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How to solve oil subsidy problem

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Oil worker

Sir: On Friday December 14, 2018, a Vice Presidential debate was organised by the Nigeria Election Debate Group (NEDG) in collaboration with Broadcasting Organisation of Nigeria (BON.)

The programme was anchored by Imoni Amarere, and was beamed to the whole world via the Nigeria Television Authority (NTA) and TVC.

The moderator posed a series of questions to the candidates, especially how they would improve the economy.

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The focus of this article is on the question of how the Vice Presidential Candidates and their governments intended solving the problem of subsidy in the petroleum industry, if voted into power in 2019.

One was, however, surprised and disappointed that all the Vice Presidential Candidates could not give adequate and appropriate response to the question on how to curb the problem of subsidy.

They included Prof Yemi Osinbajo of the All Progressives Congress (APC), Peter Obi of the Peoples Democratic Party (PDP), Ganiyu Galadima of Allied Congress Party of Nigeria (ACPN), Khadijah Abdullahi Iya of Alliance for New Nigeria (ANN) and Uma Getso of Young Progressives Party (YPP.)

It seemed they didn’t understand what subsidy is or how it came into the petroleum industry in Nigeria.

Subsidy is money spent by government to reduce the cost of certain goods, in order to cushion the hardship the high cost of such goods will have on the people.

In Nigeria, government pay subsidy or subsidise the cost of petroleum products, including petroleum, diesel and kerosene.

How did subsidy appear in the petroleum industry in Nigeria? The history of subsidy could be traced to the 80s.

Nigeria is a member of the Organisation of Petroleum Exporting Countries (OPEC), which means it is endowed with the natural resource called crude oil.

This is explored by the various petroleum exploration companies, including Shell Petroleum Development Corporation (SPDC), Chevron and Nigerian National Petroleum Corporation (NNPC), among others.

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Nigeria has four refineries for refining crude oil into allied products, such as petrol, diesel, and kerosene. There is a refinery in Kaduna, another in Warri and two in Port Harcourt.

In the 70s and 80s, these refineries were producing at optimal capacity, and were capable of refining crude oil into petrol, diesel and kerosene to meet local demands and for export.

Then, Nigeria sold both crude oil and its refined products to other countries and derived huge foreign exchange.

Unfortunately, due to corruption, neglect and mismanagement of these refineries, their production capacity began to drop annually, so much so they could not even meet domestic demands.

So, government started importing petrol, diesel and kerosene from other countries to bridge the gap in supply and demand chain. That marked the beginning of increase in pump price of petroleum products.

Aside increase in pump price, there was also scarcity of the products, due to delays and bureaucratic bottleneck associated with their importation.

To cushion the effect on the people, the Federal Government decided to introduce subsidy, with the hope that it would reduce cost of pump price of the products.

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Soon after, government officials started conniving with major importers of the products to hide under subsidy to siphon the nation’s resources.

Since then, Nigeria and its citizens have continued to suffer both scarcity and high cost of petroleum products.

To answer the question posed by the moderator of 2018 Vice Presidential debate on how the problem of subsidy could be solved.

Firstly, government should develop the political will to put appropriate machineries in place to rehabilitate the nation’s four refineries, so that they can produce optimally to meet domestic demands.

Secondly, those sabotaging efforts at revamping the refineries should be prosecuted and shown the way out of the petroleum industry.

Thirdly, government should encourage local investors to establish modular refineries to complement the four refineries.

A body should be set up to monitor and regulate the modular refineries to ensure that they operate within set guidelines.

With this in place, government should then place a ban on importation of refined petroleum products and encourage exportation of surplus refined petroleum products.

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If this were done, there would be enough petroleum products at cheaper pump price for Nigerians. Interestingly, this would also bring about job creation for unemployed youths.

At this point, it must be stated that subsidy is not usually adopted as a permanent solution to economic problems.

Rather, it is a temporary or short-term measure, aimed at cushioning economic hardship.

It is quite unfortunate that in Nigeria, it appears government had adopted subsidy as a permanent solution to the problem of scarcity and high cost of petroleum products, thereby completely neglecting the nation’s four refineries.

It should be realised that the longer subsidy regime lasts, the more harm it does to the economy.

This is so because investors and importers of the products will take undue advantage of the situation to control the market and rip off the people for their selfish interest.

This is the current situation with petroleum subsidy in Nigeria. The earlier it is dealt with, the better for Nigeria and Nigerians.


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