”

Meanwhile, the report of the National Executive Council (NEC) agreement on palliative measures for Nigerians, and its subsequent consideration of integrity tests on States’ social registers, cash transfers to be done via States’ social registers subject to state peculiarities are pointers to the right direction.

In the aftermath of the fuel subsidy removal, the government should go beyond providing palliatives. To maximise the impact of the petrol subsidy reform, it is critical to choose how savings derived from the subsidy will be used. Experts say if the government undertakes large new expenditures, the fiscal situation for 2023 could rapidly deteriorate again.

The near-term added pressure on household finances makes it critical to accompany the reforms with a social compact, most especially when it is estimated that about 7.1 million additional Nigerians would be pushed into poverty by inflation in the absence of any compensation including temporary cash transfers to help shield poor and vulnerable households. The World Bank said the current coverage of Social Protection Programmes (SPPs) is low at 19 percent of the population and called for investment in a social protection system that can provide timely, targeted, and temporary support to households experiencing a shock, like the increase in PMS prices due to subsidy removal.

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