Fuel Subsidy Removal: One Step Forward, Two Steps Backward
A country that has consistently grappled with low revenue generation cannot continue to waste huge resources subsidising fuel consumption, writes Obinna Chima
In Nigeria, arguments over fuel subsidy removal have a long history. In the past few days, this age-long debate has resurfaced.
While the Nigerian National Petroleum Company Limited (NNPC), most state governors and multilateral institutions have been raising the alarm that the country cannot continue with the policy, members of the organised labour appear to be standing their ground, resisting the elimination of the policy.
Already, members of the organised labour are preparing for what they described as a nationwide protest this week, over the planned fuel subsidy removal, which had been reportedly scheduled for the second half of this year. Not even the enactment of the Petroleum Industry Act (PIA), which expressly phased out the fuel subsidy regime will make those who believe the policy should continue think otherwise.
The matter is presently complicated as with almost 12 months to the general elections, indications have emerged that the federal government may be reluctant to press further and yield to political considerations, despite the fiscal burden it is presently shouldering due to the policy.
Indeed, the removal of the subsidy on petrol remains a critical free-market reform and it would be beneficial to the finances of the government and the overall economy. Many believe it would boost investments in the downstream sector of the oil and gas industry and free revenues for the government to provide essential services, considering the burden of removing N250 billion monthly from the federation account that is paid for subsidy.
Statistics showed that over N2 trillion was spent on fuel subsidy in 2021, while reports had also shown that prices of petroleum products are 100 per cent higher in neighboring countries than what is obtainable in Nigeria.
The World Bank had last November sounded the alarm bells to Nigeria, saying further delay in removing the fuel subsidy which had been described as a major drain and waste on the economy could see the federal and state governments unable to pay salaries this year.
The multilateral institution had painted a gloomy picture of Nigeria if the country decides to continue with the controversial fuel subsidy.
The World Bank urged Nigeria to remove subsidy on petroleum motor spirit in February 2022, as prescribed by the Petroleum Industry Act, warning that further delay could worsen the precarious revenue situation confronting the country. It also warned that the present fiscal condition of the sub-national governments would take a turn for the worse in 2022 with 35 of the 36 states unable to meet their financial obligations. It pointed to the mounting fiscal pressures due to lower-than-expected revenues in 2021 and the rising cost of petrol subsidy.
It stated: “Because most states rely heavily on inter-governmental transfers, diminished revenue inflows to the Federation Account are jeopardising fiscal sustainability at the state level.
“For example, in the oil-producing State of Bayelsa federal transfers account for 91 per cent of revenues, and declining transfers caused a 22-percent drop in Bayelsa’s revenues per capita during the year.
“Even in the state of Lagos, which relies the least on Federal transfers, transfers accounted for 29 per cent of revenues in 2020. Most State expenditures cover salaries and administrative expenses, and given their rigid (i.e., nondiscretionary) nature, State-level expenditures are difficult to cut.”
The Senate President, Dr. Ahmad Lawan, last week sparked the fresh debate while briefing journalists after a closed-door meeting with President Muhammadu Buhari. Lawan stunned Nigerians when he said the president told him that he had not directed anyone in his government to implement the removal of petroleum subsidy.
The Senate President said the federal legislators were worried about the different agitation and planned protests around the country, necessitating the discussion with the president. According to him, subsidy burden cannot be transferred to citizens even as he expressed doubts on the 100 million liters of petrol said to be consumed per day in the country.
He explained: “Well, it will be of interest to Nigerians to hear what I’ve come to discuss with Mr. President among several other things. Many of us are very concerned with the recent agitations, protests, and many citizens were so concerned, our constituents across the country are very concerned that the federal government will remove the petroleum subsidy.
“And for us, as parliamentarians, as legislators representing the people of Nigeria, this must be of interest to us. And we’ve just finished our recess, we had gone home to our constituencies and senatorial districts.
“And will felt the pulse of our people. And I found it necessary to visit Mr. President, as the leader of our government and our leader in the country, to discuss this particular issue of concern to Nigerians, and I’m happy to inform Nigerians that Mr. President never told anyone that the petroleum subsidy should be removed.
“I know and I agree that the subsidy is very heavy. But I think we must never transfer the burden to the citizens. I believe that we need to look at the quoted figure of maybe 100 million litres that people claim we’re consuming. Is it real? I mean is it either under recoveries of subsidy? Is it really 100 million liters per day? How on earth are we consuming that?
“We need to look at this critically and see how we can find the truth. Because I am not convinced that within the boundaries of Nigeria, we are consuming 100 million liters. Probably neighboring countries maybe benefiting from this. Can’t we do something about it?
“It is a failure on us if we are not able to control it, this particular aspect of smuggling of the petrol and then in return, push the burden to the ordinary citizen.”
This came few months after the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had announced that the federal government made provision for petrol subsidy only for the first six months of 2022, as the government looked towards complete deregulation of the sector.
“In our 2022 budget, we only factored in subsidy for the first half of the year; the second half of the year, we are looking at complete deregulation of the sector, saving foreign exchange and potentially earning more from the oil and gas industry,” Ahmed had said.
To the Governor of Edo State, Mr. Godwin Obaseki, the issue of subsidy had been one matter that the National Economic Council (NEC) has continued to deliberate on for more than a year.
According to Obaseki, there was an Adhoc Committee which was set up by NEC headed by Governor El-Rufai of Kaduna state that included members of the executive arm of government that worked on recommendations as to what should be done about the cost of petrol which sells for N162 per litre, whereas every other country surrounding Nigeria sells same product at more than 100 per cent of the cost in Nigeria.
“So, for NEC, the arguments have been put out, should we continue this regime of spending money we do not have to subsidise the living standards of only mostly those who have vehicles? And when NEC looked at some of the analysis last year, we then realised that less than one-third of the states of this country consume two thirds of the subsidy. So, the issue of equity also came up,” Obaseki explained.
Speaking in the same vein, Nasarawa State Governor, Abdullahi Sule noted that with the NNPC now becoming a limited liability company, the company would now be run differently in designing a fuel pricing regime.
“If the Minister of Finance, you know, provides for six months, you probably can understand part of the reason for provision of six months before NNPC fully takes off and at that moment, that’s when decisions will be made.
“But I want to make the correction that it is not governors who are making recommendations. It is actually a NEC committee, you know, which comprises of all the other people that are looking at this and no decision has been made.
“Probably at the appropriate time, a decision will be made. You know, the Petroleum Industry Act has fully taken charge, and it will not require any recommendation from anybody,” he added.
Former Head of State, Abdulsalami Abubakar, however, cautioned the federal government against removing fuel subsidy, saying it would throw Nigerians into more economic hardship.
“There is a continuous rise in the prices of food items beyond the reach of many Nigerians. On top of all these, fuel prices are expected to rise significantly in the coming months as announced last November. We all know that when this happens, it will push many millions of Nigerians into poverty,” he argued.
Also, the Nigeria Labour Congress (NLC) has maintained that the planned removal of petrol subsidy was tantamount to leaving Nigerians to bear the consequence of in-built inefficiency in the product supply value chain. President of the NLC, Mr Ayuba Waba, reiterated the body’s earlier decision to embark on a warning protest on January 27, over the matter.
Wabba said the removal of subsidy would cause more pains to Nigerians and push millions into poverty, arguing that as it is, inflation has also already rendered wages and salaries valueless.
The NLC helmsman noted that the federal government cannot be talking about subsidy removal when it imports all its products, explaining that the first point to start is to begin local refining.
He posited that the refineries have not worked for years because there are certain highly placed individuals who benefit from the importation of products.
He pointed out that labour had engaged government for the past 20 years over the matter and proffered solutions, including building the country’s refining capacity.
“We must be able to refine product for domestic use, and that is what most OPEC countries are doing. We should not rely 100 per cent on importation of petrol and other petroleum products.
“One, we’re exporting our jobs, not only exporting jobs, we are also imposing a burden on many Nigerians. In fact, we can take over the entire West Africa markets if we’re able to refine products for domestic use,” he noted.
According to him, modular refineries can actually address the perennial issue of shortage of gas and diesel and also bring down the price which has continued to rise as well as pushing the prices of foodstuff beyond ordinary Nigerians.
“Diesel is almost going for between N340 per litre and N360, depending on where you’re buying. And then it will make transportation so expensive, and therefore costs of goods and services that will also depend on transportation. Those costs will be built into it. So, those are the issues.
“There is confusion. How much of petrol do we consume? Do we know? And that is why we have said that the inefficiency that is in the system should not actually be transferred to consumers to continue to carry,” he explained.
Wabba opined that government’s position that the high volume of consumption was due to products that are being smuggled across the borders does not hold water, stating that it will take hundreds of tankers to take that volume out of the country.
His counterpart at the Trade Union Congress (TUC) has also directed its state councils and affiliates to commence mobilisation for industrial actions against subsidy removal. The Congress insisted that the government must fulfil the various conditions it earlier presented before stopping the policy.
However, National President of the Trade Union Congress (TUC), Mr. Quadri Olaleye, said the trade union centre was not against the removal of subsidy if it would yield positive results for the economy.
He, nonetheless, expressed concerns over the palliative measures put in place by government to cushion the adverse impact of the proposed removal. He, however, questioned government’s sincerity over move to remove the subsidy on petroleum products.
Similarly, the Senior Staff Association of Nigerian Universities (SSANU) said that its branches all over the country had been adequately mobilised in line with the directive of the NLC for the protest.
SSANU President, Mr. Mohammed Haruna Ibrahim, accused the federal government of not being sensitive to the pains the citizens were going through while taking its decisions. Ibrahim said as an affiliate of the NLC, SSANU would participate actively in the proposed protest.
Clearly, a country that has consistently grappled with low revenue generation cannot continue waste huge resources subsidising fuel consumption. It is obvious that spending on petrol is infringing on other critical areas of capital development, hence the need for the government to see beyond political considerations otherwise it would continue to expend most of the borrowed funds on financing recurrent expenditure such as subsidy payments as had been alleged.