• Thursday, September 28, 2023
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Buhari called subsidy fraud, but outspends predecessors

Buhari called subsidy fraud, but outspends predecessors

In a 2011 interview granted to a local television station, Muhammadu Buhari, who was seeking election as president, lampooned fuel subsidy payments, calling it a fraud. As he prepares to leave office on May 29 after an eight-year tenure, his administration has spent more on fuel subsidy than his three previous predecessors combined, BusinessDay’s analysis shows.

Subsidy payment data compiled from payments recorded by the Nigerian National Petroleum Company Limited (NNPC) and Nigeria Extractive Industries Transparency Initiative (NEITI) indicate that the Buhari government may have spent over N11 trillion on petrol subsidies, an amount that could have built several schools, hospitals and is bigger than everything he earmarked for road infrastructure since he took office.

A breakdown of petrol subsidy payments shows that Buhari spent N11 trillion, Goodluck Jonathan spent N3.9 trillion, Umaru Yar’Adua spent N794 billion, and Olusegun Obasanjo spent N570 billion from 2005 to 2006, based on available data.

Petrol subsidy

Subsidy payments during the Obasanjo administration were largely minimal and began making a dent in 2005 fiscals, leading NEITI to begin gathering and reporting the data.

Our correspondents came across data from the now-defunct Petroleum Products Pricing Regulatory Agency, which said the federal government spent a total of N8.94 trillion on oil subsidies between 2006 and 2015.

Irrespective of the sets of data used, BusinessDay found that Buhari still outspent all his predecessors combined.

The significant expenditure on petrol subsidies underscores the government’s commitment to ensuring affordable petrol prices for Nigerians. However, it also raises concerns about the long-term sustainability and impact on the country’s fiscal health.

Petrol subsidies have been a controversial issue in Nigeria, as it strains the nation’s finances and can lead to inefficiencies in the oil sector. While intended to ease the burden on Nigerians, they have often been associated with corruption, smuggling, and market distortions.

Analysts attributed the steep rise in subsidy payments during this administration to the increase in daily consumption and crude oil prices.

“The increase in petrol subsidy under Buhari’s tenure is due to an increase in daily consumption and crude oil prices,” said Chinedu Onyegbula, an energy sector expert and director at Bullox Resources Limited.

According to Onyegbula, Nigeria still has to import refined products, and the impact of foreign exchange has adverse effects on the economy.

“Our refineries likely will not be operational until the end of the year, subsidy will likely not be removed till the end of the year (if it happens), and we will likely continue to have the same foreign exchange reserves issues if the macroeconomic conditions continue,” he said.

“The proper management and assessment of our true consumption would continue to be a mystery and abuse if we do not put punitive and corrective measures in place to prevent and mitigate inconsistencies and irregularities. Refineries coming on board will be good but will not be the silver bullet.”

According to the Nigerian Midstream and Downstream Petroleum Regulatory Authority, Nigeria’s daily average petrol consumption stood at 66 million litres in 2022.

Analysts say the bulk of this fuel is smuggled out of the country.

“Are we drinking the petrol?” Sanusi Lamido Sanusi, former governor of the Central Bank of Nigeria (CBN), said this when he delivered a keynote speech at the seventh edition of KadInvest, an annual event organised by the Kaduna State Investment Promotion Agency.

Kelvin Emmanuel, energy sector expert and CEO at Dairy Hills, said the argument on the unverifiable consumption levels of the NNPC providing supply-side data to back its claim without demand-side data to verify opens the can of worms on the 20 companies given the Direct Sale, Direct Purchase arrangement programme.

“This has eaten into the crude oil sales, which were fetching up to $3 billion per month in revenues to the Federation’s account at the CBN, to almost zero today,” he said.

Emmanuel added that the government moved from having independent marketers bring in petrol and file compensation claims, which was riddled with so many inconsistencies, to a crude oil swap that is even riddled with much more inconsistencies.

He said: “If the Yar’Adua government had accepted the Bluestar consortium bid to purchase the Kaduna refinery in 2007, we would have had backward integration for crude oil processing a lot sooner and pivoted from the strategy of using daily Organization of the Petroleum Exporting Countries (OPEC) quota to measure our benchmark for oil royalties.

“The fact that petrol subsidy consumes 32.4 percent of the 2023 budget, and the government has to borrow in contravention of sections 45 – 49 of the Fiscal Responsibility Act of 2007 is proof that we need to revise our strategy on OPEC in line with what Indonesia and Qatar did,” he said.

When did the petrol subsidy start in Nigeria?

Petrol subsidies were first introduced in Nigeria in the 1970s as a response to the oil price shock in 1973. It started with the government routinely selling petrol to Nigerians below cost. But most Nigerians did not know this was happening.

Read also: Will the real beneficiaries of the petroleum subsidy allow its abolishment?

However, despite numerous attempts at reform, Nigeria has never successfully removed petrol subsidies, largely due to strong popular opposition to reform.

It was institutionalised in 1977 following the passage of the Price Control Act, which made it illegal to sell some products (including petrol) above the regulated price. This law was introduced by General Olusegun Obasanjo’s regime to cushion the effects of the global “Great Inflation” of the 1970s, caused by a global surge in energy prices.

In 1970, the state paid about 72 percent of the cost of a litre of petrol, but in 2011 that figure dropped to 43 percent. This means that Nigerians are increasingly bearing the burden of rising fuel prices. This may explain why they vehemently oppose attempts to cut or remove subsidies through protests and roadblocks.

As Buhari prepares to hand over the reins of power to the incoming administration, the challenge of balancing Nigeria’s energy requirements and fiscal responsibility looms large.

The next government will face the arduous task of reassessing the subsidy system, seeking a viable solution that ensures energy accessibility without compromising the nation’s financial stability.