Will Tinubu administration end fuel subsidy controversy?

Supreme Desk
20 May 2023 5:33 PM GMT
Will Tinubu administration end fuel subsidy controversy?
Okoronkwo said if the subsidy was removed, PMS could be sold at N500 per liter, adding that it was therefore necessary for the government to make concerted efforts to cushion its effects on the citizenry.

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 gasoline, is lower than international benchmarks.

Proponents of subsidy therefore say the 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 and a drain on the commonwealth. They want it stopped.

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

They say it would also 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 liter of petrol rose from N170.42 in February 2022 to N263.76 in February 2023.

The figure represents an astronomical 54.76 percent increase.

Sector operators have hinted that PMS pump prices could go up as high as N600 per liter if subsidies for the product are removed.

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

Nigeria spent over N13 trillion subsidizing PMS between 2005 and 2021, a figure equivalent to Nigeria’s entire budget for health, education, agriculture, and defense 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 public finances and pose debt sustainability concerns for Nigeria.

Recently, the Nigerian National Petroleum Company Limited (NNPC Ltd.) revealed that the amount being spent as a subsidy on PMS had crossed the 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/liter, which means there is a difference of close to N202 for every liter of PMS we import.

“In computation, N202 multiplied by 66.5 million liters 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 the opportunity cost of the subsidy spending could, among others, provide basic infrastructure, including 7.500 kilometers of road network annually at N400 million per kilometer.

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

“Nigeria is the largest producer of crude oil in Africa, possessing 28 percent 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 subsidies, a regime that has been fueling 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, 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”, as 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 the Petroleum Industry Act (PIA 2021). Signed into law in 2021 by 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 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 the subsidy removal sections of the Act.

Prof. Olanrewaju Aladeitan, an Associate Professor of Energy and Natural Resources at the 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 said.

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

Okoronkwo said if the subsidy was removed, PMS could be sold at N500 per liter, adding that it was therefore necessary for the 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 industrialization, said continuing with the 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 would 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 be required to subsidize costs”, he said.

One of the opponents of subsidy removal is organized labor. 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 standardizing the operation of private refineries to service the domestic value chain”, he said.

As the fuel subsidy removal controversy rages,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 bebe completed as quickly as possible by the incoming administration.

By Emmanuella Anokam

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