On Thursday April 27, 2023 at the press briefing after National Economic Committee meeting, the Honourable Minister of Finance, Zainab Ahmed broke the news that the fuel subsidy removal programmed to commence as the incoming Administration debuts has been deferred to a subsequent date.
It was confirmed that there was a consensus that it was not a favourable time to take such a decision.
One thought that the inappropriateness of the timing was too glaring to be missed by anyone. How do we logically expect a new Administration that will be needing all the time to come to grips with the many problems confronting the economy to dabble into the problems surrounding fuel subsidy removal in Nigeria which is patently crises inducing?
The problem associated with petroleum subsidy removal has been so contentious that it is almost a no go area. The last time an attempt was made to remove the subsidy in 2018 by the Jonathan Administration, we recall that the economy was shut down by protests with massive crowds at Freedom Park to protest the decision.
The airports were closed and planes did not fly and workers were all at home. It was also similar experience in 2015 and therefore we now know what to expect with any determined attempt to remove subsidy on petroleum products.
Organised Labour is vehemently opposed to the removal of subsidy because it rightly concluded that such a move will further undermine the welfare of its members. I have always argued that Labour must allow those who have been elected to manage the economy to do exactly that.
Those in leadership positions must be allowed to take decisions and thereafter live with how to mitigate the harsh consequences of the decision by agreeing suitable and appropriate palliative.
It is time to think outside the box in the realization that actual removal of subsidy as they are today will remain a tall order. And we shall end up seeing us postponing the evil day endlessly.
This explains why most of us anchored high hopes on the coming on stream of 650,000 barrels a day Dangote Refinery.
Unfortunately, word coming out from there is that even the viability of the Refinery is now in doubt as it is faced with liquidity problems.
The Refinery is now highly leveraged that there is little or no slack for additional debt. It has been speculated that the possibility of Nigeria injecting more funds by taking up additional equity position is being contemplated. But the dilemma which confronts Nigeria today is debt sustainability.
When a country has to dedicate almost 90% of its revenue to service debt, the extent of the dilemma couldn’t have been put in more glaring details.
Dangote Refinery coming on stream could have been a game changer. It could have altered the situation for good. Nigeria also has four local Refineries with none operational.
So, what happened to all the monies spent on turnaround maintenance of these Refineries over all these years to no avail?
I think that what we must do will be to aim to stop importation as we do today and whilst doing so, to ensure that the shameful issue of subsidy on petroleum products does not raise its ugly head again. We should not just sit and watch the local Refineries continue to guzzle money without contributing anything to our Gross Domestic Products.
With the benefit of hindsight we must rue the reversal of the sale of the Refineries by the Yaradua Administration.
By now part of this problem could have been solved and well behind us. The government must explore all options to effect a drastic change on the prevalent scenario. But thinking of direct removal of subsidy is so very problematic with tremendous potential for disruptions undermining macroeconomic stability.
We must also revisit the source of energy mix in the country. We have Solar, hydro, Geo/Thermal and biomass energy which must be optimised to reduce sole dependence on fossil fuel.
We must purposefully optimised Mass transit as we discuss palliative measures. And at the level of the individual, we must begin to cultivate energy saving habits.
What are the likely consequences of this development for the country? The immediate fall out is the need for more borrowing in the process worsening the debt overhang situation in the country.
The fact that we are confronted with the challenge of debt sustainability is well advertised.
Read also: Subsidy removal may cripple SMEs, worsen unemployment — NACCIMA
How are we going to be able to boost revenue in a sustainable manner? Mele Kyari the Chief Executive Officer of Nigeria National Petroleum Company is on record to have observed that in order to obviate the looming fuel scarcity, the Company has deepened the debt crises by additional borrowing thereby constraining more the company’s ability to make contributions to the National treasury.
And that one other consideration in this regard is that products smuggling across our borders remains difficult to stop at the level of existing premium. And therefore as it is well known, we extend this subsidy to our neighbours. Otherwise, it is difficult to justify daily fuel consumption in Nigeria estimated at 70 million litres.
Unfortunately, the attempt by the Fiscal authorities to securitize the Ways and Means Finance which stands at a whopping 23.7 trillion Naira has almost hit a dead end as the National Assembly has refused to play game.
And as all concerned have been duly put on notice, such delays only worsen an already bad situation as we end up increasing the debt situation as default in payments are capitalised.
These Ways and Means are outstanding commitments which no matter what we think and feel about them, cannot be wished away.
What all these developments portend for the incoming Administration is that projected GDP growth rate of 3.75% will not be realised worsening the misery index in the land.
Already with inflation at over 20%, we are losing that battle when we recall that an inflation rate of 17.6% was projected. And therefore finding a solution to 133 million Nigerians in multi-dimensional poverty remains a mirage which must be confronted by refocusing on massive production.
It would appear that the only bright spot in a darkened firmament has been the price of oil which has hovered around the 100 dollar a barrel mark against the background of 70 dollars a barrel which we projected during 2023 Budget preparations courtesy of the ongoing Russia/Ukraine war.
