Petroleum products subsidy removal by the incoming president- The what, why, how and when

So much has been said about the petroleum products subsidy and whether, the same should be removed and if the same is to be removed, what the conditions should be. The foregoing has been the subject of continuous debate stemming from widely varied views in Nigeria. Where there is, however, consensus on the question of petroleum products subsidy, in Nigeria, is the fact that the subsidy regime is fraught with corruption. There is also unanimity, that payment of subsidy claims, is not sustainable in the mid to long term. This is particularly the case, as the subsidy sums appear to substantially increase, as international crude oil prices and the costs of logistics arrangements go north.

The above being the case, the question, therefore, is not whether subsidy should be removed, but when, how and under what circumstances same should be removed. Therein comes the fairness element. If subsidy on petroleum products is to be removed, it must be done fairly, and fairness will only occur under certain pre-determined circumstances.

Subsidy should be removed, but removal must be done, at a time when it can be fairly done. It will be fair if Nigeria does have nearly a hundred percent (100%) availability of excellent public electricity supply. Furthermore, the country should also remove the subsidy, when it does have sufficient refining capacity, to at least meet its local needs, in addition to this, the country has several good alternatives to road transport. In essence, these three (3) factors of public electricity supply, refining capacity and alternative means of transportation must be available to remove the subsidy in a fair manner.

the three factors of public electricity supply, refining capacity and alternative means of transportation must be available to remove the subsidy in a fair manner.

With a hundred percent (100%) excellent public power supply, we substantially cut daily reliance on petroleum products, especially premium motor spirit (colloquially referred to as petrol or fuel used for powering small generators). The informal sector (consisting of barbers, tailors, hairdressers, and artisans, amongst others) will thrive better, even with subsidy removal. There will be electricity to run businesses and activities. The current state of play is that many businesses mostly in the informal sector spend over forty percent (40%) of their cost on the self-generation of electricity. This does not factor in the cost of buying and maintaining the generators. It is germane, at this point, to mention that the lone petroleum product upon which subsidy is paid, is premium motor spirit, as subsidy on other petroleum products has since been removed.

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Furthermore, where local refineries which can process/refine premium motor spirits in Nigeria are established and efficiently managed, we are likely to cut off up to seven (7) cost heads for the importation of petroleum products (despite NNPC’s Direct Sale Direct Purchase arrangements). Some of these costs include freight, insurance, ship-to-ship transfer, and logistics (internal and external), amongst others.

We can also push for Domestic Crude Supply Obligations catered to, under the relatively new Petroleum Industry Act, such that we could over time, have sufficient local supply and availability of petroleum products and save some foreign-denominated costs.
Additionally, where we have alternative transportation modes, then we save on fuel usage.

Despite higher prices due to subsidy removal, we spend less on premium motor spirit as there are better and possibly cheaper alternatives to road transportation. If we can safely, confidently and efficiently use water, air, rail and road as modes of transportation, majorly powered by clean/ renewable energy sources for transport, then over-reliance on road transportation, largely dependent on premium motor spirit will drop substantially. Also, using non-road modes of transportation should also significantly reduce vehicular traffic and logjams, especially in major cities of Nigeria.

The writer is of the considered view, that subsidy should be removed in phases. The way subsidy removal should work is to have a phased removal, taking the three highlighted indices into consideration. What should be done, is that, as these factors improve, the subsidy can be removed in phases. A weight of relevance could be placed on each of the three (3) factors of public power supply, alternative transportation means and sufficient refining capacity, such that as each improves, a portion of the subsidy is removed until we have a nearly perfect situation around all when subsidy will be completely removed. I am not sure there is a better way to implement this removal, without causing serious chaos and some unrest in the country, especially with the labour unions.

No one doubts that subsidy is fraught with corruption and that the payment of same is not sustainable, as the amount keeps increasing uncontrollably. Furthermore, it has been argued that such amounts, running into billions of United States dollars, could be used by the federal government for a more developmental and infrastructural project with substantial impacts on the Nigerian economy (including improving our balance of trade and balance of payment, respectively).

It is, therefore, pertinent that the subsidy be removed. However, substantial thoughts need to be given to the ‘how’ and ‘when’ subsidy will be removed. In determining the ‘when’, and ‘how’, some factors which should be taken into consideration include whether (and the extent to which) we can refine crude oil in sufficient quantities locally such that we eliminate at least seven (7) cost heads connected to importing petroleum (also called, white) products, whether (and the extent to which) people have other transportation options which are not necessarily heavily fossil-fuel reliant road transportation and whether (and the extent to which) we have available public power such that people do not need to buy premium motor spirits to run their homes and businesses.

I believe that each Nigerian Presidential candidate, should begin to think in the above direction, if we must make progress in the security of energy supply, reduction of waste and corruption and general increase to the Nigerian purse, whilst adding value to our natural resources, through refining and processing same. I do trust that the BATified/Agabdo Clan (and we can do a lot with Agbado, actually), the Atikulate/Mikano Group and the ObiDients, are following and are properly guiding their candidates, in this regard! I will like to hear other arguments, in this respect.

Dr Ayodele Oni is a transactional lawyer, who specializes in international energy (oil, gas, power & renewables) investment law and policy.

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