• Friday, July 19, 2024
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Fuel: Beyond fear of scarcity, subsidy is a drain pipe


The recent slip in the importation of Premium Motor Spirit (PMS), otherwise known as petrol, which resulted in the short supply of the commodity, and long queues at filling stations, may have been responsible for Nigerians insinuating that the government was about to increase the pump price of the product.

The fear was aggravated by the fact that it was about the same time that the International Monetary Fund (IMF) advised Nigeria and other countries (still subsidising fuel for domestic consumption) to stop doing so.

The IMF President, Christine Lagarde, said this during the IMF/World Bank meeting.

Lagarde said that subsidy payment had consumed about 5.2 trillion dollars globally from 2015 till date. In particular, she said IMF wanted Nigeria to remove the subsidy due to paucity of fund to take care of its infrastructure reforms and other social services.

The World Bank in its report threw a bomb shell when it said questionable N780 billion was spent on subsidy in 2018.

“The calculations for the fuel subsidy are based on heavily inflated fuel consumption estimates, with the fiscally severely constrained Nigerian government effectively subsidising neighbouring countries’ petrol consumption as some of the fuel is informally re-exported through the porous borders”, she said.

All these combined to fuel the fear of a possible hike in the price of petrol or removal of subsidy by government.

An industry source said that if the government has the plan to remove subsidy it has not shown it and that for now, nothing on ground   to suggest that government may increase the price of the commodity or remove subsidy  because is still a source of making cheap money by government officials.

“Whether we like it or not the subsidy thing is still one source of corruption that the government will not even address now,” he said.

According to him, “What led to the rumour of likely price hike must be all the scenario above but the one that amplified the fear most was the fuel scarcity that resulted in queues in some parts of the country. Nigerians probably believed that the government was trying to create a scenario which it would want the public to see and support its action.”

The fuel queues occurred because of high prices of crude oil at the international market which has made participation in the NNPC’s direct supply and direct purchase (DSDP) scheme unattractive for some of the companies engaged in the programme.

DSDP is a programme put in place by NNPC to ensure uninterrupted supply of fuel, but with the upward movement of the price of crude oil at the international market some of those that are contracted to supply have abandoned supplying fuel for diesel.

The price of crude oil is $71.64 per barrel and this could be higher because of the ban on exportation of Iran crude and the crisis in Venezuela which has led to a slip in the supply to the international market and consequently pushed the price of crude oil. If the price goes higher this may make more companies to suspend importing fuel to the country.

An industry source told BDSUNDAY that some of the companies are finding the scheme difficult, thereby preferring to import diesel without NNPC raising objections. This was the major factor responsible for the recent slip in supply that led to queues resurfacing at filling stations in some parts of the country.

The source said the country is yet to see the end of the situation as long as the price of crude oil continues to rise and the country’s refineries are not working.

The depots which are being used as throughput by NNPC are empty because it is only NNPC that imports fuel even though NNPC claims it has products that can last for 27 days

This situation, he said, has put pressure on NNPC as it has to go to spot markets to source for fuel at a premium. This would certainly lead to rise in subsidy claims for fuel.

Already, the Minister of State for Petroleum Resources, Ibe Kachikwu, has said landing cost of PMS is N35 higher than the pump price of N145 per litre.

The rise in global crude oil prices after the 2016 hike in petrol price, the minister said, brought back subsidy.

Recalling the experience of 2016, when the government increased petrol price from N86.5 to N145 after months of severe scarcity, he described fuel subsidy as an emotive issue.

According to him, even when there was a consensus on how stakeholders were going to do it, there were still issues at the end of the moment; NUPENG and PENGASSAN supported but the other members of the trade unions pulled out.

Nigerians, he said, saw through what the government was trying to do and allowed it to happen.  “When you look at the gap today, the landing cost is about N180 per litre and sale price is N145,” Kachikwu said

He stated that dealing with subsidy requires a very efficient management of information – getting everybody who is stakeholders to tie into it.

The minister noted that the government had not paid marketers all the outstanding subsidy arrears, adding, “there is need to find a way of fixing refineries quickly, whether it is government-funded or whatever – my preference is always private sector funding.”

 The labour union has never really said they would not be supportive of an attempt to take away this subsidy element; the union has always argued, ‘if you are doing it, show me what you (will) do with those new receipts of income. Two, what do you do with the refineries? Therefore, we need to address those to even get their buy-in”.

“There is need to separate those who need subsidy from those who don’t; you will find that 80 percent or more of those who get subsidy today do not need it. There is nothing necessarily bad with some elements of subsidy if it is well-managed and is very little, and if the private sector can take it away completely; that is fantastic. That is the most ideal situation,” the minister said.

The NNPC, which has been the sole importer of petrol into the country for about two years after private oil marketers withdrew from the importation of the product, bears the burden of subsidising the product.


Olusola Bello