Nigeria’s fuel subsidy regime is an issue that has pitched economists, the public, stakeholders, regulators, and organized labour at opposing sides of the divide. There have been arguments and counter-arguments for the existence or absence of fuel subsidies in the country. The case for the removal of fuel subsidies has centered on the huge annual budgetary allocation and expenditure by the government.
There have also been heightened concerns over welfare consideration especially given Nigeria’s increasing poverty rates in the country and with a subsidy expenditure that increases yearly. This is seen as a huge strain on the government’s coffers in light of the skewed benefit of the subsidy.
The Minister of Finance and Planning, Zainab Ahmed, has premised her call for the removal of the impact on the citizenry. According to her, “This (subsidy) is costing us big time. We are spending over N150 billion on subsidy, which means, NNPC has to use that amount of money to pay for PMS and distribute it. That is money that the federation account can share.
While the government says that timing was key in its consideration for the removal, political commentators and analysts think it was a political move given that the current year is a pre-election year
“This is money that could have been available for education, health, and infrastructure, reduce our borrowing, and increase the amounts that states and local governments are collecting.”
According to data sourced by the NBS, between January and December 2021, N1.15 billion was spent by the country on petroleum subsidies. Two years earlier, in 2019 – N752 billion was spent by the country on fuel subsidies.
To express in clear terms its sentiments for welfare considerations, the joint trade Unions led by the Nigerian Labour Congress (NLC) had planned a nationwide strike slated for the end of January. However, this was shelved following the government’s decision to postpone the removal of fuel subsidies by 18 months.
While the government says that timing was key in its consideration for the removal, political commentators and analysts think it was a political move given that the current year is a pre-election year.
The Minister of Finance Mrs. Ahmed was quoted to have said, “After consultations with various stakeholders, it became apparent that the timing became a big problem and Mr. President didn’t want that. We are looking at various means either putting our four refineries in order and allowing Dangote Refinery to come on stream.”
However, CEO of Cowry Assets Management Johnson Chukwu, speaking on Arise Television has noted that the focus for the government is the 2023 elections. “National elections are going to take place in February 2023, and you’re talking about removing subsidy in July. There is no political party anywhere in the world that would take such impactful decision, given the negative implications on the populace,” Chukwu added.
The premise for the removal of the fuel subsidy notwithstanding, it is generally acknowledged that the sustainability of the country is threatened with it continuity.
Already, the Nigerian National Petroleum Corporation (NNPC) has submitted a bill of N3 trillion to the Ministry of Finance and National Planning to be expended on fuel subsidy in the current fiscal year.
“The Nigerian National Petroleum Company (NNPC) has presented to the ministry a request for N3 trillion as fuel subsidy for 2022. What this means is that we have to make an incremental provision of N2.557 trillion to be able to meet the subsidy requirement, which is averaging about N270 billion per month.” The Minister of Finance Mrs. Ahmed was quoted to have said.
As a direct consequence of the latest demands of the NNPC, the budget deficit is expected to rise with recourse to additional borrowings being projected to close the huge gap.
Irrespective of the Federal Government’s eventual action taken on fuel subsidy, there is a penchant for misappropriation and wastage should that savings be captured.
The rise in the country’s corruption index has underscored increased anxiety for proper utilization of the savings secured from fuel subsidies.
Read also: Nigeria’s N3trn fuel subsidy in 2022: Who will be more subsidised?
According to the latest Transparency International 2021 corruption ranking, Nigeria dropped five places on the chart, scoring 24 out of 100 points and thus ranking 154 out of 180 countries. In Africa, Nigeria is the second most corrupt nation on the continent.
While the subsidy removal discussions continue, it is more important for the government to draw up a framework for the impactful and accountable utilization of the savings from fuel subsidy to ensure that direct impact on the citizenry is actualized with infrastructural projects that are geared towards growth and development.
More importantly, the government should shift its attention to the refining capacity of the country as a well functional refinery which will reduce the current impasse of the importation of crude oil even when Nigeria is the seventh-largest producer of crude oil in the world.
The $19 billion Dangote refinery has been adjudged as the most promising and valuable investment project in the country’s oil and gas sector. It is projected that this project is to come on stream in the last quarter of 2022.
Thus, private-public partnerships (PPP) and concessionary private sector managed investment projects are welcomed to enable the country to become self-reliant in oil production and consumption. And if we may be allowed to reiterate here; the most viable way to address the issue is to put in place functional refineries which will be fed with crude at subsidized prices. If this is done, the menace of subsidy would have been effectively neutralized.
