MUCH ADO ABOUT FUEL SUBSIDY
The Tinubu administration should dialogue with critical stakeholders that fuel subsidy has become a serious handicap
Taking a cue from President Bola Tinubu’s inauguration speech that the era of fuel subsidy was over, the Nigerian National Petroleum Company (NNPC) Limited on Wednesday adjusted the pump price of petrol from N195 per litre to between N488 and N557 nationwide. The more than 200 per cent hike has elicited mixed reactions. Predictably, the Nigeria Labour Congress (NLC) and its affiliates have threatened a showdown with the federal government as they often do. But the challenge at hand should be how to contain a spontaneous eruption of social unrest in a country where many are yet to come to terms with the outcome of the presidential election.
On this issue of removal of fuel subsidy, the position of THISDAY is clear. From inception 28 years ago, we have been consistent in highlighting the fact that fuel subsidy is a by-word for waste and corruption. But a major economic decision with implications for the social wellbeing of most Nigerians should not be handled with levity. We therefore urge the Tinubu administration to dialogue with critical stakeholders on the need to accept the reality that fuel subsidy cannot continue.
As we have stated in the past, there are compelling arguments to make for retaining the status quo. The inflationary impact and the multiplier effects that place a disproportionate burden on the poor are legitimate concerns, especially in an economy with high incidence of poverty, erratic power supply and inadequate public transport system. We also concede that subsidies can make political and social sense when they allow a government to pursue strategic objectives beyond the remit of the market, and are well targeted. However, the fuel subsidy regime in Nigeria has been largely captured by an importation cartel and is simply unsustainable. Besides, spending a substantial slice of the national budget to service the consumption of one single item is detrimental to the development of any nation.
We understand this decision is not cost-free. But Nigerians should be objective in assessing the policy against the reality on ground. Even if all the sharp practices associated with it are discounted, the fact remains that Nigeria does not have the capacity to sustain petroleum products subsidy. For an economy that is tanking due to exogenous factors beyond the control of the country, the “luxury” of sustaining a warped subsidy regime is not only deceptive, but also tantamount to merely postponing the evil day.
Apart from the legal technicality that it was not provided for in the 2023 appropriation act, this decision is almost beyond the control of the Tinubu administration. With 96 per cent of earnings going to debt servicing, we are practically borrowing to pay for fuel subsidy. The various levels of our burgeoning bureaucracies are in a desperate bind on how to find the cash to meet recurrent obligations. Recent statistics from the Debt Management Office (DMO) present disturbing signals that just as the government at the centre goes on a borrowing binge, the states are also neck-deep in debt accumulation. The fear that the machinery of government at all levels could grind to a halt if the cash cannot be found quickly is growing by the day.
Therefore, continued payment of fuel subsidy is detrimental to national economy. The negative implications include diversion of investment from other potentially more needful government departments, encouraging rent-seeking by limiting the capital flow available to new energy infrastructure projects, and the fact that subsidies are difficult to target accurately. Using Nigeria as a case study, the Global Energy Architecture Performance Index (EAPI) Report once noted that Nigeria, an oil exporter, reimports refined crude products, and by implication creating value and employment externally, while shouldering the burden of the cost of its fuel subsidy.
Given that most of the states are broke, their focus has in recent times shifted to the subsidy regime. For that reason, we endorse this policy with abundant caution. Petroleum subsidy, we believe, should be removed because it is inefficient, it is oiling corruption, and it is robbing society of vital resources that could be invested in hospitals, schools, roads, and other critical areas that directly stimulate economic activities. It cannot be business as usual in Nigeria, going forward.
