Removal of Fuel Subsidy: Why Nigerians Must Take the Bitter Pill

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Buhari

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Nigerians are criticising the decision of the federal government to peg the price of fuel at N145 per litre but it may be a bitter pill which the nation will have to swallow n order to move forward

By Maureen Chigbo  |  May 23, 2016 @ 01:00 GMT  |

REMOVAL of fuel subsidy in Nigeria has been on the table for a long time. Previous governments have canvassed it as a bitter pill which the nation will have to swallow to move forward. But none had the courage to implement it fully. Of recent, some government officials in the All Progressives Congress-led administration like Ibe Kachikwu, minister of state for petroleum resources had openly said that government should not subsidise fuel imports. But his principal, President Muhammadu Buhari was not comfortable with the idea because in 2011, he had urged Nigerians to rise up against the implementation of any such policy by the administration of former President Goodluck Jonathan. So it was not surprising that the announcement on the new fuel policy regime was made while Buhari was away in London attending a Corruption Summit.

Prior to the announcement of the new pump price of N145 per litre, the federal government had convened an unusual meeting of various stakeholders in Aso Rock. The meeting, which was presided over by Yemi Osibanjo, vice president, had in attendance the leadership of the Senate, House of Representatives, Governors Forum, and Labour Unions, including the Nigerian Labour Congress, NLC, Trade Union Congress, TUC, National Union of Petroleum and Natural Gas Workers NUPENG, and Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN.

The meeting among other things reviewed the current fuel scarcity and supply difficulties in the country and the exorbitant prices being paid by Nigerians for the product which range on the average from N150 to N250 per litre currently. The meeting also noted that the main reason for the current problem is the inability of importers of petroleum products to source foreign exchange at the official rate due to the massive decline of foreign exchange earnings of the federal government. As a result, private marketers have been unable to meet their approximate 50 percent portion of total national supply of petrol.

It was in order to increase and stabilise the supply of the product, that the meeting decided that any Nigerian entity is now free to import the product, subject to existing quality specifications and other guidelines issued by regulatory agencies.

This means that all oil marketers will be allowed to import fuel on the basis of forex procured from secondary sources and accordingly the Petroleum Products Pricing Agency, PPPRA, template will reflect this in the pricing of the product.

Ibe Kachikwu
Kachikwu

According to Kachikwu, “Pursuant to this, PPPRA has informed me that it will be announcing a new price band effective today, 11th May, 2016 and that the new price for PMS will not be above N145 per litre.  We expect that this new policy will lead to improved supply and competition and eventually drive down pump prices, as we have experienced with diesel. In addition, this will also lead to increased product availability and encourage investments in refineries and other parts of the downstream sector. It will also prevent diversion of petroleum products and set a stable environment for the downstream sector in Nigeria,” Kachikwu told journalists after the meeting.

The minister of state, who is also the group managing director of Nigerian National Petroleum Corporation, NNPC, said the government shares “the pains of Nigerians but, as we have constantly said, the inherited difficulties of the past and the challenges of the current times imply that we must take difficult decisions on these sorts of critical national issues. Along with this decision, the federal government has in the 2016 budget made an unprecedented social protection provision to cushion the current challenges.

“We believe in the long term, that improved supply and competition will drive down prices. The Department of Petroleum Resources, DPR, and PPPRA, have been mandated to ensure strict regulatory compliance including dealing decisively with anyone involved in hoarding petroleum products,” the minister said.

Since the minister’s statement, heavens have not caved in in a country long known for its antipathy towards any form of fuel subsidy removal. This could be that the citizens are now  fatigued, having gravitated from one crisis to another namely Boko Haram and the Independent People of Biafra protests and lately the Fulani herdsmen attacks. More importantly,  the masses have endured untold hardship over the lingering fuel scarcity and prevailing power crisis in the country. All these may have weakened the citizenry making them not predispose to give the government any spirited fight over the fuel price increase.

Besides, most of the virulent critics of fuel subsidy removal when Jonathan attempted it in 2012 who were in opposition  are now in government. They are not likely to flay the government in power now. For instance, Bola Tinubu, national leader of the All Progressives Congress who vilified the previous government, has hailed the removal of petrol subsidy. He described it as a courageous decision to reallocate funds to other more socially productive services and undertakings.  Tinubu said it would have been politically easy for the president to sit back and let the subsidy remain in place, adding that the art of governance, the easiest policy is rarely the best one.

Barry Esimone
Esimone

Tinubu’s support Buhari contrast’s the president’s position in 2011. At that time President Buhari had challenged Nigerians to rise up and speak with one voice to ensure that the planned removal of fuel subsidy is not actualised. The president had said that “Nigerians are being deceived on the issue of fuel subsidy. The federal government takes out fuel for refining, only to come back and talk of removing the subsidy. That is nonsense and an attempt by a clique with the PDP-led federal government to siphon the proceeds to be realised from the removal of oil subsidy.”

Buhari’s views were expressed when Jonathan and his economic team led by Ngozi Okonjo-Iweala were trying to sell the idea to the people. Predictably, Jonathan backed down from removing the fuel subsidy entirely after massive protests  which crippled economic activities in some parts of the country including Lagos for about a week.

Prior to the new fuel policy regime, there has been acute fuel scarcity since the beginning of the year, which got worse in March. At that time, the minister of state for petroleum resources had said that the crisis will be over my May and later reversed the date to April after scorching criticisms. The problem defied all the deadlines set.

With this current policy action, most enlightened Nigerians think that that is the way to go although some people think that there was not enough consultation and the timing of implementing the new policy was wrong.

A school of thought also thinks that the current measure the federal government has taken will not solve the problem because the fundamental issues that will bring down the price of petrol have not been addressed.

Specifically, the issue of making all the refineries in the country to work and produce at optimum capacity is still open ended. Right now, the refineries are not working. Even when they are fixed and are working, their operations are interrupted by the activities of pipeline vandals who burst pipelines conveying crude oil to the refineries. Thus they are not producing enough to meet the needs of the country which requires more than 33 million litres of petrol daily.

Consequently, this school of thought believes that the price of fuel will get worse in the months to come.  But the silver lining lies in fact that price stability could be achieved in the country by 2018 – 2019, when the Dangote Group would have completed building their refineries and begin operation.

This notwithstanding, there is need for some drastic action to be taken to ensure that the older refineries in the country are also working by that time. If they fail to operate that means that the country will have only the Dangote refinery which creates a monopoly situation. This is likely to drive up the price of fuel further up.

What this implies is that the pricing regime now is just  imaginary as there is actually no basis for fuel to be sold at N145. The true price of petrol is likely to emerge in another few months. “What the federal government has done is to set the price of the fuel using black market exchange rate and make a categorical statement that the Central Bank of Nigeria will no longer fund fuel imports and that importers should source for funds for their imports. This means that the importers will go to the black market to raise dollars to import and set price accordingly. If the price of dollar keep going up, the importers will continue to adjust the price of the product. This situation is bound to continue until there is internal production from the refineries to stabilise the system,” explained Barry Esimone, chief executive officer of   Crusteam Group.

This situation could be prevented if the federal government takes the drastic decision to hand the refineries over to somebody who can radically put them in shape. “If somebody does not take over the refineries and Dangote comes on stream alone, the price of fuel will still not come down because it will be a monopoly. This is why the government must work to ensure that such monopoly does not happen so as to avoid a situation where by other small importers are run out of business.

Eze Emecheta
Emecheta

This notwithstanding, one issue that is also troubling the mind of people is whether the government has also abolished subsidy for the transportation of fuel from the south to the north via trucks. The concern here is that corruption also takes place in the process of government offsetting the bridging cost through the Equalization fund. The idea is that deregulation is not totally done if the government is not allowing price disparity across the nation.  If this is not done then government cannot truly say that it has fully deregulated the downstream sector if the price of fuel per litre is the same all over the country. “As a source who wishes anonymity told Realnews the deregulation must be total. Once government pays the bridging cost then it is not deregulating. A cow does not cost the same in Lagos and Sokoto. There has to be price disparity. Government should hands off totally. If government is paying for the bridging, they have made nonsense of the policy. There must be price disparity. Who takes care of the transportation of fuel to the North?”

Realnews gathered fro a top government functonary that government is still bridging the cost of transportation of fuel to the Northern part of the country. The government official said that gradually government will do away with that policy but for now it is still subsiding the cost of transportation of fuel.

There is also the question of whether the Nigerian National Petroleum Corporation will still be selling fuel refined locally at the price of N145 per litre when it did not use forex to import the products. The federal government must provide answers to these problematic issues for Nigerians who were initially shocked at the news of the price increase to fully accept it.

A banker, who wishes anonymity told Realnews: “I think the new policy is okay. But the timing is wrong for me. They would have started implementing the budget at least one or two months ahead before they start removing the fuel subsidy. Prices will adjust. It’s only in Lagos and Abuja that sell at N86. Will the price be the same all over the country? The N145 must be inclusive. They should have made all the filling stations to have fuel everywhere before the announcement but the information was leaked. Things will get better. There is no gain without pain.”

Similarly, Eze Emecheta, managing director of Sensla Energy, thinks that the price spike as a result of the fuel increase is only momentarily. “It will go downwards except some sharks are capitalizing on it and maximizing profit. We didn’t have the strong political will when Jonathan did it in 2012. I think it’s a good policy. I clamoured for it. The future is bright but my only anger is the hypocrisy. This government should apologise to Jonathan. They are increasing the fuel price even when the price of crude is cheaper. It was a laudable vision then. The subsidy money should go into development. A good policy although belated,” Emecheta said.

However, Nnimmo Bassey, director Health of Mother Earth Foundation, considers the policy as being insensitive and ill-timed, noting that without employment, energy supply and socio-economic safety nets, the masses of Nigerian people have been thrown into shark-infested waters and with neither life guards nor life jackets. “The poor have always been at the wrong end of the stick. For example, the price of kerosene, the poor man’s fuel has remained extraordinary high and their pleas continue to fall on deaf ears”, Bassey said.

Agreeing, Peter Ozo-Eson, general secretary, NLC, said in a statement that the congress had scheduled an emergency meeting of its National Executive Committee for Friday, May 13, to discuss the development. As at press time, the outcome of the meeting is not yet public even though it had on Thursday called on the government to reverse the policy. But it said in a previous statement that “The latest increase is the most audacious and cruel in the history of petroleum product price increase as it represents not only about 80 per cent increase, but is tied to the black market exchange rate.”

Similarly, Balarabe Musa, former governor of Kaduna state said:  “We are in trouble; the already bad situation will get worse and it will worsen the poverty level of Nigerians,” adding that he would support the NLC planned mass protest to compel the federal government to reverse the decision.

Musa alleged that the proceeds from the new price of the product may only benefit some persons and caucuses within government. The former governor also urged Civil Society Organisations, CSOs, and well-meaning Nigerians to join and implore the government to reverse the decision for the sake of the masses.

Mohammed
Mohammed

Expectedly, the ever outspoken critics of the federal government Ayodele Fayose, Ekiti State Governor, described the new policy as political 419 on Nigerians by the administration of President Buhari. The governor, who said the over 70 percent increment was another vindication of his predictions on what to expect in 2016, added that it was now clear that the scarcity of petrol being experienced in the last three months was deliberately orchestrated by the federal government to pave the way for the already conceived increment.

The governor said he was waiting for the reaction of those who took to the streets to protest when fuel subsidy was removed by the former Jonathan in 2012, urging labour unions in the country to stand by their members always, not minding the political party in government.

He said, “When they were seeking votes from Nigerians, they promised to reduce petrol pump price to from N87 to N45 per litre, they promised to create three million jobs per year, they said $1 will be equal to N1 and above all, they promised to pay unemployed youths N5, 000 stipend and provide one meal a day to pupils nationwide.

“Instead of fulfilling their promises, they have increased petrol pump price to N145 per litre, increased electricity tariffs, retrenched thousands of workers and imposed untold hardships on Nigerians. As they did in 2012, if labour leaders do not also stand up for the people at this time, posterity will not forgive them.”

For Senator Shehu Sani, the decision of the NNPC to increase the price of fuel in the country is insensitive and punitive. “It’s most unfortunate that at a time when poor Nigerians are facing enormous economic hardships and are being asked to be more patient, all the NNPC can do is to add to their suffering. It’s utterly irrational and illogical to further impoverish the people in order to achieve self-serving, liberal economic aspirations.”

Also condemning the new policy, the Association of Nigerian Students, NANS, said over 40 million Nigerian students would re-enact the Occupy Nigeria protest against the removal of subsidy from petroleum product next week. Tijani Shehu, national president, NANs, stated this in Abuja, on Thursday, May 12, at a protest rally.

Nigerians who are against the fuel price increase may be justified in their anger but the federal government insists that the new price regime is inevitable. Lai Mohammed said on Friday, May 12, that only liberalisation of petrol supply would ensure the availability of the products if we are to end crippling fuel scarcity that has enveloped the country, ensure the availability of the products and end the suffering that our people have been subjected to. He explained that the crash in the price of crude oil, which has impacted negatively on foreign exchange earnings, has further compounded the crisis in fuel supply.

“With the drastic fall in the price of crude oil, which is the nation’s main foreign exchange earner, there has also been a drastic reduction in the amount of foreign exchange available. The unavailability of forex and the inability to open letters of credit have forced marketers to stop product importation and imposed over 90 percent supply on NNPC since October 2015, in contrast to past where NNPC supplies 48 percent of the national requirement,” the minister said.

According to him, in the absence of available forex lines or crude volumes to continue massive importation of PMS, it is clear that unless immediate action is taken to liberalise the petroleum supply and distribution, the queues will persist, diversion will worsen and the current prices will spiral out of control.

Whatever, it is pertinent to state that this is not the first time Nigeria is attempting to liberalise the downstream sector.  During the military era the pump price of fuel per litre was increased to 15kobo per litre in 1978. It was moved up to 60kobo 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

Prior to leaving office, former President Olusegun Obasanno in 2007 jerked up the price of petrol to, first, N65 per litre and again over N100 per litre. Late President Umaru Musa Yar’Adua under pressure from NLC reverted to N65 per litre for petrol while 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 new fuel policy regime of N145 per litre.  Only time will tell if the new policy regime will stand.

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