Fuel Subsidy Removal: As World Bank Joins Conversation on Appropriate Palliatives

The clock is ticking for the implementation of the policy on fuel subsidy removal. Economists say unless the subsidy regime is brought to an end, Nigerian economy may crumble; the organised labour describes the planned policy as a recipe for misery; while the World Bank insists the sincerity of the federal government in its choice and implementation of palliative programmes will save the day, reports Festus Akanbi

As the federal government continues to push out its narratives on the urgent need for fuel subsidy removal, members of the organised labour appear to have gone back to their trenches, mapping out plans to call out their members in what promises to be a long-drawn battle to resist the higher cost of fuel in 2022.

While the government claims to be doing all it can to stave off a government-labour face off, some economists, who had been rooting for the end of the subsidy regime again wondered if the current administration possesses the balls needed to put an end to a regime of subsidy that has proven to be a cesspit of corruption.

Some observers even argued that the worry is not really about subsidy removal but that some Nigerians do not trust the government when it comes to the implementation of the palliatives being dangled in their faces. They contended that given the gale of criticisms trailing the handling of the home-grown school feeding programme and the conditional cash transfers policies of the federal government, it will be difficult to convince Nigerians that post-subsidy era will usher any transparency in palliative distribution.

Organised Labour Spits Fire

In its rejection of the federal government’s plans to increase the pump price of petrol, the Nigeria Labour Congress (NLC) called for a consideration of options to help the country achieve developmental governance and accountable leadership.

A statement signed by NLC President, Ayuba Wabba said, the union has questioned the federal government’s bait to pay N5,000 to 40 million Nigerians as palliatives to cushion the effect of the astronomical petrol price increase, describing it as comical.

According to him, the Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Malam Mele Kyari, announced that petrol could cost as much as N340 from February 2022.

He said the total amount involved what he called “queer initiative“ was far more than the money government claimed to spend currently on fuel subsidy. Therefore the NLC says it’s already mobilising the Nigerian workforce for an industrial crisis should the go ahead with its plan to remove the subsidy.

Some analysts are of the opinion that the increase in the price of petrol by over 200 per cent is a perfect recipe for an aggravated pile of hyper-inflation and astronomical increase in the price of goods and services with more hardship to Nigerians. This scenario, it is feared, will open a wide door to social consequences such as degeneration of the current insecurity crises.

The World Bank’s Narrative

However, the World Bank believed what the government should do is to put a human face to the choice of palliative measures being put in place to cushion the effect of higher cost of fuel when subsidy is removed.

In what looks like a new dimension to the subsidy debate, the World Bank’s Country Director for Nigeria, Shubham Chaudhuri, said time is ticking for the Nigeria’s economy and that the situation is far worse than many Nigerians could think of. He, however, argued that Nigerians will begin to trust their government in the crusade against fuel subsidy if they start to live by example.

Chaudhuri, who spoke during an official visit to THISDAY office in Ikoyi last week raised the alarm that “The urgency of the reform has remained but what we are saying now is that the fiscal pressures that have built up as a result of the growing burden of petrol subsidy are likely to hit Nigeria very hard next year unless they are addressed almost immediately. As of last month, the cost of petrol subsidy to the federation, meaning both the federal government and the states, was N250 billion monthly.”

In an interview published in THISDAY last week, Chaudhuri had put the issue of subsidy removal in a clearer perspective.

“Supposing you say federation’s gross revenues next year (if oil production picks up) could be somewhere in the N12 trillion range. This N250 billion per month means N3 trillion over the next 12 months, which means the federation will essentially be spending 25 per cent of the entire federation’s revenue on premium motor spirit (PMS) subsidy. And then, that is the federation’s choice obviously, but is it an informed choice and does the public know who exactly is benefiting from this N3 trillion or who will benefit from this N3 trillion? And our concern is that if there is no action taken on PMS subsidy, there is a risk that the federation’s revenues in 2022 could actually be lower in ordinary terms, not only compared to 2021, but compared to 2020, which as you know was a kind of hard year,” the World Bank chief said.

So, the question is what happens when revenues deplete further? The World Bank official said it would become very difficult to pay wages and salaries, a development that will significantly push off the cost of living.

Chaudhuri explained further, “So, if the federation revenues go down further in nominal terms, it means wages and salaries will be affected negatively and the cost of everything will go up, because of the high inflation. Whereas if revenues go down in nominal terms, one of two things is going to happen: either the government, both at the federal level and especially, at the state level, is going to start running into problems paying wages, making payments to vendors, financing basic services, which is essentially what happened back in 2015 and 2016, when there was a fiscal crisis at the sub-national. But you could also see this happening at the federal level, because the federal government revenue will be hard hit next year if the PMS subsidy continues and especially, if oil production does not pick up as much as it is currently anticipated in the budget.”

Implementing the Palliatives Programmes

He said that shouldn’t be the case as he suggested that funds for PMS subsidy should be directed towards things like basic education, primary healthcare, rural roads, or things that Nigeria needs to grow inclusively and reach its potential.

As the debate progressed, some analysts said there is no enough evidence to convince Nigerians that the government will do as promised, arguing that the N5000 largesse to some indigent Nigerians may end up in politicians’ pockets. There is also the fear that by the time Nigerians are made to pay for full cost of fuel, at a period of hike in prices of cooking gas and increase in electricity tariff, the misery level of an average Nigeria would have gone up significantly.

Chaudhuri said the Petroleum Industry Act (PIA) categorically stipulates that fuel subsidy must be removed six months after it was enacted, explaining that in line with the PIA, fuel subsidy should be eliminated around February 15. He however, will not rule out the possibility of a shift in the date of policy implementation.

He said, “The fact that people are talking about June already tells you that this is something everyone is hesitant about. If you go by the language of the PIA, it says six months after it was enacted. I believe it was enacted on August 16th. It would be good that the provisions of the PIA are implemented and PMS subsidy will just disappear completely.”

Cushioning Effects of Inflation

The World Bank official is of the opinion that “when the PMS subsidy disappears, there will be an uptick in inflation and what we think other countries have done is to help ordinary Nigerian cope with that further uptick in inflation, which is why we think that as part of the PMS subsidy going away, large-scale cash transfer programme is time-limited, to help ordinary Nigerians cope with any increasing prices over and above what they are already experiencing.”

According to him, some Nigerians are against subsidy removal because they felt that fuel subsidy is the only thing they could benefit from the administration. “Many Nigerians know the fact that there is a PMS subsidy and therefore, the prices of PMS are a bit lower than it otherwise should be. They feel it is the only benefit they are getting from the government. And if that gets taken away, things will be worse off. We are trying to make the case that it doesn’t have to be that way. There are many ways of using those funds to directly benefit ordinary people. That is because right now, with N3 trillion, it is mostly benefiting the wealthy and super wealthy.”

On what to do to rekindle the hopes of Nigerians at this critical period, the World Bank chief stressed the need for the commitment of the government to assure the Nigerian people that as PMS subsidy is removed, they will also help cushion the effects by protecting them from the impact of that removal. This, according to him, will be done by doing more that the large-scale cash transfer already promised.