The Immorality of petroleum subsidy

Nigeria may well expend a whooping five trillion Naira or as Bloomberg says, Ten billion dollars on petrol subsidy this year alone.

And there would not have been enough provision in the 2022 federal budget to cover such a staggering amount which raises questions about the legitimacy of the spending.

In June this year, the cost of subsidy at near N750bn was more than the N690bn which was the total available in FAAC to share by all tiers of government.

Another reality is Nigerians pay far more than the control price for petrol in most of the country already, except perhaps in Lagos and the capital Abuja.

Expending $10bn on a single item in one year for any nation is mind boggling and for Nigeria, it is both unthinkable and immoral.

The trailers and big buses which carry the poor and the food that we all eat, run on diesel whose price is deregulated.

The subsidy goes to helping mainly the elite who can cope without the subsidy. Truth is the fuel subsidy debate in Nigeria has been fraught with elite manipulations and intrigues.

Government officials argue that prices, especially transport fares will jump and that this will further worsen the country’s problem with inflation.

The reality, however, is that transportation fares in Africa’s largest economy are surging even as the country spends billions of dollars subsidizing gasoline with the intent to curb prices and temper public discontent over the high cost of living, says Bloomberg.

In a report last week, Bloomberg said, “the average cost of an intra-city bus journey in Nigeria increased 46% to N582 naira ($1.39) a trip in May 2022 compared with a year earlier and flight tickets soared 53% over the same period to N55,907, according to data released on the National Bureau of Statistics’s website.

”According to Bloomberg, “prices have jumped despite the government spending N1.49 trillion subsidizing gasoline in the first four months of this year to keep pump prices at N162 a liter, which is among the lowest in the world.” This is why many say corruption is what is keeping the subsidy in place.

This government must know now that Nigeria is in many ways like a patient in the ICU. Nigeria has over 100m of its people classified as poor by the World Bank and not long ago, the country won the unflattering label of poverty capital of the world on account of its surging number of acute poor.

Nigeria is in a worsening debt crisis that sees it expend virtually all its revenues on debt servicing annually. Yet Nigeria is also the country with the highest out of school children in the world, accounting for one in five out of school children globally.

Nigeria’s fiscal challenge is so much its bond is on the verge of being categorized as junk and the cost of borrowing from the global bond market has risen so much that even the government has to recently shoot down plans for a Eurobond issuance.

In Nigeria, there is ample provision in the rule book for computing and implementing petrol price adjustment but this government and to some extent those before it, chose to ignore the rules.

The impact has been catastrophic. In the 12 years before 2020, Nigeria built no major infrastructure, not one impressive hospital to save lives but in the period, the country spent over N10trn on petrol subsidy and by March of this year, petrol subsidy was already consuming about N10bn daily, often without the requisite appropriation as demanded by law.

The nation is now used to the frightening reality of the state oil company NNPC no longer contributing to the treasury. And this does not tell of the whole story. No one in Nigeria is sure the level of debt being carried in its books by NNPC on account of what it owes supplies of petrol and others owed crude for refined products supplied.

In Nigeria subsidy payments manifest in huge revenue drain as well as in massive economic banditry that the skewed pricing mechanism encourage by way of smuggling across the borders or the likelihood that the country does not get all the petrol it pays for.

Some experts who have examined this phenomenon speak of the mind-boggling numbers in relation to the head count of trucks that the smugglers would need to deploy daily for their nefarious trade. The rated capacity of most petrol trucks is 33,000 litres each.

So, to smuggle one million litres daily, they would need 30 trucks and if smuggling accounts for some 30% of the 72m litres distributed daily by NNPC, you can imagine how many trucks they deploy. It is the reason why there are not good records of the true level of petrol of consumption is.

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President Muhammadu Buhari who came to power claiming there was nothing like subsidy, has presided over the biggest jump in the nation’s subsidy expenditure. Not long after he came to power in 2016, he approved the increase in petrol price to N145 a litre.

Since then, the president has done nothing to arrest the collapse of Nigeria’s fiscal buffers on account of the relentless surge in subsidy expenditure and now he is bidding time, hoping to pass on this monumental mess to his successor. But critics of his administration argue that to know what is right and not to do it as the government has done, is immoral.

And to expend money without proper appropriation is immoral, corrupt and perhaps criminal as well. While it is true that removing petrol subsidy will produce a major shock to the system, but this will be one off. And the subsidy does not have to remove in one move.

Whether the government likes it or not, the petrol subsidy will be removed one day and some in the government acknowledge this. Our prayer is that we will soon have a government with the honesty and political will required to make the right move.

Nigeria, government has often increased the cost of petrol before ever addressing its impacts on vulnerable groups but this consultation should happen prior to implementing a price adjustment.