Subsidy removal: Government wrong on two counts

While attempting to justify the Federal Government’s decision to end the fuel subsidy regime during a post-FEC meeting press conference this past Wednesday, Mrs Zainab Ahmed, Minister of Finance, Budget and National Planning,   had said fuel subsidy cost the country as much as N250 billion monthly.

According to her, “If you take N250 billion times 12 months, that is about N3 trillion. If we don’t remove that, that is what it is costing us. This is money that we can use to apply to health and education.”

Although the Federal Government’s argument against fuel subsidy appears plausible and despite my understanding of the danger the subsidy poses to the economy and the people, I still believe that the government is wrong to travel this route at this time for two reasons.

The first is that the government forced this deplorable situation on the country and the people, and should bear the brunt of its irresponsibility. I explicate presently.

When the first refinery in Nigeria was built in 1965, the capacity was just 60,000 barrels per day but it was adequate for the 50.15million population of the time. At that time, however, the downstream sector was deregulated as Nigerians were made to pay the prevailing market prices for petroleum products and there were different price regimes in different parts of the country.

By the time the second refinery came on stream in 1978, the refining capacity in the country went up to 185,000 barrels per day for a population of 69.29million. The third refinery, which was inaugurated in 1980, pushed the local refining capacity to 295,000 bpd while the population was 73.6million. When the fourth refinery was commissioned in 1989, the refining capacity shot up to 445,000 bpd of crude, while the population had risen to 92.84million.

Since 1989, the local refining capacity has not increased though the population has more than doubled the 1989 figure. Besides, the local refineries are producing far below installed capacity which means that while demand for petroleum products has been increasing, supply has been on the decline. When the Nigerian National Petroleum Corporation (NNPC) could not meet the demand, rather than build more refineries or increase the refining capacities of the existing refineries, the government engaged marketers to bring in petroleum products with a directive not to sell above specified prices despite the huge cost of importing refined petroleum products. This naturally resulted in subsidy payment by the government to marketers. If this step had been taken as a stop-gap measure, it would have been understandable. But for over 20 years, Nigeria has resorted to importing petroleum products to meet local demands despite being an oil producing country with no specific measure being taken to correct the anomaly.

Subsidy has cost the country so much. A conservative estimate puts the cost of subsidy to the country over the years at over N30 trillion. This is money that could have been used to build more refineries, fix the rail system, ensure better education, improve the healthcare delivery system, improve the road system or improve the general wellbeing of Nigerians.

Succeeding governments had promised to build new refineries but all have failed. Ahead of his election for the first term in 2015, President Muhammadu Buhari had promised to build new refineries and fix the existing ones. But six years after, the current administration has not built any new refinery and the old ones are not much better than they were when President Buhari took over in 2015. Since the average Nigerian is not responsible for the comatose refineries or the subsidy quagmire, it is out of place to punish him for the problem he did not create. The government’s irresponsibility created the problem, so the government should bear the burden of its irresponsibility if it cannot come up with an ingenious way of solving the problem.

Now to the second reason.

Over the years, whenever the government spoke about subsidy removal or reduction, it always added a promise to improve the country with the additional revenue that would accrue to it. In 2012 when the Goodluck Jonathan administration increased PMS pump price from N65 to N97 per litre, the government instituted the Subsidy Reinvestment and Empowerment Programme (SURE-P) to re-invest the Federal Government’s savings from fuel subsidy removal on critical infrastructure projects and social safety net programmes with direct impact on the citizens. But the facts on ground show that not much of what was promised happened. Apart from some buses that were bought by the government for mass transit, not much else happened. Nigerians paid more for fuel but this didn’t impact on the quality of their lives.

In its attempt to convince Nigerians on the desirability of a fuel price hike in 2016, the incumbent government assured that the extra fund to be realized would be invested in critical areas that would improve the life of the average Nigerian. Five years down the line, while the inflow of resources to the government has witnessed an increase, the average Nigerian has become the most miserable in Africa. As a matter of fact, Nigeria’s misery index, the indicator used in determining how economically well off the citizens of a country are, leapt from 14.75 per cent in 2015 to 50.48 per cent in March 2021. The implication of this is that the average Nigerian is three times more miserable today than he was in 2015.

So, while the three tiers of government will get more money should subsidy be removed, it will not automatically result in improved education system or a better healthcare service delivery for the people, despite the Minister Zainab Ahmed’s promise. Therein lies the problem. Again and again, the government had jacked up the pump price of fuel with a promise that the money saved from such exercise would be deployed to improving the lot of the people. But rather than this happening, the people have always been shortchanged. There is no guarantee that the experience would be different this time around.

Therefore, before the government embarks on this exercise of removing subsidy, it has to get Nigerians to believe in it (the government) and buy into the programme. If the government forces its way through, there may be a mass resistance from the people. Given the fragile state of the country at the moment, the consequences of such resistance may threaten the very foundation of the country.


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