Fuel subsidy: Let economic reforms be coherent
The promise by the Federal Government on August 15 to put a seal on further rise in price of Premium Motor Spirit (PMS), otherwise known as petrol, despite a subsisting deregulation policy is curious.
Deregulation in its base interpretation connotes a non-interference policy of government in the interplay of market forces, come rain come shine. Yet, the economic vagaries impacting supply of petrol are unstable, pointing to the inevitability of price fluctuation particularly upward, as the naira value dips against the dollar, which is the currency used in importing fuel. Sadly, the country is import-dependent on petrol. Nigerians, therefore, earnestly await the Federal Government’s strategy to eliminate the inefficiency in the sector in order to maintain price. Otherwise, there will be cause to suspect official insincerity on the subsidy removal policy.
Deregulation conveys the painful message to citizens and investors that the government would no longer intervene in fixing the price of the product (petrol) because it no longer pays subsidy on it. And citizens are adjusting to the grim consequences of a no subsidy era. Equally, they expect that the government would stay its course on the promised reform and not yield to the temptation to intervene. This position stems from the supposition that the government had carried out all necessary checks as well as cost benefit analysis of the policy before going ahead to announce subsidy removal. It also presupposes that the government was ready to live with the consequences of its actions or inactions. That was the impression the government conveyed until the announcement by the Special Adviser to President Bola Tinubu on Media and Publicity, Ajuri Ngelale, that the price of PMS cannot go beyond where it is even as the government was not backing out of deregulation. This sounds inconsistent.
It is obvious that the intervention came as response to what was an imminent increase in price of petrol in response to dictates of market forces, which is what deregulation is all about. It was all the more confusing because there were no details to explain how the government intended to arrest an inevitable price surge given the situation of the naira.
All the Special Adviser to the President told State House Correspondents was that the government was convinced based on information available to it that it can maintain the current price without reversing the deregulation policy. That it would do that by cleaning up inefficiencies in the mid and downstream segments of the petroleum sector. That is an admission that there were inefficiencies that needed to have been taken care of before subsidy was removed.
Before that intervention by the government, the workers’ body, the Nigeria Labour Congress had threatened a total shutdown of the economy in response to anticipated price hike of petrol from its current average N615 per litre. As of the evening of Sunday, August 14, news filtered into town that marketers would adjust pump prices on Monday, August 15, to accommodate the increase in landing cost of imported PMS. The landing cost is directly affected by the value of the naira, which has continued on a free fall after the government announced it had floated the local currency vis a vis other currencies, notably the dollar. Many dispensing stations, particularly in Lagos had begun to witness queues of motorists that reacted to the impending price increase.
In their ongoing consultation with the government on how to ameliorate the harsh socio-economic situation occasioned by subsidy removal, Labour had recommended that PMS be reversed to its original post subsidy price of N500 per litre. That was after it went up to N615 per litre, outside Lagos, on July 18. Labour was thus alarmed that a new price hike was in the works hence it issued the threat of total shutdown.
What the government did amounts to a panic reaction to avert social unrest in the event of another unguarded price hike. Government feared that allowing deregulation at the break-neck speed it had been let loose could result in harm to society and government itself.
While a segment could see this as the action of a listening government, one that responds to citizens’ feedback on policies, the government needs to be consistent and firm provided it is sure of its policies and the gains therein. A noticeable trend in this government, whereby it reverses itself the moment citizens affront adverse impacts of such plans, is worrisome. The decision to jettison the N8,000 palliatives to 12 million poorest households was recalled for a review the moment some citizens denounced the plan for glaring inadequacies. Till date, a new monthly stipend for poor citizens affected by subsidy removal has not been announced. The governors rejected the social register that was to be used for sharing the palliatives for lack of inclusivity. The timing also coincided with the allocation of N70 billion for lawmakers to share, which made the N8,000 look like a pittance. The NLC said it amounted to mockery to give N8,000 to poor households.
The government also didn’t appear decisive on the list of nominees it sent to the National Assembly for clearance as ministers. Three different batches of nominees were sent at different dates, suggesting incoherence. Even on the eve of swearing in of the new ministers last Sunday, the list was still being adjusted.
Going forward, the government should be decisive on the policy of subsidy removal. As we speak, there is yet no coordinated disbursement of palliatives to affected households. Both the Federal Government and states have embarked on doling out all manner of palliatives that do not address the core impact of subsidy removal. Food items are being distributed but in a most disjointed approach, such that citizens are making mockery of the exercise. A situation can arise whereby the billions being voted for palliatives will end up not addressing the real issues because the method adopted so far is panicky and reactionary.
On addressing inefficiencies in the mid and downstream sectors of the petroleum industry, we recommend that the government applies the full force of the Petroleum Industry Act (PIA) to tackle the endemic challenges. So long as the Nigerian National Petroleum Corporation Limited (NNPCL) retains its current unviable structure, it will continue to engender rent seeking and inefficiency.
Let the government be aware, that at the end of the day, only a return to true Federalism will rescue the country from economic crisis and debilitating challenges of governance.
Get the latest news delivered straight to your inbox every day of the week. Stay informed with the Guardian’s leading coverage of Nigerian and world news, business, technology and sports.