PETROLEUM SUBSIDY: ISSUES AND PERSPECTIVES ON NIGERIA’S BLACK GOLD THAT BLEEDS THE NATION
During the electioneering campaign period preceding Gen. Muhammadu Buhari’s return to power, he unambiguously insisted that his government would not pay any fuel subsidy as he believed that the subsidy regime was fraudulent. He also promised that he would make the refineries work and encourage private participation in the downstream sector so that competition could be encouraged and the premium motor spirit (PMS) made more readily available to Nigerians. Most Nigerians received his promises with much expectation and optimism as this was in tandem with their thinking. In actual fact, after Buhari’s ascension to power later that same year, there was no sign of the ghoulish subsidy spirit rearing its head as the 2016 budget the Federal Government sent to the National Assembly had no provision for it.
However, early in 2016 the issue of fuel subsidy was brought to the fore again as long queues of motorists started appearing at petrol stations with marketers refusing to import the product as they insisted that the Nigerian National Petroleum Corporation(NNPC), should settle outstanding debts owed to them running into trillions of Naira. They claimed that the debts accumulated from the difference between the landing cost and pump price of fuel which was lower. The resultant effect was a probe by President Buhari which revealed that the fraud that was involved in the subsidy regime was so rampant that some individuals and organizations collected monies running into billions of Naira as subsidy even when they imported little or nothing but simply falsified documents to back up their fraudulent claims. This subsidy scam purge did not, however, stop the reality of subsidy as successive governments since the time of late Gen. Abacha when the four functioning refineries in Nigeria became redundant and all kinds of fuel was imported into the country for consumption.
The Buhari government later in 2016 increased the pump price of petrol from N86.50 per litre to a cap limit of N145 per litre . But by 2017, the Government was made to pay around N3.2 trillion as subsidies and just before Christmas celebrations, long queues started appearing at petrol stations with marketers further requesting to be paid their outstanding debts for them to resume purchase and lifting of oil from abroad. To an average Nigerian on the street who requires fuel to move his goods and services from one point to the other either as motorists or commuters, this ever- increasing price of a commodity that nature has endowed the nation with in abundance (Nigeria remains the 7th largest producer of oil with its bent crude oil being one of the best in the world) vis a vis the perennial shortage of the refined product, remains unfathomable and regrettable.
PRICE INCREASES OF PETROL BETWEEN 1973 (GOWON’S ADMINISTRATION AND PRESIDENT MUHAMMED BUHARI’S ADMINISTRATION)
(I) Gowon: (1973: 6 kobo to 8.45 kobo per litre, 40.83%)
(II) Murtala: (1976: 8.45 kobo to 9 kobo, 6.5%)
(III) Obasanjo: (Oct. 1, 1978: 9 kobo to 15.3kobo, 70%)
(IV) Shagari: (April 20, 1982: 15.3kobo to 20kobo, 30.72%)
(April 10, 1988: 39.5 kobo to 42 kobo, 6.33%)
(January1, 1989: 42 kobo to 60 kobo, 42.86%)
(March 6, 1991: 60 kobo to 70 kobo, 16.67 %%)
(vi) Shonekan (spent 82 days in power) November 8, 1993: 70kobo to N5, 614%
(vii) Abacha: (November 22, 1993: N5 to N3.25, price dropped by 35%)
Abacha: (October 2, 1994: N3.25 to N15, 361.54%)
(October4, 1994: N15 to N11, price dropped by 26.67%)
(viii) Abubakar: (December 20, 1998: N11 to N25, 127.27%)
Abubakar: (January 6, 1999: N25 to N20, price dropped by 25%)
(ix) President Obasanjo: (June 1, 2000: N20 to N30, 50%)
President Obasanjo: (June 8, 2000: N30 to N22, price dropped by 26.67%)
“ (January 1, 2002: N22 to N26, 18.18%)
“ (June, 2003: N26 to N42, 61.54%)
“ (May 29, 2004: N42 to N50, 19.05%)
“ (August 25, 2004: N50 to 75, 15.39%)
(x) Yar’ Adua: (June, 2007: price drops back to N65, dropped by 15.39%)
(xi) Jonathan: (January 1, 2012: N65 to N141, 116.92%)
(xii) Jonathan: (January 17, 2012:N141 to N97, price dropped by 31.21%)
“ (February, 2015: N97 to N87), price dropped by 10.31%)
(xiii) President Buhari: (May 11, 2016: N87 to N145, 66.67%)
SUBSIDY PAYMENTS IN NIGERIA OVER THE LAST 5 YEARS
- (2013- N4.98 trillion)
- (2014- N4.69 trillion)
- (2015- N4.49 trillion)
- (2016/2017- N6.06 trillion)
From available statistics, it is clear that the Nigerian economy is synonymous with fuel scarcity, attendant price regime fluctuations, occasioned by bogus fuel subsidies that never seem to solve this perennial problem in the downstream sector of our oil industry. The only exception is Yar’Adua’s short-lived regime that refused to increase fuel price but even went ahead to reduce it as could be gleaned from the available data.
We recollect that on December 6, 2011, Mrs Okonjo Iweala, then Co-ordinating Minister for the Economy and Minister of Finance, made a special presentation to the Executive Council of the Federation (EXCOF) on the subsidy issue. She explained the key facts about: fuel subsidy; deregulation of the downstream sector and its benefits; why subsidy must be removed as it was a major fiscal and financial burden on the nation; those who benefit from subsidies; the relationship between subsidies and the Federal Government of Nigeria’s budget; how Nigeria compares with other African countries as well as oil producing countries; how Nigeria compares with other oil producing countries in the area of Gross Domestic Product (GDP) and per Capita Income; where Nigeria would stand after the removal of subsidy when compared to both African countries as well as oil producing countries, etc. Ironically, none of these beautiful pontifications and economic Eldorado she prophesied has ever been realised long after increases in the pricing regime of fuel and payment of subsidies.
WHAT IS TO BE DONE? : As an Economist and Social Commentator, Rahman Oladosu, noted in his paper, dated, March 6, 2018, and titled, ‘Still on Fuel Subsidy in Nigeria’, “Every regime follows the typical playbook in dealing with fuel scarcity: sympathise with Nigerians and talk about how they should not be wasting useful hours queuing for fuel; talk about how marketers, smugglers and various middlemen are sabotaging the economy for their own selfish interest; promise to revamp the refineries; pay off marketers so they can settle their debts; import new products and flood the market with fuel, with the hope that it makes the scarcity go away. In all this we often forget to ask ourselves a simple question: Is fuel scarcity the problem or is it just a symptom of a problem?
‘The result of the desire to keep prices fixed in the face of changing fundamentals, is that Governments have been forced to pay a subsidies. For instance, although the present government claims it does not officially pay any subsidy, but its cash cow, the Nigerian National Petroleum Corporation(NNPC) pays on its behalf. The long term solution is that the Government must stop fixing prices by allowing markets to determine prices through the forces of demand and supply. Like every other commodity, prices will go up and down but will eventually stabilise and invariably allow players in the Industry to perform their role in making the commodity available in all seasons, without let or hindrance.
It is noteworthy however, that though Buhari’s government promised to get the refineries working at full capacity so that we can reduce our import-dependence when it came to power in 2015, the few ones still working do so at less than 10% (ten percent) of installed capacity. Dangote refinery remains the only new refinery under construction and work started on it since the time of the previous regime. As at 2015, when this regime came to power, a US Dollar exchanged for N165 but the same dollar now exchanges for N315 and even N500 at a time.
Currently, there is a rising price of crude oil at the international market, with the Iran- Middle East crisis, which would make marketers to buy refined products at a higher price that they must pass on to the end users. All this clearly underpins the fact that the usual template for the current price regime may no longer be appropriate.
It is pertinent to mention that for the nation to find a lasting solution to this conundrum, new refineries have to be built so that fuel importation would be halted. It is also our position that if this goal is achieved, the sustained devaluation of the naira which has persisted for decades would also be stopped thereby salvaging the economy from endless bleeding.
All these would contribute to refloat the capital base of the economy. Other necessary measures include identifying and punishing corrupt government officials, anywhere, anytime to ensure that the nation’s wealth is not frittered but used for the welfare of the people and development of the nation. Unemployment should also be tackled, frontally, while infrastructure is adequately provided for innovations and enterprise to thrive. In the meantime, conscious efforts must be made to alleviate the suffering and frustration of the masses rather than worsening it.
Executive Chairman, CACOL