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Government retention of petrol subsidy

By Editorial Board
02 February 2022   |   3:56 am
The suspension of the removal of government subsidy on fuel did not come as a great surprise to many. The issue has remained contentious over the years as President Muhammadu Buhari even before he came into power in 2015 had said fuel subsidy is a fraud.

The suspension of the removal of government subsidy on fuel did not come as a great surprise to many. The issue has remained contentious over the years as President Muhammadu Buhari even before he came into power in 2015 had said fuel subsidy is a fraud. At the time, he viewed the proponents of the fuel subsidy removal argument as promoters and beneficiaries of corruption. And indeed, Buhari and many prominent members of the present administration participated in the “Occupy Nigeria” protest in Ojota, Lagos in 2011. Protesters also included the “Save Nigeria” Group led by Pastor Tunde Bakare. Times have changed; those in Opposition then are now in power and the narrative seems to have changed.

The Buhari administration through the Minister of Finance, Zainab Ahmed and the Minister of State for Petroleum Resources, Timipre Sylva have stated to anyone who cares to listen that unless the fuel subsidy is removed, the oil sector and indeed the Nigerian economy will experience grave challenges. This line of argument was pitched on the provisions of the Petroleum Industry Act of August 2021 which provided for the full deregulation of the petroleum sector. According to Ahmed, the annual fuel subsidy being borne by government was estimated at N1.8 trillion with adequate provisions made in the 2022 federal budget to commence the removal from July 2022. The plan was to hike the price of premium motor spirit from the current N162 per litre to about N340 per litre or thereabout.

Reactions have trailed the planned removal of subsidy. Labour had come threatening a major showdown with the authorities, involving all in its affiliates in a national strike that was scheduled to commence late in January. Many have warned of the grave consequences on the economy and on the livelihood of the planned fuel subsidy removal. Even the former Head of State, General Abdulsalami Abubakar had warned government against increasing fuel price at this time.

Suddenly, with the vociferous comments from members of the public on the issue, the government narrative changed again. The language now is that of “suspension” of the implementation of the Petroleum Industry Act for 18 months implying a backtracking on the removal of the subsidy as earlier scheduled. In fact, government already went ahead in preparing a supplementary provision of about N3 trillion in the 2022 federal budget to cover subsidy payments beyond June 2022. The current language of Ahmed is that “it is not the right time to remove the subsidy,” in tandem with that of his co-traveller, Sylva who now says that “at the moment, the complete removal of subsidy is not on our plate at all.”

The back and forth narrative and seemingly double speak of the officials have lots of implications of this vexatious issue of fuel subsidy and its removal. First is that, of a truth the general public opinion is that the average Nigerian is averse to removal of the subsidy at this time. Government, probably by security reports might have discovered this.

Attempting to go ahead with the subsidy removal as originally planned would have created lots of distortions in the economy as well as further impoverished the average Nigerian, at least in the short term. This is coupled with the fact that in the past few years, real incomes of the average Nigerian are not increasing, added to increases in government taxes generally. Second, the country does not currently have the capacity for local refining of crude oil, which it exports. The rehabilitation of the Port Harcourt Refinery and planned turn-around-maintenance programme for the others in Kaduna, Warri and Port Harcourt are largely suspect. Government is not seriously focusing on the operation of the modular refineries, as would have been expected and the “illegal refineries” that litter the environment in the Niger Delta region are being demolished by government. The major source of hope for enhanced supply of refined petroleum products is the on-coming 650,000 litres capacity Dangote Refinery which may not even deliver as expected, even when the plant goes into full operations sometime in 2022. Many are of the opinion that even when Dangote Refinery begins operations, Nigerians would still pay highly for fuel. The fear also exists that with that scenario, the four refineries on ground may not work again. Government is believed to already have a shareholding in the Dangote Refinery. Could it be that the backtrack by government on the fuel subsidy removal is based on the calculations on the impending operations of the Dangote Refinery or could it be a face-saving strategy for political expediency given that whatever happens in the fuel subsidy saga could swing votes against the ruling party in the oncoming 2023 general elections?

Labour should also be blamed for playing a seemingly sinister game. At a time when the companies of Dangote and Otedola wanted to buy the refineries in the twilight of the Obasanjo administration, they kicked against it. The chicken indeed has come home to roost and the ordinary man should not be made to pay for the inconsistencies of both labour and the government in power. The fuel subsidy issue, though ultimately desirable, should be handled with caution. It is currently a sensitive issue with great implications for the national economy. It has immense inflationary consequences and effects, particularly through the transportation sector multiplier on the overall economy.