Fuel Subsidy Removal: Is Nigeria Postponing the Evil Day?

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With the current long queues at various filling stations occasioned by the suggestion for the removal of oil subsidy, the debate on this drain pipe is not likely to go away soon

By Anayo Ezugwu

IT was, perhaps, an innocuous advice by the International Monetary Fund, IMF, to Nigeria. But the advice that the country should remove the oil subsidy had a dramatic effect than probably expected. There were queues at various filling stations across the country as Nigerians resort to panic buying in anticipation of a possible increase in fuel price.

Since then, the federal government has repeatedly assured Nigerians that there is no immediate plan to remove fuel subsidy. Zainab Ahmed, minister of finance, said the government will not remove subsidy without another social safety net package.

Against the backdrop of long queues emerging across the country, she said: “One of the issues that always come up in the report, especially by the International Monetary Fund, IMF, as a corporate body, is how we handle fuel subsidy. In principle, the IMF is saying fuel subsidies are better removed, so that you can use the resources for other important sectors.

“In principle, that is a fact. But in Nigeria, we don’t have plans to remove fuel subsidy at this time because we have not yet designed buffers that can enable us to remove fuel subsidy and provide cushions for our people. So, there is no plan to remove subsidy. We will be discussing with various groups. If we have to, what are the alternatives? We have not yet found viable alternatives. So, we are not yet at the point of removing fuel subsidy. Therefore, every rumour on plans to remove subsidy should be discarded.”

The federal government has also demonstrated that it is not ready to remove subsidy anytime soon. For the first time since 2015, the government budgeted for subsidy in the 2019 budget. President Muhammadu Buhari, while presenting the budget to the National Assembly on Wednesday, December 19 2018 said N305 billion was earmarked for petrol subsidy in the budget proposal.

Zainab Ahmed
Ahmed

“We have earmarked N305 billion equivalents to one billion US dollars for under-recovery by the Nigeria National Petroleum Corporation on Premium Motor Spirit in 2019. Let me take this opportunity to address and clarify the under-recoveries on petrol. In a period of economic challenges where purchasing power is weak, we must reduce some of the burden on Nigerians,” he said.

So, it is not out of place that the Nigerian National Petroleum Corporation, NNPC, has been assuring Nigerians that there is no intension of increasing the pump price of fuel. The corporation insisted that the price petrol will continue to sell at N145 per litre. Ndu Ughamadu, group general manager, public affairs, NNPC, said the corporation would continue to bear the cost of under-recovery of petrol through other sources.

“The federal government has made it clear; petrol will continue to sell at N145 per litre. NNPC is not operating subsidy. What we have done is under-recovery of which we make up from other sources. Yes, the under-recovery will continue. The corporation plays many roles in the country. We are an importer of the last resort where others refuse to import. We equally operate in a social regime to make sure that the system gets wet with products because if the corporation is not doing that as part of its responsibilities, you can imagine what the system will look like,” he said.

Despite the assurances, the IMF’s call has shown that the current fuel pricing regime is not sustainable. While reacting to the IMF call, Ibe Kachikwu, minister of state for Petroleum Resources, confirmed that there is an increase in the landing cost of petrol which  increased from N133 to N180. He also acknowledged that the rise in global crude oil prices after the 2016 hike in petrol price brought back subsidy.

On Nigerian Television Authority, NTA, Good Morning Nigeria programme, on Wednesday, April 17, Kachikwu, who recalled the experience of 2016, when the government increased petrol price from N86.5 to N145 after months of severe scarcity, described fuel subsidy as an emotive issue. “You have very positive argument that says, ‘Why is this happening; let’s get it out.’ Once you do it, the streets get flooded by protesters. You have five or six or 10 days of no activity in the country. So, any attempt to remove the subsidy must be very well-managed.”

This acknowledgement has made some Nigerians to suggest that now is the appropriate time to remove the fuel subsidy even though it will lead to increase in prices of goods and services. This school of thought thinks that since there is an international backing from the IMF and World Bank, the government should consult widely in a bid to remove the subsidy.

They argued that letting the market to determine the pump price of petrol would push the price up to between N248 and N250 per litre from the current price of N145 per litre. They also claimed the price will oscillate with forces of demand and supply and save the country more than N1.7 trillion in 2019 alone.

Baru
Baru

Specifically, this school of thought is of the view that petrol subsidy removal will bring about a significant reduction in the government’s borrowing, which is actually the position of IMF. Figures from the Nigeria Bureau of Statistics, NBS, showed that the federal government spent N2.95 trillion in 2018 on fuel importation, while more than N700 billion was spent on fuel subsidy.

According to the World Bank report, Nigeria spent N731 billion to subsidise petrol consumption in 2018. Indeed, Christine Lagarde, the managing director, IMF, disclosed that Nigeria and other countries across the world spent $5.2 trillion on fuel subsidy since 2015, adding: We believe that removing fuel subsidies is the right way to go to so that government can have more public spending available to build hospitals, to build roads, to build schools, and to support education and health for the people.”

Nonetheless, the Lagos Chamber of Commerce and Industry, LCCI, is blaming the monopoly of the downstream oil sector by the NNPC as the main culprit. According to the group, the development has stifled the growth of the subsector. Muda Yusuf, the director-general, LCCI, said it is practically impossible for marketers in the private sector to import because of the price distortions which the involvement of the state oil firm had created in the industry.

According to Yusuf, the extant policy on petrol pricing has made it impossible for private sector participants to get involved in either fuel importation or local refining by way of setting up refineries in the country.

Even operators in the sector have called for total deregulation as a way forward for an effective downstream subsector. Players in the industry including Major Oil Marketers Association of Nigeria, MOMAN, Depot and Petroleum Products Marketers Association of Nigeria, DAPPMAN, and Independent Petroleum Marketers Association of Nigeria, IPMAN as well as the organised private sector including the LCCI and Manufacturers Association of Nigeria, MAN, among others, have been calling for full deregulation of the downstream sector over the years. However, the recent call by the IMF has underscored the importance of complete removal of fuel subsidy.

Supporting calls by other industry players for complete deregulation, Maikanti Baru, the group managing director, NNPC, had in 2018 said the multiplication of filling stations had energised unprecedented cross-border smuggling of petrol to neighbouring countries, making it difficult to sanitise the fuel supply and distribution matrix in Nigeria. He explained that because of the obvious differential in petrol price between Nigeria and other neighbouring countries, it had become lucrative for the smugglers to use the frontier stations as a veritable conduit for the smuggling of products across the border.

This resulted in a thriving market for Nigerian petrol in Niger Republic, Benin Republic, Cameroon, Chad and Togo as well as Ghana, which has no direct borders with Nigeria. “The NNPC is concerned that continued cross-border smuggling of petrol will deny Nigerians the benefit of the federal government’s benevolence of keeping a fix retail price of N145 per litre despite the increase in PMS open market price above N171 per litre,” he said.

However, the Nigeria Union of Petroleum and Natural Gas Workers, NUPENG, and the Petroleum and Natural Gas Senior Staff Association, PENGASSAN, have warned that heeding the advice by the IMF to remove subsidy would destabilise the nation.

Lagarde
Lagarde

The oil workers said the advice had created panic buying, hoarding of petroleum products, and pushed up the prices of goods and services. In a joint statement signed by Olawale Afolabi, the general secretary, NUPENG and Okugbawa Lumumba, the general secretary, PENGASSAN, the unions wondered why the IMF was still advising the government to inflict more hardship on the people.

“We empathise with them (Nigerian workers) and will not turn blind eyes to any further attempt to increase their pains and impoverish them further. It is quite bewildering and baffling that IMF is not considering the pains and agonies Nigerians went through, even to achieve the acknowledged gains of 2018, with almost two-thirds of the world’s hungriest people among Nigerians,” the statement said.

As the debate continues, long queues of motorists seeking to buy fuel still persist across the country. Some of the filling stations monitored by Realnews indicated that the queues may last longer. For instance, on Wednesday,  long queues of motorists persisted at Mobil Filling Station along Lagos-Ibadan Expressway.

Likewise, long queues also surfaced at the Total Filling Station along Ikosi Road worsening traffic on the road and spreading to the Motor Ways. Mobil Filling Station at Odo Eran, along Agege-Ogba Road was also rocked by long queues.

Julius Babtunde, a motorist at the Ojodu NNPC Mega Station, said he joined the queue when he noticed that many filling stations on the stretch of Ojodu Road did not sell petrol. “My neighbour who works at a depot in Apapa, has told us that privately owned filling stations  got 11,000 litres supply instead of their 33,000 litres demand.

“So, he said that we might begin to notice the effect at filling stations from next week. I was alarmed to have noticed that there are more filling stations who are not selling the product. The best I could do, which I have done, is to join the queues here at NNPC,” he said.

Segun Ojo, another motorist in the queue at the filling station, said it was sad that petrol stations were hoarding the product, thereby creating artificial scarcity. Ojo, however, implored the appropriate authorities to do the needful before things become more difficult for the common man.

Ayo Adeyanju, another motorist, said many commercial drivers would soon take advantage of the scarcity to increase transport fares, appealing to government to intervene in the situation before it gets out of hand.

Muda Yusuf
Muda Yusuf

However, the Major Oil Marketers Association of Nigeria, MOMAN, has urged Nigerians to stop panicking over fuel scarcity, while assuring of the association’s effective distribution of petroleum products across the country. Clement Isong, the executive secretary, MOMAN, said the union is working very closely with NNPC to make sure that the queues disappear immediately.

“There were just some operational challenges at the jetty which had been addressed. MOMAN had product and we are still receiving product from NNPC at official price. I am assuring Nigerians that there won’t be scarcity and the little challenges from the discharging reception at the jetty had been address. No cause for alarm, the queue at the stations will disappear in a short while,” he said.

Similarly, the Independent Petroleum Marketers Association of Nigeria, IPMAN, confirmed that about six vessels of imported petrol ordered by the NNPC were currently discharging the product, assuring that the corporation has sufficient products.

Chinedu Okoronkwo, the national president, IPMAN, said there was no need for panicking over possible fuel scarcity, as virtually all the NNPC depots across the states had commenced loading of petroleum product by marketers. “Marketers are currently loading petrol in Makurdi, Kano, Enugu, Aba,Yola, Suleja, Kaduna, Ejigbo, Mosinmi, Ibadan and other depots across the country.

“I have also directed them to ensure product is sold at official price of N145 per litre. If there is any issues on distribution and pricing differentials, members should call the secretariat for further action. The Petroleum Product Pricing Regulatory Agency, PPPRA, template has not changed, so, no marketer should influence hike or sell above official price,” he said.

That notwithstanding, the debate on fuel subsidy in Nigeria, which has been on the table for a long time, will continue to dog every succeeding government in the country. Previous governments had canvassed for a total removal. But none had had the courage to implement the removal fully. In 2016 the federal government announced that it had removed fuel subsidy and increased pump price of the product to N145 from N86, saying it was done to stabilise the supply of the product across the country.

President Muhammadu Buhari
President Muhammadu Buhari

But the removal of subsidy forced the independent oil marketers to pull out of importation of the product. Their withdrawal left the NNPC as the sole importer of petrol, whose pump price remained at N145 per litre against a landing and supply cost of N180/litre.

Since then, the NNPC has been drawing from the Nigeria Liquefied Natural Gas, NLNG’s dividend fund to cover the under-recoveries amounting to N40/litre in the importation of petrol. According to Baru, so far, the NNPC utilises $1.05 billion or N320 billion of the fund to cover the under-recoveries yearly.

Be that as it may, it is pertinent to state that this is not the first time Nigeria will be facing the debate of liberalising the downstream sector.  During the military regime the pump price of fuel per litre was increased to 15kobo per litre in 1978. It was moved up to 60 kobo in 1990, 1992, 70 kobo per litre, 1993, N3.25kobo and N11 per litre. From 1994 to 1998, the official pump price hovered around N11 per litre. With the coming of the civilian regime in 1999, the price moved from N11 per litre to N20 and up again to N22 in 2000. It increased again to N26 in 2001 and N40 in 2003.

Before leaving office, former President Olusegun Obasanno in 2007 increased the price of petrol to N65 per litre and then N100 per litre. The late President Umaru Musa Yar’Adua being under pressure from the Nigerian Labour Congress, NLC, reverted to N65 per litre for petrol while former President Goodluck Jonathan pegged it to N97 in 2012 and later reduced it to N87 shortly before leaving office.

The present administration moved it down to N86 because of the fall in the price of crude oil in the international market before the increasing it to the current price of N145 per litre.

As the debate rages, only time will tell if the Buhari led-administration will have the courage to remove the subsidy or increase the pump price again.

– Apr. 19, 2019 @ 17:37 GMT |

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