Fuel Subsidy Removal — President Bola Tinubu has picked a battle that many Nigerian leaders, military and civilian, in the past 30 years fought and lost in one way or another. At his inauguration on 29 May, Mr Tinubu, 71, announced the total removal of “fuel subsidy,” saying the scheme has “increasingly favoured the rich more than the poor.” He added that the subsidy could no longer justify its ever-increasing costs in the wake of drying resources.
“We shall instead re-channel the funds into better investment in public infrastructure, education, health care and jobs that will materially improve the lives of millions,” Mr Tinubu said.
Barely two days after the announcement, the state oil company, NNPC Limited, reviewed the pump price of petrol from N189 per litre to between N480 and N570 per litre – a more than 200 per cent increase.
“The adjustment in petrol prices with market rates will promote competition and efficiency in the oil market and drop prices naturally,” said Mele Kyari, the group chief executive officer of NNPCL. He said prices would “continue to fluctuate to reflect market dynamics.”
Officially, there is a provision in the budget to subsidise fuel until the end of June. But Mr Kyari said the government does not have the resources to effect that payment.
“The reality is that from today the government can no longer afford to pay for fuel subsidies as a nation,” Mr Kyari said, noting that NNPC was owed N2.8 trillion in outstanding subsidy payments by the government.
The Subsidy Scheme
Fuel subsidy has been in place in Nigeria since the 1970s. It began with the government routinely selling petrol to Nigerians at below cost to minimise the impact of rising global oil prices on Nigerians.
Following the promulgation of the Price Control Act in 1977, fuel subsidies became institutionalised which made it illegal for some products (including petrol) to be sold above the regulated price. This law was introduced by the Olusegun Obasanjo military regime in order to cushion the effects of the global “Great Inflation” era of the 1970s, caused by a worldwide increase in energy prices.
However, the cost of subsidising petrol has ballooned over time and riots have broken out merely over rumours of any increase in the past.
In the eight years of the Buhari administration (2015 -2023), subsidy payments gulped about N11.4 trillion.
A breakdown of data from the civic-tech group, Budgit, shows that N316 billion was paid for subsidy in 2015. The figure dropped to N99 billion and N141.6 billion in 2016 and 2017 respectively.
By 2018, a staggering N722 billion was paid for petrol subsidy. Then in 2019, the government spent N578 billion and N134 billion in 2020.
These amounts are more than what the government spent on education, health and infrastructure during the period under review.
Controversies on fuel subsidy removal
In the build-up to the 2023 general elections, fuel subsidy removal became one of the major issues in the campaigns. The three major presidential candidates promised to remove the subsidy.
In its global outlook for Africa and Nigeria, the World Bank advised against retaining fuel subsidy in Nigeria, saying it is a source of wastage and leakage. Most Nigerian economists also agreed that the subsidy regime was unsustainable.
The subject also gained a legal imprimatur with the passing of the Petroleum Industry Act (PIA), whose express purpose was to introduce a legal and governance framework to guide activities in the oil and gas sector.
By the tenets of the PIA, the subsidy regime was meant to go by February 2022, Mr Kyari said in a recent interview.
Similarly, fuel subsidy has long been the subject of abuse and corruption. It also encouraged smuggling into neighbouring Cameroon and Benin, where fuel can be sold for twice the price, and even more, as international oil prices rise.
Within days of subsidy removal and the adjustment of petrol prices in Nigeria, data from Global Petrol Prices, which tracks the retail prices of refined petroleum products, reveals sharp increases in petrol prices in Nigeria’s neighbouring countries.
In many parts of Nigeria, petrol is diverted to the black market before it is even delivered cheaply to the pump. Because Nigeria’s refineries are barely functional, the country is forced to sell its unprocessed stock on the global market and import the refined fuel it needs for domestic consumption.
Why subsidy is popular among Nigerians
While there seems to be an elite consensus on the inevitability of subsidy removal, the subsidy payments are popular with many ordinary Nigerians, who regard them as a rare benefit of the country’s oil wealth that otherwise bypasses them completely.
In 2012 when former president Goodluck Jonathan attempted to remove fuel subsidy, the move was greeted by weeks of strikes, mass rallies, industrial and labour shutdowns, street protests and several deaths and numerous injuries as mobs confronted law enforcement agencies in major cities across the country.
The protests brought the country to a standstill, forcing the government to lower the price and reintroduce the subsidy.
“Fuel Subsidy is gone”
President Tinubu’s removal of fuel subsidy has inevitably raised the cost of living across the board and inflicted strain on the wider population. This newspaper reported how transport fares and prices of essential goods and services shot up significantly across the country last week as Nigerians grappled with the ripple effects of fuel subsidy removal.
Also, the fares for rides in buses, which are run by private owners and serve as the major means of public transport, rose across the country this week following the rise in petrol costs. The prices of ride-hailing services such as Uber and Bolt have jumped too.
“Subsidy removal must happen but it requires tact,” says Oluseun Onigbinde, the founder of BudgIt. “You have to figure out how to handle food inflation, provide alternative means of transport and ramp up social investment under a well-structured social investment programme.”
The Nigeria Labour Congress agreed after a meeting with the government on Monday night to suspend a planned indefinite strike to protest the removal of the subsidy, a signed resolution of the agreement showed. A meeting between government representatives and NLC and TUC leaders agreed on Monday that the NLC would “suspend the notice to strike forthwith to enable further consultations.”
The parties would continue discussions on the union’s demands, including the upgrade of state-owned refineries so they can produce petrol locally to keep prices low.
As inflation is already high and will increase further, more Nigerians will be pushed into poverty unless compensating measures to cushion them at least partially from the price shock are put in place.
TUC, in a statement on Monday, issued a raft of demands to the government, including an increase in the monthly minimum wage. Dele Alake, a government representative at the meeting, said most of the demands are not “impracticable.”
What is the government sacrificing
It is almost certain the Nigerian government is not going back on the fuel subsidy removal policy. The government is asking Nigerians to be patient and endure the current hardship, promising that resources saved from the policy will be channelled to developmental programmes. However, the government has kept mum on what its officials would sacrifice.
Many Nigerians want the government to curb excesses like the outrageous allowances of federal lawmakers, selling off several planes in the presidential fleet, reducing the number of cars in the convoy of government officials, and pruning wasteful government expenditures and inflated budgets that are not grounded in reality.
“You can’t remove subsidy without offering to reduce the waste in government,” Budgit’s Mr Onigbinde said. “You can’t be living large while the citizens bear the higher cost of living. You are the leader. You show example and earn trust.”
Owing largely to its inability to reduce the size of government bureaucracy, the recurrent expenditure of the federal government currently stands at over N8 trillion, according to details of the 2023 budget. This is an over 400 per cent increase between 2015 and 2023.
In the budget, the National Assembly got an allocation of N168 billion. Available data shows that the cost of running the government will take a large chunk of the N10.4 trillion revenue of the federal government for the year 2023.
Akinwumi Adesina, president of the African Development Bank (AFDB), in his speech at the inauguration lecture, implored Mr Tinubu to look critically at the cost of governance, which he said “is way too high and should be drastically reduced to free up more resources for development. Nigeria is spending very little on development.”
It remains to be seen how the President Tinubu Administration will make good on its promise to finally end the PMS fuel subsidy permanently, manage the challenges in the transition and redeploy the resources to more important and impactful investments in critical infrastructure, health, education, and security.
But, Mr Alake assures that the Tinubu administration will “cut down the huge cost of governance.”
Oronsaye Report
One of the options available to the federal government is the report of a committee on the restructuring and rationalisation of federal government parastatals, commissions and agencies. The committee, chaired by a former head of service of the federation, Steven Oronsaye, was inaugurated on 18 August 2011 by former President Jonathan. The committee submitted its report in April 2012.
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The committee recommended the abolition, reduction, merger, and revision of some MDAs. It further recommends that the 263 statutory agencies in existence then be reduced to 161; 38 need to be abolished; just as 52 would be merged; while 14 would revert to being departments in ministries.
A white paper committee, headed by the then Attorney-General of the Federation and Minister of Justice, Mohammed Adoke, reviewed the report and rejected most of the recommendations of the committee when it submitted its report in 2014. However, even the ones accepted were not implemented until the Jonathan administration left office in 2015.
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[…] Also Read: ANALYSIS: Fuel Subsidy Removal — Nigeria must cut cost of governance […]