How improper planning impaired FG's decision to end petrol subsidy

In his inauguration speech on May 29, 2023, Nigeria’s new President, Bola Ahmed Tinubu stunned the nation when he announced an end to the decade-long government-funded subsidy that has helped reduce the price of petrol in the country.

It was a bold decision consistent with his campaign promise. It was a proclamation that repudiated the lack of will by the preceding administration in ending the subsidy charade.

In 2012, Tinubu himself was one of the well-known critics of the then Jonathan administration’s attempt to remove fuel subsidy. He had accused the Jonathan presidency of betraying its social contract with the people by suddenly removing fuel subsidy.

“If subsidy must be removed at all”, he had opined then, “it must never be at one fell swoop. Rather it must be on calibrated phases, on which the promised gains are measured and confirmed before moving to the next phase of removal.

“Government must modify the sudden and complete removal of the subsidy. Either we restore the subsidy or use the funds for other social purposes,” Tinubu had counselled.

“If we are to use the funds for other programmes, these programmes shall be placed on parallel track with the subsidy. As more of these programmes are ready to go on line, then the subsidy can be lifted in phases,” he continued.

“In this way, the public is assured government will not lower its total expenditure on their behalf, thus maintaining the spirit central to the social contract.”

“The Jonathan tax,” he declared, “represents a new standard in elitism.”

Nigeria’s fuel subsidy scheme was no doubt one of the biggest state-sanctioned heists of any country’s treasury. It was a monumentally corrupt scheme that created billionaires out of Nigeria’s politicians, officials of the state-owned Nigerian National Petroleum Corporation Limited (NNPCL) and their business cronies.

The country’s dodgy fuel subsidy scam along with the monumental armed robbery of Nigeria’s crude in the delta region has driven the nation’s oil and gas industry to near collapse.

Designed as a palliative to cushion the landing cost of petroleum products delivered to refineries, the subsidy scheme has since transitioned into a social transfer mechanism to ease the burden of high fuel prices on low-income Nigerians.

But it has not eased the burden on the poor. On the contrary, the expensive mismanagement of Nigeria’s subsidy regime occasioned by corruption has placed more burden on the masses.

Fifty years of subsidising the downstream petroleum sector did not address market imperfections which distort prices and cause a misallocation of scarce labour and capital that undermine growth. The propping up of petroleum prices has only helped to artificially keep firms afloat in the industry and dampened investment in the sector as well as in alternative energy.

Tinubu’s pronouncement seems however, to have ended the subsidy imbroglio. Nigeria’s National Petroleum Company NNPCL has backed the President’s decision to stop paying subsidies.

Mele Kyari, the chief executive of the now public-owned oil firm, told reporters that, “the reality is that from today the government can no longer afford to pay for fuel subsidies as a nation.”

NNPCL, he said, was owed 2.8 trillion naira ($6.1 billion) in outstanding subsidy payments by the government. The company more than doubled its fuel pump price to 537 Naira in reaction to the president’s off the cuff pronouncement.

A statement by the firm’s Chief Corporate Communications Officer, Garba Deen Muhammad on Wednesday, said pump price at its retail stations have been adjusted to reflect “current market realities”.

Amidst panic buying, petrol sold for as high as ₦800 and ₦1,200 in different parts of the country.

In announcing the scrapping of the crooked subsidy programme, Tinubu did not say when it would take effect, but the immediate past Buhari administration had said it planned to end the programme by the end of June.

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It is uncertain if the statement by the President is a policy decision or a business-friendly declaration by an overly excited and animated inductee into the nation’s highest office.

Tinubu’s end of subsidy declaration underestimates the value of policy design. Policy design helps to ensure that the planned actions represent a realistic and viable means of achieving the policy goals.

Policy making, says the U.K Institute for Government, “does not take place in a vacuum, where the government is in total control of its agenda. The result can be sharp discontinuities and apparently illogical decisions, as the government’s coherent position can get overwhelmed by events.”

It is this absence of proper policy design and efficient policy communication that has left a rational, intelligible decision to end petrol subsidy at the mercy of statists, angry unionists and perplexed masses, stunned at the misery that has been thrown at them.

Aware of this, Vice-President Kashim Shettima called for political elite consensus when he urged state governors from the ruling party to rally round the president.

“Let us rally around the president and not bulge. There are vested interests that may want to resist the subsidy removal. Its removal will free resources for the development of your states,” Shettima said.

Keen to capture the news agenda and generate headlines, Tinubu’s cogent, yet over-hasty decision to scrap the dubious subsidy programme has been impaired by the lack of rigour and strategy in the pronouncement.

With no structured plan to mitigate the negative impact and ensure a win-win situation, the subsidy, said the president, “can no longer justify its ever-increasing costs in the wake of drying resources. We shall instead re-channel the funds into better investment in public infrastructure, education, healthcare and jobs that will materially improve the lives of millions.”

Nigeria spends billions of dollars annually to keep fuel affordable at the pumps, and previous administrations’ efforts to stop the subsidies often led to street protests.

Getting the policy implementation right, notes Taiwo Oyedele, Fiscal Policy Partner and Africa Tax Leader at PwC, means, that “government needs to remove subsidy in a controlled, phased and responsible manner to limit the negative impact and possibly achieve a win-win outcome of moderated inflation, government revenue, efficiency gains and well-being of the people.”

Chartered Accountant, Adebola Odeyemi agrees that, “addressing the subsidy issue in a controlled, phased, and responsible manner is crucial.”

Lukuman Olayiwola, chairman Olo Industries Limited rebuffs Oyedele’s panacea. “There should not be any phased withdrawal as the so-called subsidy has consistently failed to benefit the intended beneficiary,” he posited in a recent blog post. “Aside a few major cities in Nigeria, no one gets to buy the petrol at the official price. So, what have we been subsidising except the greed of few elites. The withdrawal should be surgical and total.”

Suleiman Ndanusa, a senior visiting fellow at the Lagos Business School, supports the president’s shock and awe decision on the removal of fuel subsidy. In a blog post, Ndanusa posited that, “gradual approach to the removal of fuel subsidy is over. Such approach has only benefitted a few at the expense of the majority. What we need regarding removal of fuel subsidy now is a baptism of fire/radical approach/ shock therapy. I agree it will be initially painful but the relief will come with the positive and simultaneous value propositions to be carefully unleashed by government to cushion the downside effects. Let’s do it.”

Farooq Kperogi, a professor of Journalism at Kennesaw State University in the United States, sees the decision of the president as the fruition of elitist consensus that does not benefit majority of Nigerians.

“Any policy (call it deregulation, subsidy removal, appropriate pricing, etc.) that results in an arbitrary and unbearable hike in the price of petrol without a corresponding increase in the salaries of workers and an improvement in the living conditions of everyday people will sink Tinubu.

“The recurrent excuse governments in Nigeria advance to increase fuel prices is that the government needs money for “infrastructural development.” But no sensible government starves its people to death because it wants to build infrastructure. Only the living use infrastructure.

“At N550 per litre, the price of petrol is now officially lower in many states in the United States than it is in Nigeria. Nigerians are now paying nearly the equivalent of $4.70 per gallon of petrol (using the official exchange rate). If we use the black-market exchange rate, it’s much higher than that.

“In the state of Georgia where I live, the average cost of gas per gallon is $3.4, about a dollar cheaper than it is in Nigeria. Given that the federal minimum wage in Nigeria is still a miserable N30,000 per month, which is equivalent to about $65 per month, I don’t see how this makes sense. Plus, transport fares and the cost of goods have already skyrocketed to unmanageable degrees as a direct result of the new petrol price regime,” he wrote in a recent newspaper column.

At the end, Tinubu’s proclamation is a teachable moment in how not to make and communicate policy decisions. It was inefficiently cooked and shabbily served.