From Uche Usim, Abuja
With the 2023 election campaigns gaining momentum and ghosts of the 2020 #EndSARS protest haunting the Presidency, the Federal Government could not risk igniting civil unrest by ending the petrol subsidy regime that would automatically jack up the pump price of the commodity from N165 per litre to around N350 per litre, in a nation with no social security.
The organised labour, student unions and other bodies were already set to shut down the country over the matter, especially as Nigerians have no social safety net to absorb the anticipated destabilising shocks, before the government backtracked.
On assumption of office in May 2015, President Muhammadu Buhari promised the abolition of petrol subsidy from the fuel pricing template of the defunct Petroleum Products Pricing and Regulatory Agency (PPPRA) to allow market forces to determine retail prices at the filling stations.
On May 11, 2016, he announced a controversial removal of fuel subsidy across the country and it was accompanied by a brief reduction in petrol price to N86.50 per litre from N87. Soon, it was increased to N141. Later, the price was further hiked to N145 per litre and gradually got to the current price band of N162 to 165/litre.
What has happened is that the Buhari administration quietly restored subsidy in the pricing template of petrol without any formal announcement.
Rather than call the excess cost above the N145 per litre ceiling fuel subsidy, the government gave the NNPC approval to describe it as ‘under-recovery’ as part of its operational cost.
Due to the steady rise in global crude oil prices as economies reopened after the COVID-19 pandemic, the NNPC had to contend with higher petrol import costs, thus denying it the room to free up funds for federal allocation.
The challenge has cascaded down to the average Nigerian as many see subsidy removal as a death knell.
So, it did not come as a surprise to many when the Minister of Finance Budget and National Planning, Mrs. Zainab Ahmed, recently told Nigerians that the plans to end the subsidy regime had been suspended and, subsequently, informed the country that the Nigerian National Petroleum Company Limited (NNPC) submitted a N3 trillion bill for subsidy payouts in 2022. The money will further swell this year’s budget deficit, since the Federal Government, according to the presidential spokesman, Femi Adesina, will have to borrow to subsidise petrol.
The Minister of State for Petroleum Resources, Mr Timipre Sylva, said the government was proposing to extend the period for implementing the removal of subsidy on petrol by 18 months.
For several years, economic experts, the World Bank, International Monetary Fund (IMF) and a host of other giant offshore lenders have beckoned on the Federal Government to scrap petrol subsidy and channel the savings to other critical sectors like agriculture, health, ICT, science and technology, among others.
The economic adviser to the President, Dr. Doyin Salami, was also among the experts that advised the Federal Government to end the graft-riddled subsidy regime as the nation’s fiscal space could no longer handle it.
Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Abuja branch, Prof. Uche Uwaleke, said, while subsidy removal would result in some hardship for Nigerians by worsening inflation, it would, nonetheless, benefit them later, as more resources would be available to fund critical sectors of the economy.
Uwaleke, former Imo State Commissioner for Finance, said: “I am in support of the advice to remove fuel subsidy. It is causing incalculable damage to the economy. A situation where the government spends close to N1 trillion subsidising fuel consumption is counterproductive.”
He said the fiscal situation of the government could no longer support it, given rising deficit, adding that the subsidy regime has been one “fraught with corruption, given the fact that there is no accurate figure of the volume of domestic fuel consumption.”
“More importantly, fuel subsidy is regressive in the sense that it benefits the rich more than the poor. It also crowds out developmental funds, which benefit the poor.
“In order to cushion the impact of fuel subsidy removal on ordinary Nigerian, the government should quickly roll out compensation schemes in the area of health, such as by expanding the National Health Insurance Scheme, education and mass transportation,” he said.
Industry watchers also canvassed that the nation’s ailing refineries should be fixed so that market forces will be the ultimate determinant of petrol pump price, not subsidy. For them, the Nigerian subsidy regime, aside from benefiting mainly the wealthy and influential, reeks of endless fraud, especially with regard to over-invoicing and ballooning consumption figures.
Findings by Daily Sun show that subsidy payments are exceptionally high in pre-election years, raising concerns that the N3 trillion may be channelled into election campaigns ahead of 2023 general election.
For instance, fuel subsidy was N24 billion in 2016 and rose to N144.53 billion in 2017, it spiked to N878 billion in 2018 ahead of the 2019 elections; remained at N551.22 billion in the election year of 2019, only to drop to N102 billion in 2020, after the elections.
Nonetheless, the government’s payment plan announced at the end of the Federal Executive Council (FEC) meeting last Wednesday would jerk up the N17.1 trillion budget for 2022, which is criticised for its gigantic deficit.
The Trade Union Congress (TUC) recently lampooned the Federal Government for flaunting dead refineries after wasting $9.5 billion on them in the last 10 years in the name of turnaround maintenance.
From available data, Nigeria is the only member of the Organisation of Petroleum Exporting Countries (OPEC) that imports more than 95% of refined petroleum products for consumption.
Save for approximation, there is no standard gauging mechanism to actually determine the volume of petrol consumed daily in Nigeria. Even when such figures are occasionally released, they remain a subject for debate in the industry.
Before President Buhari’s administration, Nigeria’s petrol consumption was estimated at between 35 million to 40 million litres daily.
Specifically, on February 8, 2018, the NNPC, in a statement, disclosed that the country’s daily petrol consumption was around 35 million litres.
A rise in the declared quantity of fuel consumed in the country is directly connected to an increase in what NNPC calls under-recovery, a euphemism of petrol subsidy.
According to the group managing director of the NNPC, Mr. Mele Kyari, the Federal Government spends as much as N150 billion to subsidise premium motor spirit (petrol), and the real price of petrol has risen above N256 per litre, while the retail price is pegged at N162 per litre.
The mathematical expression of this means the government is subsidizing the product by N94 per litre.
Using the higher band of N150 billion monthly subsidy payouts, it implies that the government spent N1.35 trillion on petrol between January and September of 2021.
On consumption, Kyari noted that Nigeria does not consume up to 60 million litres of petrol daily but for smuggling that swelled it.
“Petrol from Nigeria gets to Sudan. Other African countries don’t have the kind of capacity we have to source dollars to import products; 60 million litres per day is not our consumption. But we’ve seen a drop of six million litres in the last one month due to our collaboration with EFCC, DSS and others. The numbers are coming down,” he said.
He also stated the NNPC was working hard to to crash crude production cost to less than $10/barrel to remain globally competitive.
Experts insist that the country is bleeding as it borrows to make petrol cheap.
A report by the NNPC submitted to the Federation Account Allocation Committee (FAAC) in June 2021 indicated that it spent N274.03 billion on petrol subsidy payment between January and May.
An analysis of the N274.03 billion shows that the national oil company paid the highest subsidy of N126 billion in May 2021, representing 45.98 per cent of the entire N274.03 billion so far paid by the NNPC this year.
It paid N25.37 billion as subsidy in February, N60.39 billion in March and N61.96 billion in April.
Industry records revealed that the Federal Government spent N10.7 trillion on fuel subsidies in the last 10 years, including N750 billion in 2019.
Last December, Kyari disclosed that, from 2016 to 2019, the Federal Government spent over N3 trillion subsidizing the pump price of petroleum products, particularly petrol. He insisted that the subsidy regime did not benefit the masses that the President was passionate about.
The CEO and executive secretary, Major Oil Marketers Association of Nigeria, Mr. Clement Isong, said several reasons were responsible for the increase in petrol consumption in the country.
“The number that you have is not sales in the stations; it is load-out from the jetties – that is what they track. So, the first reason and the most obvious and saddest reason is that not all the products may go to stations; some may be smuggled out of the country,” he said.
He attributed the cause of petrol smuggling to the policy that made petrol pump prices ‘significantly lower than those’ in neighbouring countries.
“It is not unusual for it to happen, and the solution is proper pricing of the product. I don’t think our consumption is as high as 70 million litres per day,” he added.
The national operations coordinator, Independent Petroleum Marketers Association of Nigeria, Mr. Mike Osatuyi, said the collaboration between the NNPC and the Economic and Financial Crimes Commission might have brought about a reduction in petrol smuggling.
He said, “Smuggling is responsible for the increase in petrol consumption; we are the ones serving neighbouring countries, but because of control measures put in place, smuggling may have gone down.”