News commentary: Time to end Nigeria’s stupid petrol subsidy

  • Jul 12, 2019
  • PM News

Once again, the appropriateness of maintaining a subsidy regime for petrol consumption is back in the news and the new NNPC GMD, Mele Kolo Kyari’s first task has been to don the regalia of a fire-fighter, quelling rumours that the Buhari administration is about to remove the subsidy.

In the Jonathan years, Nigeria lost trillions of Naira to bogus oil importers, some of whom even collected subsidy payments without importing one litre of fuel.

President Muhammadu Buhari rode into office in 2015 on the back of promises to end the corruption associated with it and run the oil industry more rationally and more transparently, as oil minister. He was oil minister under the military regime during the Murtala-Obasanjo regime (1975-1979) and expectations were high that he would put the oil industry on a reset.

The expectations were misplaced as the refineries failed to work and Nigeria continues to shoulder huge subsidy burden, running into hundreds of billions. Even inexplicably, the volume of fuel being consumed by Nigerians suddenly jumped from an average of 30 million litres a day under Jonathan to over 52 million, under an economy that is said not to be in full throttle.

A recent research by BudgIT, a public finance focused Non-Governmental Organisation, NGO, said the country may have spent about N10 trillion in the provision of pump price subsidy on imported petroleum products from 2006 to 2018.

This is certainly a humongous amount that can be deployed to better uses such as spending it to improve infrastructure, health, education, housing and transportation. In April the former managing director of the International Monetary Fund, Christine Lagarde begged Nigeria to stop the idiocy of pouring resources into petrol subsidy.

And on Thursday, Nigeria Governors Forum cautiously demanded from the NNPC a new deal to curb the financial drawback subsidy payment is having on funds available to the different tiers of government.

Kayode Fayemi, Chairman of the forum and Ekiti State governor, said that increases in the price of a barrel of oil will always drive up the amount of money spent on subsidising the cost of the product.

“It is important to highlight that subsidy remains a major drawback to government revenues. We may need to consider a new deal on how the government will absorb the cost of subsidy,” Fayemi was quoted to have said in a statement issued by Abdulrazaque Bello-Barkindo, the NGF’s head of media.

“This has become necessary, given the new reality of low oil revenues and rising government commitments. We believe that at the current course, subsidy costs will continue to offset any recovery in the oil market. Fayemi supported this assertion with figures spent on keeping the cost of gasoline at N145 by the NNPC in 2017 and half year 2018.

In West Africa, Nigeria’s pump price is the cheapest at 40 cents. All our neighbours sell at more than double the Nigerian price, making the smuggling of Nigeria’s fuel to those countries very lucrative. In Benin and Togo, fuel is sold at 96 cents, guaranteeing enough incentives for smugglers from Nigeria. In Chad, even though an oil producer like Nigeria, a litre costs 89 cents. In Niger, it is 97 cents and Cameroon, also an oil producer, it is $1.08 cents.

“The country recorded one of its lowest costs of subsidy in 2016 when oil traded at an average of $48.11bn. Total subsidy that year was around N28.6bn; but the amount rose to N219bn in 2017 and N345.5bn by mid-2018, as the price of oil and domestic PMS— Premium Motor Spirit, consumption rebounded’.

There is even a more compelling reason why the subsidy on petrol must go, the same way it was removed from diesel and kerosene.

In West Africa, Nigeria’s pump price is the cheapest at 40 cents. All our neighbours sell at more than double the Nigerian price, making the smuggling of Nigeria’s fuel to those countries very lucrative. In Benin and Togo, fuel is sold at 96 cents, guaranteeing enough incentives for smugglers from Nigeria. In Chad, even though an oil producer like Nigeria, a litre costs 89 cents. In Niger, it is 97 cents and Cameroon, also an oil producer, it is $1.08 cents.

Further afield in West Africa, the pump price of petrol is 79 cents in both Liberia and Sierra Leone, $1.12cents in Burkina Faso, $1.04 in Guinea, $1.04 in Ivory Coast, $1.00 in Ghana, $1.33 in Cape Verde and $1.22 in Mali.

All the Gulf nations also sell their petrol much dearer than Nigeria, which, ridiculously imports its own. Qatar’s pump price as at 8 July was $0.48 cents, Bahrain $0.53, Saudi Arabia $0.56, UAE $0.59.

The leadership of those countries cannot be accused of not loving their people. But in fixing their petrol prices, they have chosen to listen more to voices of reason, rather than emotions and populism.

Nigeria cannot continue to play the ostrich much longer. With rising public debts, estimated at N24 trillion as at March 2019, with many states equally indebted to lenders and many of them unable to pay their workers, it is high time the subsidy regime was reconsidered. This must be done sooner than later.

President Muhammadu Buhari has a historic duty to end it and stop the continuous bleeding of the country, inadvertently also fuelling the thriving smuggling of Nigeria’s fuel across our porous borders.

We were shocked recently to read the statement of a Nigerian official who attended a Nigeria-Cameroon meeting in Yaounde, lamenting that the Boko Haram insurgency in the North east and the rebellion for independence in Anglophone Cameroon have stalled the movement of petrol into Cameroon.

We are not aware that the NNPC or any of the oil retailers export ‘imported refined products’ into Cameroon. Only smugglers do.

History will never forgive Buhari, if he fails to take the bold decision to save Nigeria from further bleeding of the treasury by the often fraudulent subsidy regime.