BusinessDay

10 years after protest, over $60bn on subsidy, no change

Ten years after the #OccupyNigeria protest against petrol subsidy removal, the Nigerian government has only abolished it on paper. It is unclear if another attempt to remove it in six months will happen because of a political backlash as in a year before elections, according to the Economist Intelligence Unit (EIU).

In its most recent report on Nigeria, the EIU said, “Past attempts to lift price controls (most recently in 2020) were abandoned after a political backlash, and the government will want to avoid a repeat so close to the polls.”

Nigeria spent over $63 billion between 2005 and 2018 on petrol subsidy, according to data from Nigerian National Petroleum Corporation (NNPC). Last year alone, Nigeria spent $4.5 billion on petrol subsidy, according to the World Bank, and during the subsidy scandal in 2011, Nigeria spent $6.8 billion on subsidy. A back-of-the-envelope estimation puts subsidy spend in the last 10 years at over $60 billion.

In August 2021, the Federal Government passed the Petroleum Industry Act (PIA), which prescribes the deregulation of the downstream sector, putting an end to petrol subsidy and the infrastructure that enables it. On the 10th anniversary of that protest, the Buhari administration is yet to implement the law ending the practice.

On January 1, 2012, the administration of former President Goodluck Jonathan announced the removal of fuel subsidy triggering demonstrations in major cities across Nigeria the next day.

Protests

Two of Nigeria’s largest labour unions – Trade Union Congress (TUC) and the Nigeria Labour Congress (NLC) – capitalised on the popular outrage and called for a national strike that began on January 9.

Soon, the Nigerian Medical Association and the Nigerian Bar Association, as well as a number of other unions, backed the strike while many protesters began to refer to their cause as “#OccupyNigeria.”

In the ensuing civil disobedience and confrontations with security agencies, 11 protesters were reportedly killed.

Damage control

In the face of mounting pressure, the Jonathan administration began to make some concessions. He announced the formation of a panel to oversee the funds freed up by the elimination of the fuel subsidy.

The government proposed cutting government salaries by 25 percent and bought some buses that would reduce transportation costs. Rather than eliminate the subsidy, the government succeeded in increasing the petrol price from N65 to N141 per litre.

Logic fails

As was true in 2012, petrol subsidy was a drain on the country. It starves critical sectors of scarce resources for economic growth, fosters smuggling of petroleum products across Nigeria’s insecure borders, and disrupts markets on the continent.

Just like Jonathan’s government did, the Buhari government has argued then that the removal of subsidy would free up funds for other public services, including health and infrastructure projects, and that the liberalisation of the downstream sector would benefit the economy.

They also argued that the primary beneficiaries of the subsidy were the wealthy, who used more petrol than the poor, and wholesalers who made a profit selling subsidized petrol out of the country.

Ajuri Ngelale, one of Buhari’s spokespersons, recently told BusinessDay in an interview, “Our neighbours that don’t have the kind of economic fundamentals pay as much as N400 per liter. Yet their minimum wage is much lower.

“We also have to live in a way that is more realistic so that the government can put resources into those things that are more profitable to the common ordinary Nigerians. This is the redistribution of resources that the President is more committed to.”

But those agitating against subsidy removal have countervailing arguments, saying it is a shame that Africa’s biggest oil producer cannot refine its own petrol leaving its three refineries in decay.

Read also: Group plans protest against petrol subsidy removal, excise duty on soft drinks

Nigeria with highly-rated security agencies cannot curtail smuggling, and though petrol is imported, government charges at the port add to the cost per litre. This raises the fear that any increase will trigger runway inflation. Already, Nigeria has the world’s poorest people and any extra burden is a recipe for chaos.

To worsen matters, successive government officials have been accused of stealing mind-boggling sums of money. When factored along with the putrid opulence of government officials and reckless public spending on salaries of unproductive lawmakers, it defeats any argument for the people to make sacrifices for a wasteful government.

President Jonathan on January 16, 2012, rescinded the decision to remove the petrol subsidy but increased the pump price to N97 per litre, which was significantly lower than the N141 that reflected the landing cost of petrol. The unions called off the strike, and the protests ceased.

Renewed push

According to Zainab Ahmed, minister of finance, budget, and national planning, “The government has concluded plans to end fuel subsidies by July 2022, paving the way for the full implementation of the PIA.

The minister, while responding to a question at the public presentation and breakdown of the highlights of the 2022 budget in Abuja, said, “We have only provided subsidies for petrol from January to June. And that means that from July, there is no provision that we made for fuel subsidy.

“Our assumption is that by June, we would have been able to work through a process together with all stakeholders including the National Oil Company, all the regulators in the oil and gas sector, different MDAs that have a role to play as well as businesses and labour organisations.

“Moreover, by removing subsidies, the government is only complying with the PIA, which specifies that all petroleum products should be deregulated.”

Dangote Refinery

Despite some delays caused by shipping constraints, the 650,000 barrels per day (b/d) Dangote Refinery, which is set to be Africa’s largest, is on track to begin operations this year.

The refinery is expected to bridge the gas importation gap of Nigeria, which stands around 1 million -1.25 million cubic meters per month (mt/month) of gasoline due to inadequate domestic refining capacity, while noting that all its refineries, with a combined nameplate capacity to refine 445,000 b/d of crude oil, are currently shut down, according to a Dangote presentation given at an industry event last year.

“When fully operational, the plant will produce 327,000b/d of gasoline, 244,000b/d of gasoline/diesel, 56,000b/d of jet fuel/kerosene, and 290,000mt/year of propane/LPG,” it said.

With this development, the country’s economy might be on track to create a platform with the new PIA, where the interplay of the forces of demand and supply of oil and gas are expected to drive down the price of oil and gas in the country while maintaining the subsidy removal.

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