• Sunday, July 14, 2024
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BusinessDay

Buhari burnt N11.7trn on petrol subsidies, will his successor be different?

It is official: Petrol price deregulation is over, at least for now.

Prior to his emergence as president, Buhari, who had labeled subsidy a fraud, would have burned through N11.75 trillion of Nigeria’s cash funding the scheme by the end of his tenure, raising questions about the capacity of the next president to keep his word and end the practice.

Subsidies have become something of an albatross. Every government since 1999 has recognised the need to end it, but few can summon the political will. Organised labour hovers in the shadows with the threat of strikes, and some analysts fear it will stoke inflation.

But the greatest challenge is that no government has developed and followed through on a plan to phase it out, something many analysts have called for.

 

All the major candidates in the 2023 presidential elections have included ending subsidy payments as part of their manifestos, but if the antecedents of previous governments are an indicator, this does not inspire confidence.

Read Also: What to expect as petrol subsidy removal nears

The reality, though, is that petrol subsidies present an existential threat to Nigeria’s fiscal health.

Petrol consumption under Jonathan hovered between 30 and 35 million litres daily, but under Buhari, as president and petroleum minister, consumption is anyone’s guess. You start out at 55 million litres daily and work your way up to 93 million, and even then, confusion awaits.

To illustrate the depth of carnage to Nigeria’s coffers, consider that in 2021, Buhari’s government spent N1.77 trillion on petrol subsidies, a 477 percent increase from N307 billion in 2015, whereas in 2022, the NNPC Ltd said the government spent about N3.1 trillion in 2022. By the end of the year, actual figures were over N4 trillion.

Despite rising poverty, improving grid electricity, and declining car ownership rates due to the dollar crunch, Nigeria’s petrol imports keep reaching record highs. Meanwhile, Nigeria’s neighbouring countries are gradually seeing no need to keep importing petrol as smuggled petrol from the country overwhelms their markets.

 

“Petrol subsidies have been a recurring and controversial public policy issue in our country since the early eighties. However, its current fiscal impact has clearly shown that the policy is unsustainable,” Buhari said in his 2023 budget presentation.

Last July, the federal government projected that the petrol subsidy will gulp N6.7 trillion in 2023 if bold steps are not taken to do away with it, even as the debt service outpaced its revenue in the first four months of this year.

In August, Zainab Ahmed, minister of finance, budget, and national planning, said the federal government of Nigeria spends N18.397 billion on petrol subsidies daily. The government spends N238 per litre of petrol or N18.397 billion daily, as a subsidy.

While subsidies have risen, oil production has fallen to the worst levels in history. When he became president, crude oil production was nearing 2 million barrels per day. Today, the country is struggling to raise production to 1 million barrels per day.

While production has fallen, IOCs are fleeing onshore and shallow water fields.

“The sharp increase in these divestment activities is primarily due to challenging business environments that have impacted profitability, reduced confidence in a segment of the Nigerian oil and gas market segment, and hostility within host communities,” said Ese Osawmonyi senior analyst at SBM Intelligence, a Lagos-based risk analysis firm.

Buhari’s successor will struggle to tamp down public outrage if subsidies are finally removed in June 2023. When oil prices crashed below $30 per barrel in 2016, he rejected counsel to remove subsidies. If oil continues to hover around $100 per barrel next year, huge outrage similar to the anger in 2012 will likely greet an announcement of subsidy removal by a new government. Labour leaders will threaten to cripple the economy.

Headline inflation has risen to 20.5 percent, the highest in 17 years, and could worsen with the removal of subsidies. Unemployment is over 33.3 percent, underemployment is up to 22.38 percent, and labour productivity growth rate has collapsed to 1.7 percent in 2021 from 16.9 percent in 2012.

Public debt has risen to over N46 trillion, representing about a quarter of the country’s GDP. With Buhari squandering the goodwill he enjoyed in 2015 through obnoxious policies, it would take a popular president, with a strong will to rein in the mess subsidies have become.