LCCI, stakeholders kick against fuel subsidy in 2019 budget

Stakeholders in the downstream sector of the Nigerian oil and gas industry have kicked against the provision of fuel subsidy in the 2019 budget.

They say including subsidy in the budget will elevate corruption in the sector to the highest level and will not allow for any transparency in the sector.

According to them, this is going to serve as an avenue to raise the level of corruption in the sector.

Many of the operators in the downstream sector of the petroleum industry who spoke with BusinessDay but do not want their names mentioned for fear of intimidation, advocate for complete deregulation of the sector so that there can be sanity and transparency in it operations.

They say NNPC as government agency is the only one that will administer the subsidy, and express doubt if there can be any transparent in its dealing, as the corporation may not be able to resist pressures from government officials who want supports for their surrogates through the subsidy exercise.

Subsidy they say attracts fraud, and in this time of election part of the money may be shared to briefcase oil operators cum politicians who are working for the re-election of the present government through inflated volume of petroleum products brought into the country.

They cite the claim by the NNPC that the country is consuming about 60 million litres daily as grossly over inflated figure meant to remove money from the system.

They want the government to channel the money for the subsidy to Education, Health and roads, among other things.

They however agree that whatever negotiation the government is doing with the organised labour on wages if it fails to take into consideration that there will be increase in price of petrol by whichever party that wins the election, will render all the efforts useless.

Because, according to them, increasing the price of fuel without the necessary palliatives to cushion the effect of the increase will make any wage increase now useless.

Muda Yusuf, director-general, Lagos Chambers of Commerce and Industries (LCCI), says: “Perhaps, the biggest fiscal burden on the economy today is the petroleum subsidy regime. It is a big hole in the finances of government. It puts tremendous pressure on the foreign reserves and the foreign exchange market, just as it exerts immense stress on the nation’s treasury.”

He says it remains a cause for concern that the subsidy regime has subsisted, especially at a time when the economy is facing unprecedented fiscal challenges; at a time when productivity in the economy is constrained by acute infrastructure deficit; at a time when public institutions are finding it hard to pay salaries. There cannot be a better example of resource misapplication, he says.

According to Yusuf, there are two components of this: “The first is the genuine subsidy, which is the differential between the pump price and the landing and other costs of fuel. The second (and more disturbing component) is the transparency problems inherent in the fuel subsidy administration, including the petroleum equalisation policy. For several years, the economy suffered severe bleeding from this phenomenon.”

He says one of the critical elements of the oil and gas sector reform, particularly the downstream sector, is the complete deregulation of the sector. This is the spirit of the Petroleum Industry Bill, which regrettably, has again got stuck in legislative process. The reform of the oil and gas sector will create a number of advantages for the economy.

Wunmi Iledare, a professor and president, Nigerian Association for Energy Economist (NAEE), says the government should be praised for at least making something available for the fuel instead of leaving the whole process of payment to the NNPC to use its discretion.

“I don’t like subsidy but I think the government is trying to pay NNPC instead of the corporation using unallocated money,” he said.

He says without the passage of the Petroleum Industry Governance Bill, the country will not be able to achieve its goals in respect of the of the downstream sector of the petroleum industry.

Femi Saibu, a professor at the Department of Economics, University of Lagos, supports the same thought of Wunmi Iledare, when he says, “For the purpose of transparency it is good for the government to give subsidy. So that the money can be tracked.”