This may not be the best of times for President Muhammadu Buhari as Nigerians have come down hard on him over the provision of $1 billion (about N305 billion) for payment of fuel subsidies in the 2019 budget despite his administration earlier claim it has stopped the infamous subsidy regime.
The move to reintroduce the controversial Petroleum Subsidy Fund (PSF) may have opened a fresh can of worms as stakeholders have queried the rationale behind the decision.
Those opposed to it have, however, submitted that the reintroduction of PSF under a new name of under-recoveries may have reopened a cesspit of corruption for the country’s lean resources considered no longer sustainable for the moment.
Contrary to popular belief, it is the rich not the poor who disproportionally benefit from Nigeria’s fuel subsidy. With the government subsidising the market to keep domestic fuel prices artificially low, it is those who consume the most that have a greater benefit from the subsidy.
President Buhari had last December shocked millions of Nigerians when he revealed that his administration has earmarked $1 billion (N305 billion) to settle petrol subsidy payouts in 2019.
The revelation was in contrast to his administration’s repeated denial that it was not cut out for subsidy payment, having jerked up petrol price from N87/litre to N145/litre at the beginning of his tenure in 2015.
Speaking to the joint session of the National Assembly last December in Abuja, the President captured the $1 billion as under-recoveries of the Nigerian National Petroleum Corporation (NNPC).
Buhari said, “we have allowed N305 billion, equivalent to $1 billion, for under-recoveries by NNPC on Premium Motor Spirit (PMS) in 2019. We will continue working to bring it downwards so that such resources are freed to meet the developmental needs of our people.
“Let me also use this opportunity to address and clarify the under-recoveries or subsidies on petrol in a period of economic challenges. Our purchasing power is weak, we must reduce some of the burden on Nigerians.”
According to him, subsidy payouts today are much more different from what they used to be in the past. He justified his assertion by pointing out that the NNPC is the sole importer of oil today.
“The problem in subsidies in the past was abuse and corruption. Today, the government, through the NNPC, is the sole importer of PMS. Therefore, the under-recovery is from the NNPC trading account. This means the possibilities of some marketers falsifying claims are removed.”
In 2017, NNPC recorded N144.5 billion under-recoveries and N623.16 billion between January and November 2018.
According to the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, subsidy on PMS, currently stands at over N1.4 trillion.
But reacting to the debate, Partner, Bloomfield Law Practice, Mr. Ayodele Oni, said the whole issue around subsidy is upsetting, non-transparent and should be stopped forthwith.
Oni maintained that the N305 billion budgeted for subsidy in the 2019 budget will definitely balloon before the year ends because it is subjected to market dynamics as oil prices are never static.
He said rather than paying subsidy, government should come up with social safety nets, infrastructure and other means of transportation that would make life meaningful for Nigerians.
The energy expert warned that the time for Nigeria to reduce its dependence on oil is now, stressing that developed economies are beginning to move away from fossil fuels to renewable, which are more sustainable.
‘‘There is no clarity as to how much we spend on subsidy. The whole process is shrouded in secrecy as we keep hearing different figures and that to me is worrisome because there are other sectors of the economy that the spending on subsidies could be channeled to,’’ he stated.
He said Nigeria should exit the concept of subsidy and allow the downstream sector to be market-driven, saying the Dangote refinery and the plan of Femi Otedola to go into refining of petroleum products will compel government to dump subsidy administration.
A member of the Major Oil Marketers Association of Nigeria (MOMAN) who pleaded not to be named said it remained regrettable that rather than government to concentrate its efforts towards reforming the downstream sector, it was more interested in setting aside subsidy.
She said government should place in place mechanisms that would engender discussions among all stakeholders in the downstream sector which will eventually led to the deregulation of the sector.
According to her, the incursion of too many briefcase businessmen in the downstream sector was a major disincentive to serious players who have invested so much in asset acquisition but are now operating far below their capacity utilization due to the activities of rent seekers.
Subsidy is fraud. Sometimes they say the fraud associated with subsidy is perpetrated either by government or marketers. The people who are supposed to be gate keepers eventually become rent seekers. The genuine business owners do not like subsidy because they don’t like giving back because such kick backs affects their bottom line.
For his part, Director General of the Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, lamented that the biggest burden on the country’s economy today is the petroleum subsidy regime.
Yusuf said the government should encourage private sector players to take over the downstream sector of the petroleum business.
“When this is done, most of the challenges we see today regarding subsidy, refineries and others will be adequately addressed. The government should only play a regulatory and not an operational role. Government has no business refining petroleum products, retailing or distributing fuel as well as the marketing of these products. We cannot continue to carry that kind of burden in the oil sector,” he said.
Yusuf regretted that subsidy has left a big hole in the finances of government, adding that it has also put tremendous pressure on the foreign exchange market and Nigeria’s foreign reserves, while exerting immense stress on the nation’s treasury.
“It remains a cause for concern that the subsidy regime has subsisted, especially at a time when the economy is facing unprecedented fiscal challenges. At a time when productivity in the economy is constrained by acute infrastructure deficit; when public institutions are finding it hard to pay salaries; there cannot be a better example of resource misapplication than payment of fuel subsidy.
“There are two components to this; the first is the genuine subsidy, which is the differential between the pump price and the landing and other costs of fuel.” The stakeholders said it had become imperative for government to embark on total deregulation of the downstream sector to attract investors and also save the country from the huge amount spent on subsidy.
Also commenting, Executive Director, Blue Sea Energy Limited, Mr. Felix Andrew, lamented that the continuous payment of subsidy was not sustainable, urging government to liberalise the downstream market and encourage “free entry, free exit” to attract investors in the sector.
He said it remained worrisome that Nigeria spends about N1.7 trillion on fuel subsidy annually while its education and health sectors can only access a paltry budget of N300 million and N400 million respectively. According to him, it is obvious that the fuel subsidy programme is placing a huge financial burden on the nation’s resources.
“There is no better time to deregulate as this initiative is an enabler in freeing up scarce resources to address the concerns clearly expressed by the citizens, which political leadership is unable to find the resources to satisfy, such as providing adequate funding to support the health and education sectors; improved infrastructure and better working conditions for the average Nigerian worker, among others.”
To compound the woes of the Federal Government, oil marketers recently threatened to shut down depots across the country over N800 billion fuel subsidy debts owed them.
But to douse the tension, the Federal Government made available N236 billion to oil marketers through promissory notes, a development that did not go down well with them as they preferred to have the money in cash.
Despite the payment, there is still a shortfall of N564 billion in fuel subsidies, which is not captured in the 2019 budget.