One of the biggest fiscal burdens in Nigeria’s history has raised its ugly head once again despite pledges by President Muhammadu Buhari administration not to incur any more subsidy on petrol.
Less than three months ago, Nigerian National Petroleum Corporation (NNPC) group managing director, Mele Kyari had made a bold declaration of “It is zero subsidies forever” in a series of interviews and webinar, however, the state-owned oil company said it incurred N5.35 billion as under-recovery in June 2020.
NNPC had previously recorded zero-subsidy payments in April and May 2020, after it recorded under-recovery of N43.31 billion, N20.68 billion and N37.66 billion in January, February and March 2020 respectively.
NNPC spokesman Kennie Obateru said the costs represented temporary payments to marketers, who buy imported fuel and then sell it on, for stocks they held when the subsidy was removed and would be spread over six months.
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“Since the subsidy removal started with a reduction in pump price, marketers have to be paid the differential of the (government) verified stock they held,” he told Reuters.
The government through PPPRA has not published retail prices since March 31 because it requires constant political commitment when global oil prices rise.
Although international oil price currently settles around $45, Nigeria’s petrol price is still artificially low at N138.62 for the current month despite various studies showing fuel subsidy expenditure has been higher than budgets for far more important state functions, including education, health, defence and infrastructure since 2006.
At the dollar exchange rate of N385, petrol should be selling at N155 but it sells at N145, meaning an effective daily subsidy of N560m calculated by an assumed under-recovery of N10 for each of the 56m litres of petrol sold in Nigeria every day.
At the dollar rate of N470, the subsidy is higher at N1.624bn daily. This is derived from the assumed market price of N174 a litre and a N29 per litre subsidy if importers were to secure their FX on the parallel market.
Over time, most stakeholders have repeatedly called the fuel subsidy scheme a fraudulent exercise as the biggest benefits often go to people who own vehicles, which is a small share of the population.
Fuel companies cannot charge prices that cover their costs, which has repeatedly crippled supply.
In 2018, survey research found that 15 percent of people couldn’t buy fuel at all, and a further 18 percent paid black-market prices far above the official subsidised price. Subsidies also waste scarce resources. Since 2006, fuel subsidy expenditure has been higher than budgets for far more important state functions, including education, health, defence and infrastructure.
Also, history does not inspire confidence. President Muhammadu Buhari already attempted to reform fuel subsidies back in 2016. At the time, it was supposed to be a permanent removal, yet subsidies were back in under two years.
Since the 1970s, 11 out of 12 of Nigeria’s heads of state have attempted to reform fuel subsidies, with no long-term success.
