Will Tinubu administrtion end fuel subsidy controversy?

No policy in Nigeria’s petroleum industry has generated more controversy than subsidy removal. Since the return to democracy in 1999, it has defied ministers and even the entire lifespan of administrations.

The argument is that the pump price of Premium Motor Spirit (PMS) commonly known as petrol by is lower than international benchmarks.

Proponents of subsidy therefore say Federal Government has to take care of the excess through the subsidy policy.

Opponents of the policy disagree, insisting that it is a waste of public funds, a drain on the commonwealth. They want it stopped.

Removing subsidy means leaving the cost of PMS in the hands of international market forces of demand and supply.

They say it would also to pave the way for vibrant competition in PMS procurement and distribution.

The National Bureau of Statistics (NBS), in its Petrol Price Watch for February 2023 indicated that the average retail price of one litre of petrol rose from N170.42 in February 2022 to N263.76 in February 2023.

The figure represents an astronomical 54.76 per cent increase.

Sector operators have hinted that PMS pump price could go up as high as N600 per litre if subsidy for the product is removed.

They say it will likely drop to around N400/N500 if government encouraged Central Bank of Nigeria (CBN) to allocate forex to marketers at official rate.

Nigeria spent over N13 trillion subsidising PMS between 2005 and 2021, a figure equivalent to Nigeria’s entire budget for health, education, agriculture and defence in the last five years.

Orji Ogbonaya Orji the Executive Secretary, Nigeria Extractive Industries Transparency Initiative disclosed this to the Ad-hoc Committee investigating subsidy regime between 2013 and 2021, chaired by Hon Ibrahim Aliyu.

It is almost the country’s capital expenditure for 10 years between 2011 and 2020.

According to a 2022 World Bank report, subsidy payments could significantly impact on public finance and pose debt sustainability concerns for Nigeria.

Recently, the Nigerian National Petroleum Company Limited (NNPC Ltd.) revealed that the amount being spent as subsidy on PMS had crossed N400 billion monthly threshold.

Malam Mele Kyari, NNPCL’s Group Chief Executive Officer (GCEO), explained that the NNPCL was spending about N202 as subsidy on every litre of petrol consumed nationwide。

He said NNPCL was conscious of the occasional disruptions in the supply of the product but assured that as the sole importer of petrol the company would continue to meet its obligations to Nigerians.

Kyari said at the final cutover ceremony of NNPC and the birth of NNPCL in Abuja that “we are transferring to our customers at N113/litre, which means there is a difference of close to N202 for every litre of PMS we import.

“In computation N202 multiplied by 66.5 million litres of PMS, multiplied by 30 will give you over N400 billion of subsidy every month,” he said.

Mr Lawal Musa, Senior Business Advisor to the GCEO, NNPCL, said opportunity cost of the subsidy spending could, among others provide basic infrastructures including 7.500 kilometres of road network annually at N400 million per kilometre.

He spoke in Abuja at a joint National Association of Nigerian Students, (NANS) and Civil Society Organisations (CSOs), sensitisation workshop on the NNPCL operations.

“Nigeria is the largest producer of crude oil in Africa, possessing 28 per cent of Africa’s reserve, with petroleum contributing significantly to the country’s economy.

“However, the benefits derived have over the years been eroded due to the amount paid on subsidy, a regime that has been fuelling the vicious circle of poverty in the country,” he told the audience..

To add to the controversy Mr Gabriel Aduda, Permanent Secretary, Ministry of Petroleum Resources, he said the Federal Government was committed to subsidy removal but was considering all indices, to ensure that the effect would not be harsh on average Nigerians.

“As we speak we are still taking a very close look at how best to achieve subsidy without disrupting the entire ecosystem of livelihood in Nigeria.

“We have to ensure that the buffers are in place and forex is made available for imports,” Aduda said, he was recently quoted by the media as saying.

The National Economic Council (NEC) said recently that consultations were still ongoing with state governors and other stakeholders on the most appropriate ways to approach the policy.

“NEC deliberated on the issue extensively and came to the conclusion that the subsidy must be removed as it is not sustainable.

“There is the need for further consultations especially with members of the incoming administration and the representatives of state governments”, said Dr Zainab Ahmed, Minister of Finance, Budget and National Planning.

She said this in a statement signed by Tanko Abbdullahi, her media aide.

Subsidy removal is already backed by law through Petroleum Industry Act (PIA 2021). Signed into law in 2021 by the President Mohammadu Buhari, the Act provides for total deregulation of the downstream sector.

Some operators in the oil and gas sector have decried the fact that deregulation which is one of the the most fundamental aspects of PIA 2021 has not been implemented.

Mr Olumide Adeosun, CEO, Ardova PLC., Mr Tayo Akinwunmi, Chairman, Petroleum Contractors Trade Session (PCTS LCCI) and Mr Oladotun Isiaka, Executive Director, Deepwater, Exxonmobil Nigeria called for full deregulation of the downstream sector of the industry.

However, some experts have urged caution in the implementation of subsidy removal sections of the Act.

Prof. Olanrewaju Aladeitan an Associate Professor of Energy and Natural Resources at University of Abuja said before its removal, proper planning, including revamping the nation’s refineries should be carried out.

“We expect those indices to be in place for us to benefit from the competitive advantage of being an oil producing country to avoid an untoward hardship on the citizenry”, he told our correspondent.

“For us at IPMAN, our position remains that the subsidy should be removed because of the preferential for dollar which is so difficult to source”, said Mr Chinedu Okorokwo, National President, Independent Petroleum Marketers Association of Nigeria (IPMAN).

Okoronkwo said if subsidy was removed, PMS could be sold at N500 per litre, adding that it was therefore necessary for government to make concerted efforts to cushion its effects on the citizenry.

Mr Charlse Majomi, Managing Director, Trajan Energy Ltd and an Adviser to the Federal Government on Gas-based Industrialisation, said continuing with subsidy meant spending funds that could have gone to critical sectors such as education and health on PMS.

He said diversifying energy sources would mean that the country will not virtually rely on PMS for power.

“If that is done we will not need to rely on PMS; because of that, we will not need to import and we would not require to subsidise costs”, he told NAN.

One of the opponents of subsidy removal is the organised labour. The Nigeria Labour Congress (NLC) said in a recent media interview the union remained opposed to the policy because of its potential to aggravate workers’ hardship if poorly implemented.

“We are opposed to the removal of fuel subsidy until the Nigerian government acts responsibly by fixing our moribund refineries,” Hakeem Ambali, NLC national treasurer of the NLC

“Let the government license and serve as the regulator by standardising the operation of private refineries to service the domestic value chain”, he said.

As the fuel subsidy removal controversy rages observers of developments in the sector urge the relevant authorities to take a decisive decision on the matter after thoroughly considering its pros and cons.

They say it is necessary that this process is completed as quickly as possible by the incoming administration.