• Thursday, March 28, 2024
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When is the right time to remove petroleum subsidy?

When is the right time to remove petroleum subsidy?

Timing is often the difference between success and failure in any endeavor. If there was an example of the importance of timing as it relates to implementing a policy, it came sometime last week when the Federal Government (FG) postponed the removal of petroleum subsidy.

The timing is either right or wrong depending on the lens from which one is looking at the entire economy of the nation.

Some Nigerians see the postponement of the petroleum subsidy removal as an election strategy by the ruling party – All Progressives Congress. To this group of Nigerians, politics trumps every other factor including the economy of the country.

While some strongly argued that the economy should come before politics. The latter group believes that this is not the right time to remove petroleum subsidy because almost all economic indices are poor ranging from inflation to unemployment.

Petroleum product smugglers and their collaborators which many industry observers believe are known to those in authority will continue to smile to the banks for the next 18 months

In defense of their views, they argued that when one looks at those nations where economy trumps politics, one will see reasons why Singapore, Hong Kong, Taiwan South Korea, and others are high-growth economies. These nations popularly referred to as Asian Tigers remove politics – activities aimed at enriching a few individuals – from the management of their resources.

These high-growth economies to my mind, do not treat the production and consumption of goods and services, including the supply of money in the polity with levity. They know that their economies must not go haywire because it would be difficult to control.

The planned removal of petroleum subsidy is beyond political party affiliation for some Nigerians. To these Nigerians, it is their economic survival that is very crucial. A survey report shows that more than 80 percent of Nigerians are opposed to the removal of petroleum subsidy at this time.

These Nigerians including labor do not feel that this is the best time to remove any subsidy because all the economic indices of the country are currently not impressive. They argued further that the palliative of N5000 (five thousand Naira only) monthly promised by the FG to 40 million poor households will not create wealth for the poor in a country where inflation is double-digit and the prices of food items are increasing daily.

Many Nigerians understand the macroeconomic implications of continuous payments of subsidies at a time when the country is highly indebted. Accordingly, they have argued that the petroleum subsidy should stop immediately. Can we blame those who say that the country should no more pay petroleum subsidies?

There are reports that the country paid Two trillion Naira to subsidize petroleum products in 2021. Public policy analysts are of the view that the subsidy paid on petroleum products could have been used to repair and build new roads, improve the standard of healthcare and education in the country.

While A few Nigerians think that the subsidy paid on petroleum products could have been removed gradually since 2015 when the FG faced the daunting task of repairing state-owned refineries.

The problem that many Nigerians have with the petroleum sector is a lack of transparency and accountability. “He who commands crude oil, commands everything.” There are different figures on petroleum subsidy payments, fuel consumption per day, and cost of Turn Around Maintenance (TAM), which makes the average Nigerian not trust whatever the government is saying.

Most Nigerians do not want to see reason with the government on subsidy removal because of lack of trust. Trust, leadership scholars say, is the foundation of leadership.

The problem associated with the operation of government-owned refineries in Nigeria dates back to the 1990s. All four refineries had poor operating records in the last thirty years or so. Since then the demand for Premium Motor Spirit (PMS) by Nigerians outweighs the supply from the refineries.

This necessitated the importation of PMS from abroad to cater to the shortfall in domestic supply. When did Nigeria start subsidizing fuel? Since the 1970s when there was a global oil price shock, the FG has been paying subsidy on petroleum products. Several attempts to reform the petroleum sector have proved abortive due to opposition by the citizens and labor.

Subsidies came at a great cost as spending on other developmental programs is reduced, resources to state governments are minimized, while cheaper fuel encourages smuggling to neighboring countries, greater pollution, and environmental degradation.

We have heard about some refineries that are 100 years old working in some countries. Our nation’s maintenance culture is very poor. And that is why development economists believe that irrespective of the level of natural resource endowment, only societies that embraced industrialization graduated to a rich class while others became relatively poor.

A low level of industrialization is the reason why some societies that claimed economic diversification cannot achieve significant growth. This remains a mystery that may never be fully understood. We observed with regrets that no matter the name given to any economic plan or budget, development does not happen by mistake.

We learned that the Federal Government (FG) has suspended the plan to remove fuel subsidy in June 2022 because of security reports. In order not to rock the boat, the FG shifted the implementation of the Petroleum Industry Act by 18 months. The Nigeria Labor Congress (NLC) has suspended its planned protest.

As a result of the suspension of the removal of petroleum subsidy, Nigerians have been told by the FG that the country will continue to borrow. This is to enable the FG to carry out its planned projects. A few public affairs analysts are of the view that the removal of petroleum subsidy is a suspension of dooms day.

Crude oil in the international market now sells for US$90 per barrel. We should expect the cost of funding the subsidy to be much higher in 2022 because of the surge in the price of crude oil. We read that about N3.0 trillion (three trillion Naira) would be spent by the NNPC on petroleum subsidy in 2022.

Read also: New refinery is only solution to petrol subsidy crisis – NLC

The implication is that the petroleum product smugglers and their collaborators which many industry observers believe are known to those in authority will continue to smile to the banks for the next 18 months.

By extension, some states will struggle to pay salaries, especially states that are heavily dependent on federal allocation. There are tough times ahead. That means we should fasten our seat belts.

Some states that are not economically viable may likely lay off some of their staff. Economists believe that fiscal deficit and borrowing may significantly exceed projections in the 2022 Budget.

This means that the CBN may have to cover up for the shortfall in revenue which has serious inflationary implications. As we know, this decision will impact the exchange rate, leading to further depreciation of our local currency.

Nigeria is yet to be acknowledged as a producing nation, and it is predicted that life may become more unbearable for many Nigerians in the next 18 months. When is the time to remove the petroleum subsidy? Now or never? Your guess is as good as mine. Thank you.