BusinessDay
Nigeria's leading finance and market intelligence news report.

Pass PIB in April to end fuel subsidy and systemic corruption

Federal lawmakers on Wednesday 24th March embarked on three weeks Easter break at a time Nigerians were expecting them to consider and pass into law the Petroleum Industry Bill (PIB). Delay in the passage of the 20-year old legislation is one reason fuel subsidy has continued to thrive in the country. We call upon the lawmakers to ensure the bill is passed this April as scheduled to end the on-going racketeering in the name of subsidy.

There are strong arguments in favour of re-directing the subsidy towards public expenditure that would more effectively lift millions of Nigerians out of poverty. But that is challenging. The billions of Naira spent annually on subsidizing fuel importation can be used to make our roads better, provide clean, drinkable water, build and equip our hospitals and provide other necessities of life, all of which are currently lacking in the country.

It is regrettable that government has been shirking its responsibilities in facilitating the corruption, wastes and inefficiencies in the determination of daily consumption volume and importation of petrol into the country. Given the flip-flop position of the federal government on petrol pricing and attendant negative hit on citizens, the Petroleum Industry Bill (PIB) when it becomes a law, has the potential of blocking avenues for systemic corruption and general inefficiencies in the distribution chain.

Last week, NNPC Group Managing Director, Mele Kyari admitted that a whopping sum of N120billion is spent monthly on subsidising imported fuel. We cannot continue like this as country.

In January this year, both the Legislature and Executive promised Nigerians that the PIB would be passed into law by April. The sudden Easter holiday break by the lawmakers, would definitely make the realization of this objective impossible; the assurances notwithstanding. This is because the bill still has a long way to go before becoming a law.

It is more surprising that two months after the public hearing, the relevant committees in the Senate and House of Representatives are yet to submit their reports and proposed amendments to the two chambers for consideration and ratification.

Suffice to say that the continued delay in the passage of the bill into law is creating uncertainties in the industry. These uncertainties frustrate the take-off of fresh projects worth billions of dollars that would grow industry capacity.

The downturn in oil prices over the past two years has hit Nigeria’s public budget hard. When money is tight, it seems obvious that governments should first phase out programmes that are expensive and have low benefit to their intended beneficiaries. Subsidizing gasoline fits the bill perfectly and several persons have advised President Muhammadu Buhari to remove the subsidies. Several Nigerians have fed fat on the subsidy to the detriment of the populace and the wobbling economy. Each year, billions of taxpayers’ money is spent fuelling corruption and systemic inefficiency. These are funds that ordinarily would have been used to revive and resuscitate ailing infrastructures and create jobs for millions of unemployed Nigerian youths.

Like many other countries, Nigeria began controlling the price of gasoline and other fossil fuels decades ago, largely to provide stable and secure prices to families and small businesses. Also in common with other countries, these price controls became more expensive as demand—some of it driven by cheap, subsidised prices— grew exponentially, and as world oil prices increased, notably in the past decade. What started out as a relatively small programme ballooned, with Nigeria’s gasoline import subsidy alone costing over US$13 billion (2.19 trillion naira) in 2011. Presently, the figure is above N4 trillion according to the NNPC.

That is not all. More worrisome is the fact that the subsidy is also highly inefficient. For instance, about 85 per cent of Nigerians living on less than US$2 per day gain little directly, given that they do not consume much gasoline. And spending on health, education and development are sacrificed to pay for the costly fuel subsidy. Perhaps counter-intuitively, subsidies also lead to scarcity, with long queues occasionally seen at service stations providing yet more evidence of how inefficient these policies are at helping the people.

To find lasting solution to fuel subsidy and the attendant corruption, the national assembly should pass the PIB into law this April as scheduled. That way the monster called fuel subsidy and its ugly effects would have been dealt with. There is no need for people to pay for holes in the national budget when this could be made up by reducing corruption, including for example when significant parts of Nigeria’s crude oil production disappears before it gets near the public purse.

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