President Bola Ahmed Tinubu at his innauguration announced total removal of the highly controversial but popular fuel subsidy, resulting in high prices and long queues nationwide. CHIMA NWOKOJI, in this report dissects the views of some experts in this economic policy.
On Friday, the Nigeria Labour Congress (NLC) issued a five-day ultimatum to the Federal Government to revert to the old price of petrol or face a nationwide protest scheduled for Wednesday.
Although the subsidy removal policy goes into effect on July 1, it has already sparked concerns as Nigerians rush to buy fuel before its cost increases even further.
Nigeria’s oil is refined in Europe and imported back to Nigeria, a process that contributes to its high costs.
By definition, a subsidy is a direct or indirect payment to individuals or firms, usually in the form of a cash payment from the government or a targeted tax cut.
In economic theory, subsidies can be used to offset market failures and externalities to achieve greater economic efficiency.
However, in the Nigerian context, there is greater corruption rather than economic efficacy.
Over the years,petroleum experts have recommended that the Nigerian Government should fix the four refineries to reduce or even stop fuel importation and subsidies.
Available records show that since 2000, the Nigerian government has issued at least 20 refinery licences to private companies.
However, not one refinery has been built. Investors could not recoup their investments due to the artificially low price structure caused by fuel subsidies.
A civic society organisation, Policy Alert, earlier last year condemned continuous payment of subsidy on premium motor spirit (PMS), insisting that the country is fostering corruption through the scheme.
There has been allegations that funds earmarked for subsidies are usually diverted into private pockets.
In fact, there are cases where it was alleged that monies were paid out for petroleum supplies that never happened. Though the current administration has assured that it will utilise the proceeds from subsidy removal for social infrastructure, the fears most Nigerians are expressing is that governments are not known to have properly utilised such public funds for the benefit of citizens.
In 2012, the then Nigerian President Goodluck Jonathan initially removed the fuel subsidy because of the corruption in the system. The country discharged 59 million litres of petrol by vessel but had a daily consumption of 35 million litres as of 2012.
The FG subsidised about 24 million litres of petrol daily, which Nigerians did not utilise.
In 2012, a 200-page report released by a parliamentary inquiry uncovered a $6 billion fraud, involving officials at the state-run Nigerian National Petroleum Company (NNPC) – now a limited company. Since then, governors and members of parliament have routinely called for an investigation into NNPC and a review of subsidy payments to oil marketers.
That is why, a herd of finance and economic experts are throwing its weight behind subsidy removal in Nigeria.
At some point, there was confusion around daily petroleum consumption. Some alleged that it has reduced to a level below 50 million litres. But the NNPC stated that the country’s consumption was over 100 million litres.
According to the Executive Director of a civic society organisation, Policy Alert, Tijah Bolton-Akpan, the consumption disparities were indications of lack of transparency and accountability.
With subsidy payment, the Nigerian National Petroleum Company Limited (NNPCL) stated that the country’s consumption was over 100 million litres. The NNPCL also came out on Friday, February 18 to announce that the country is spending over N400 billion monthly on petroleum subsidy.
There has been argument in some quarters that the Federal Government spends about N40.1 billion daily, subsidising every litre of petrol consumed in Nigeria by at least N600. This means the government spends about N1.24 trillion on fuel subsidies monthly.
Bolton-Akpan said, “We are discussing the removal of a subsidy that no one knows for sure how much it amounts to. How much exactly will you be removing when you eventually come around to deregulate?
“The problem really is that corruption has dogged all efforts at fixing our refineries over the years. It defies every logic that we could be a super-producer and still be here talking about the economics of spending nearly a trillion naira in just over two years for just freighting refined products back home for domestic consumption. How can you be a yam titleholder and be depending on other people to eat pounded yam?”
On his part, the Managing Director/Chief Executive Officer, Parthian Partners Limited, Mr Oluseye Olusoga, said, “Subsidies primarily benefit the wealthy rather than the average person. By eliminating subsidies, individuals can make wiser decisions and optimise their resources, leading to better outcomes. For instance, families with multiple cars for routine tasks within a small radius could consolidate their transportation to reduce traffic and expenses.”
In an earlier interview with Nigerian Tribune, the Chairman of Bank Directors Association of Nigeria (BDAN), Mr Mustafa Chike-Obi, predicted, “Nigeria must cease fuel subsidy. It may not happen now, or in two years’ time but you will pay for petrol in Nigeria like what Americans are facing, sooner or later.”
Today, his prophesies seem to have come to pass. America produces more oil than Nigeria. They are now exporting more oil than Nigeria and yet in America, the price of a litre of petrol, the last time I checked was about three dollars and a dollar in the official window is N464 and N770 in the parallel market.
Chike-Obi further told Nigerian Tribune, “We cannot afford to subsidise petroleum, neither can we afford to subsidise electricity and that’s why we don’t have them. We are subsidising electricity and that’s why we won’t have it.
“If we allow electricity prices to be free, like we allowed GSM when it started, we would have it. We bought a sim card for N20,000, now it is almost free.
“The way to do these things is to let the rich people pay the high price and because they are paying high price they will get all the electricity they want and instead of selling the 4000 megawatts we have that we are selling at a regulated price of N50/watts, we sell at N120, which we in Ikoyi will buy at N120 and they will make so much, money and create more megawatts.
“That is why everybody has a phone now. My driver has two phones and that’s the way it should be because MTN and all those people made so much money initially and so started giving phones for almost free.
“So if you tell people to sell electricity at N50 per kilowatt, they have to go and collect their money from the government because it is a subsidy and the whole thing won’t work. My point is that we must face the price. Let petrol, electricity and all that face their prices and we can make more in the long run. But that’s why you need leadership. You need a leader who people can follow.”
A professor of Political Science and development consultant/expert, Jibrin Ibrahim, last Saturday argued that this time, the character of the state has changed significantly.
Most petroleum produced in the country is simply stolen by cabals in charge of state administration and security. The Nigerian revenue flows, according to him, have dried up and 96 percent of what comes in is used to pay for debt servicing.
This means that almost the totality of the N400 billion spent on fuel subsidy each month is borrowed. Allocations for health, education and social services have been largely abandoned to pay for fuel subsidy.
As at the end of 2022, Nigeria’s national debt was N25 trillion or $103 billion.
“With this unsustainable debt, we are mortgaging the future of our children and grandchildren. If we are foolish enough to continue along that path, the creditors are also reading the tea leaves and would soon draw the line, being aware that we no longer have the capacity to repay newer debts.
“This means we will soon reach where Sri Lanka got to by simply not having the ability to even borrow the cash to pay subsidy any more.
“We pointed out that the price of petroleum products had been adjusted 18 times in the 26 years since the military administration of General Babangida broke the mould by raising the pump price of petrol from 3.15 kobo per litre to 20 kobo per litre in April 1985.”
Ibrahim recalled that throughout this period, while there have been regular increases in fuel prices, no government has succeeded in completely removing fuel subsidy. “The Jonathan administration, we contended, would also fail because Nigerians will struggle against it and win. We won. The result is that a cabal or regime insiders and marketers have stolen trillions of naira from our national treasury and, as former Minister Ngozi Okonjo-Iweala explained, most of the subsidy we have been paying for is not even on real fuel brought into the country; it has simply been the looting of the treasury.”
The Nigerian state, he regretted, is broken and can no longer generate the rent to pay for what “we and our four neighbouring countries have been enjoying in the form of very cheap petrol. Niger and Cameroon are petroleum exporting countries that deliberately set their petrol prices at five times the cost of ours, to encourage the smuggling in of Nigerian petrol for their consumers. “We are the big brother who has subsidised their transport and electricity systems for 50 years, but unfortunately we are broke today and cannot continue.
“My final frustration is on the consistent recommendation we have made over the decades that the Nigerian state should fix our four refineries to reduce or even eliminate our dependence on imported fuel.”
In Nigeria’s 2023 budget, the Federal Government allocated N3.6 trillion to pay for fuel subsidies for the first half of 2023. This figure shows a huge gap compared to the allocated N443 billion subsidy payment for January to June 2022. The FG can utilise the enormous budget allocated to fuel subsidies to fund other strategic sectors.
One such strategic sector is building good roads to attract investors. Nigeria possesses abundant arable land that are uncultivated because they are not accessible. Research has shown that investment in good roads to enable transactions will bring about economic growth.
A World Bank report also showed that better road infrastructure reduces transport costs, making it easier for businesses to reach internal and external markets.
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