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Economy

Unending Fuel Crisis Justifies Call for Subsidy Removal

The dreaded queues for Premium Motor Spirit (PMS) temporarily returned in Abuja, Nigeria’s federal capital, and some major cities in the country last week fuelled by some semblance of mass hysteria that the Federal Government plans to remove subsidy on the petroleum product.

This was against the backdrop of the advice of the International Monetary Fund (IMF), which suggested that Nigeria, Africa’s biggest oil producer, should remove fuel subsidy.
Christine Lagarde, managing director of the Washington-based Fund, had on April 12 called on Nigeria to remove fuel subsidy due to low revenue mobilisation in terms of tax to gross domestic product.

Rumours that petrol pump price hike was in the offing fed on President Muhammadu Buhari’s comments after his victory at the February 23, 2019 presidential election. Buhari said his next four years would be tough and Nigerians may have started feeling the heat.

Zainab Ahmed, minister of finance, had earlier given the impression that the government could consider the IMF advice but later said the templates to have a complete removal of subsidy have not been created, fuelling rumours that the government may after all heed the IMF call.


Africa’s most populous nation spent N730.9 billion on subsidising the retail price of petrol in 2018, an amount which was higher than funds allocated to education, health, infrastructure and other key ministries and parastatals that would have increased the economic growth or standard of living of its over 180 million people.

Wumi Iledare, a professor of Petroleum Economics and Policy Research at the Centre for Petroleum Energy Economics and Law, University of Ibadan, said payments of subsidy is a gorilla that will swallow Nigeria’s economy and lead to the collapse of education institutions, road infrastructures and health facilities because the country spends more than one quarter of the budget subsidising petrol which benefits the elites more than the populace.
“Ghana, our next door neighbour, doesn’t control the price of petrol, so why do we?” Iledare asked.

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Over the years, the Nigerian government has subsidised electricity and petrol, paying the difference between the cost of production and the cost charged to customers in order to make them more affordable.

Buhari’s government has spent N7.9 trillion in the past four years importing petrol to augment supply from the country’s rickety refineries according to data from the National Bureau of Statistics (NBS). This is more than Nigeria’s entire 2017 budget of N7.2 trillion and 5 percent of the country’s current gross domestic product.

“It is a big shame that we are one of the world’s biggest producers of crude oil and still the world’s biggest importer of petrol. This has to change,” said Adeola Adenikinju, director, Centre for Petroleum and Energy Economics and Law and member of the Central Bank Monetary Policy Committee (MPC).

Our analysis of the latest financial records of Nigerian National Petroleum Corporation (NNPC) showed that in 2018 alone, the government spent N730.9 billion on subsidy, popularly called “Under Recovery”, which was higher than total budget of individual ministries such as Education (N651 billion), Health (N356 billion), Transportation (N267 billion), and Agriculture and Rural Development (N203 billion).

This could persist for the next four years unless the government finds a way around the fuel subsidy quagmire.

We had in an earlier report quoted analysts at RenCap as saying that “there seems to be some unwillingness on the part of the government to completely remove the de facto subsidies at this time”. Rather, “the intention will be to progressively deal with the subsidies by ensuring a better subsidy regime in a bid to ultimately reduce them over time”.

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But despite these realities, the reaction from Nigerians has been immediate and sharp against any planned removal of subsidy which will lead to increase in fuel price. Many said this would affect the already impoverished masses and throw the country into deeper crisis.
The Nigeria Labour Congress (NLC) immediately rose to denounce any planned removal of subsidy on fuel, saying “it would result in astronomical increase in the pump price of petroleum and cost of other goods and services”.

Ayuba Wabba, NLC president, said in a statement that the IMF advice was harmful because among the agenda usually set for any president that emerges in the country are “the devaluation of currency, removal of subsidy, and opening of the country’s borders to free trade”. He added that the solution to the problem of subsidy was local refining of products, which will drive down cost of products and end the corruption associated with the present subsidy regime.

The need to make NNPC curtail losses, improve transparency, attract investors, stimulate growth and increase government revenues has led to agitations for reforms in the oil and gas sector as stipulated in the Petroleum Industry Bill (PIB).

Source: By Innocent Odoh & Stephen Onyekwelu

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