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Controversy over fuel subsidy splits industry operators


Petroleum tank farm

Petroleum tank farm

Stakeholders converged in Lagos last week to deliberate on whether to ‘Remove or Retain’ fuel subsidy in the country. Roseline Okere writes that the economic experts at the event believed that petroleum subsidy was an inefficient way of targeting benefits for the poor.

Fuel subsidy removal has become a recurring issue in Nigeria. Successive governments in the country have interfaced with this issue as they attempted to reform the economy and the petroleum downstream to reduce corruption and waste to make the sector more effective.

Importantly however, fuel subsidy removals have always met opposition from the citizens and civil society organizations.

The price of petroleum products has been adjusted more than 23 times since the military administration of General Obasanjo decided to raise the pump price of petrol from 8.8 kobo per litre to 15.3 kobo per litre in October 1978.

Yet even after repeated price increases took the price to the current N97 per litre, the issue of subsidised prices has remained a perennial public policy challenge.

Rather than close the gap between the open market price and the approved pump price, the increases have left a huge and rising subsidy bill that is the result of steadily growing demand, reliance on expensive imports, distribution bottlenecks and opaque subsidies that allow a handful of operators to reap off trillions of naira that would have made a difference in the areas of critical public infrastructure, social services and job creation.

Efforts to proffer solution to the recurring corruptible practices of the subsidy regime in the Nigerian petroleum industry moved a notch higher as JCI Lagos City, a group of young professionals organised its yearly 2015 Active Citizen Discourse for oil and gas industry stakeholders to further seek ways to ameliorate the burden of high fuel prices on the masses in the country.

Renowned Economist, Henry Boyo, in his analysis of the fuel subsidy regime posited that the fuel can sell at cheaper prices in the country on the basis of an appreciable exchange rate as it has a significant correlation with the price of crude oil.

Boyo noted that Naira’s weak exchange rate to the Dollar is a major bane on subsidy regime which has been complicated by the negative impact of Nigeria’s faulty monetary framework on revitalisation of the real sector.

“Banks attempts to increase credit capacity in the economy resulting to excess liquidity putting too much cash in the economy, more cash more problems has over the years resulted into weaker Naira, lower purchasing power and inefficient borrowing system both in terms of international debt funding and domestic borrowing.

He noted that the subsidy can be allowed to disappear naturally if relatively more dollars are made to chase existing Naira in Nigerian banks and dollar certificates are issued to the three tires of government and MDAs. Boyo advocated that innovative approaches have to be taken to reduce the burden of subsidy until it will naturally disappear from Nigeria’s economic system.

“With inflation at almost 10 per cent and cost of funds at over 22 percent to the real sector ansd a weaker Naira, clearly the CBN’s liquidity forecasting and programming have failed as monetary strategy to induce price stability”, Boyo argued.

Managing Director, Economic Associate Dr. Ayo Teriba noted that he is not convenient with the definitions and calculations of subsidy in the country. And strongly averse to why our refineries have problem producing to capacity.

“I am still concerned that 22 years down memory lane we are still here arguing about removal or retention of fuel subsidy. Such discussion is a waste of time a when solutions can actually be preferred.

He concluded that for the inherent problems of fuel subsidy to be solved, fuel has to be refined locally for both export and domestic use. He further argued that government needs to encourage capital inflow as it determines value of exchange rate.

“Our naira can only be strong if capital inflow is retained”, he maintained.

Chapter President, JCI Lagos City, JC Kehinde Adedeji said that the focus is to better the communities by actively bringing to the knowledge of a lot of people who do not have the opportunity to be in politics or to be in government to understand why the government do certain things as we seek the way forward for improvement.

Speaking on the choice of topic, he stated: “We did a whole lot of reading and we looked at the one that was most pivotal on peoples’ mind and being the fuel subsidy issue, the fuel crises actually elicited this particular topic and we looked at why are we having a persistent fuel scarcity and what we expect of the new government.

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1 Comment
  • emmanuel kalu

    NOTHING. nothing new that hasn’t being said. if you want to regulate price, you need strong enforcement and strong rules and regulation. you also need effective and efficient process that is completely transparent and yet flexible. all of these nigeria doesn’t have in their fuel subsidy scheme. it is a scheme solely used to loot the people and the country.
    solution, deregulate the downstream sector, remove subsidy and focus on increasing local refining capacity.