• Friday, March 29, 2024
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BusinessDay

To stop fuel subsidy racketeering, deal with corruption first

Fuel subsidy

Federal government recently confirmed the return of fuel subsidy, as the Petroleum Products Pricing Regulatory Agency, PPPRA, fixed the pump price of Premium Motor Spirit, PMS, also known as petrol, at N212.61 per litre, for the month of March. The new price, according to the PPPRA’s PMS guiding price, released to stakeholders, is supposed to commence from March 1st and run till March 31st, 2021. However, this could not be implemented as government suspended the action to avoid possible political and trade union unrest.

But the fact that the price of the commodity is still been sold at an average of N170 in petrol stations across the country, meant that the Federal Government, through the Nigerian National Petroleum Corporation, NNPC is spending an average of N42 to subsidise a litre of the commodity for Nigerians. The PPPRA confirmed that fuel subsidy actually returned in February 2021. According to the agency, the actual pump price of PMS for February was between N183.74 and N186.74 per litre, meaning that the Federal Government paid an average of N16 per litre for PMS in that month.

It remains to be proved otherwise that fuel subsidy doesn’t work very well at achieving its intended objectives. There are strong arguments in favour of re-directing the subsidy towards public expenditure that would more effectively lift millions of Nigerians out of poverty. But that is challenging.

It is regrettable that government has been shirking its responsibilities in sanitizing the corruption, wastes and inefficiencies in the determination of daily consumption volume and importation of petrol into the country. And given the flip-flopping position of the federal government on the petrol pricing and attendant negative hit on citizens, government should first fix corruption and general inefficiencies in the distribution chain.

The downturn in oil prices over the past two years has hit Nigeria’s public budget hard. When money is tight, it seems obvious that governments should first phase out programmes that are expensive and have low benefit to their intended beneficiaries. Subsidizing gasoline fits the bill perfectly and several persons have advised President Muhammadu Buhari to remove the subsidies. Several Nigerians have fed fat on the subsidy to the detriment of the populace and the wobbling economy. Each year, billions of tax payers’ money is spent fueling corruption and systemic inefficiency. These are funds that ordinarily would have been used to revive and resuscitate ailing infrastructures and create jobs for over 40 million unemployed Nigerian youths.

Like many other countries, Nigeria began controlling the price of gasoline and other fossil fuels decades ago, largely to provide stable and secure prices to families and small businesses. Also in common with other countries, these price controls became more expensive as demand—some of it driven by cheap, subsidised prices— grew exponentially, and as world oil prices increased, notably in the past decade. What started out as a relatively small programme ballooned, with Nigeria’s gasoline import subsidy alone costing over US$ 13 billion (2.19 trillion naira) in 2011. Presently, the figure is above N4 trillion according to the NNPC.

And that is not all. More worrisome is the fact that the subsidy is also highly inefficient. For instance, about 85 per cent of Nigerians living on less than US$2 per day gain little directly, given that they do not consume much gasoline. And spending on health, education and development are sacrificed to pay for the costly fuel subsidy. Perhaps counter-intuitively, subsidies also lead to scarcity, with long queues at service stations earlier this month providing yet more evidence of how inefficient these policies are at helping people.

Therefore to find lasting solution fuel subsidy we must deal with corruption first. This argument—led by a broad grouping, including trade unions—was that there was no need for people to pay for holes in the national budget when this could be made up by reducing corruption, including for example when significant parts of Nigeria’s crude oil production disappears before it gets near the public purse.

Official and unofficial analyses of the gasoline import bill reveals billions of United states dollars of subsidies for imports which never existed, from ships which never landed their cargo to over-reporting and leakages through the whole supply chain. Justifiably, gasoline consumers do not see why they should pay more if such robbery persists. But trying to choose one problem to fix first—corruption or subsidies—will almost certainly be harder than tackling them both individually and immediately.

I will like to make reference a Study on ‘Improving Efficiency in the Downstream Petroleum Sector: Key Institutional Processes Review’ undertaken by the Nigeria Extractive Industry Transparency Initiative (NEITI) which exposed the corruption in the system. It is hard to believe that several years after the Nigeria National Petroleum Corporation (NNPC) assumed the role of sole importer of premium motor spirit (PMS), the country has been short-changed through lack of transparency and accountability in product value chain.

The Study identified three key processes where loopholes for corruption and wastes exist as the daily PMS demand estimation process; product importation; and the bridging & national transport allowance claims administration process under the purview of the Petroleum Equalization Fund (Management) Board.
Basing the daily consumption of PMS on truck-out quantities from depots as identified in the Study and the lack of sufficient local refining capacity that places the NNPC as the only player and regulator in the importation business are loopholes for corruption that have been exploited for several years.

Therefore attention must be drawn to weak regulatory enforcement by the Petroleum Product Pricing Regulatory Agency (PPPRA) which instead of being an independent body to manage the receipt and distribution of petroleum products to ensure availability in the country as well as determination of appropriate pricing, has shirked its responsibilities under the weight of powerful forces including the NNPC and the executive arm of government.

Consequently, Nigerians have now been made to bear the heavy brunt of hardship in the pricing, distribution and availability of PMS as it is currently being witnessed in the embarrassing flip-flop in the move to raise the price of petrol by the authorities

It is a national disgrace that there is no reliable consumption data used as standard basis for determining daily consumption of petrol in the country thereby giving room to arbitrariness and loopholes for corruption. The current petrol importation process under the Direct Sale, Direct Purchase (DSDP) arrangement by the NNPC confers upon it the powers to decide the quantity of products to be imported as well as being sole importer since 2017. These are the reasons why fuel subsidy, as a lucrative business would continue to thrive