Fuel Price Hike: How Nigeria Wasted N10trn On Subsidy
THE controversy that preceded the recent announcement by the Minister of State for Petroleum Resources, Dr. Emmanuel Ibe Kachikwu, who doubles as the Group Managing Director of the Nigerian National Petroleum Corporation, NNPC, of government’s decision to scrap the Petroleum Support Fund, otherwise known as fuel subsidy, raises questions as to the economic value the people derive from the acclaimed payment.
Although this came on the heels of prolonged scarcity of the product which sold between N120 and N250 per litre, depending on your location, most people were opposed to the hike in the price of the commodity.
Review of subsidy regime
In mid-2015, the Nigerian Extractive Transparency Initiative, NEITI, released its audit report indicating that the Federal Government spent about N4.5 trillion between 2006 and 2012, a period of seven years, as subsidy on petroleum products imported into the country.
According to the then Executive Secretary of NEITI, Zainab Ahmed, the Audit Report of 2012 showed that a total of N1.355 trillion was processed for payment as subsidy.
Out of this amount, N690 billion was actually paid, putting a debt burden of N665 billion on the government.
“From our reports, the amount of money that Nigeria has paid so far on subsidy in the last seven years stands at N4.5 trillion. The breakdown shows that N816.554 billion was paid between 2006 and 2008, N3 trillion between 2009 and 2011 and N690 billion in 2012,” he disclosed.
The auditing agency, however, lamented the gross misappropriation of funds, adding that such amount is more than enough to repair the country’s refineries or build new ones, while insisting on the removal of oil subsidy.
In a similar development, Dr. Kachikwu while speaking on how much the country had spent in subsidising fuel in recent time, said an average of N1 trillion per year is paid as fuel subsidy in the last five years despite mounting debts and infrastructure deficit.
By implication, within a period of nine years, which is between 2006 and 2015, the country spent close to N10 trillion on fuel subsidies. Unfortunately, Nigerians cannot boastfully say they have truly benefited from subsidised petroleum products. As noted by the Minister of State, the country spent the huge amount on fuel subsidy in the face of mounting local and foreign debt as well as infrastructural deficit. But as highlighted by Zainab, the amount spent on subsidy in seven years, is good enough to repair the country’s faulty refineries and build new ones.
She emphasized that it was time for the Federal Government to remove oil subsidy, adding that the financial commitment to subsidy has grossly impacted on the national purse.
History of subsidy removal
Successive governments in Nigeria have always insisted that the country could ill afford the huge subsidy paid on petroleum products, while alleging that the money usually go into private pockets at the end of the day. Therefore, government’s position is that it would be better if the subsidy is done away with to foreclose a few cabal from feeding fat at the expense of majority of Nigerians.
Fuel price increase, otherwise tagged removal of subsidy, in the country dates back to 1978 when government first increased the price to 15 kobo per litre from 10 kobo per litre. In 1990 the government further increase the price to 60 kobo per litre, and two years later, precisely 1992, an additional 10 kobo raised the price to 70 kobo per litre. In 1993 it was jerked up to N3.25, and further to N11.00 per litre in 1994.
The commodity enjoyed some stability until mid-1999 when based on the claim of subsidy removal, the government moved the price to N20 per litre and by 2000 increased it further to N22.00 per litre.
Barely a year after, in 2001, the commodity’s price went up to N26 per litre where it enjoyed some level of stability until 2003 before it went up to N40, with the usual claim that the subsidy had been removed. Before President Olusegun Obasanjo left office, he jerked up the price of petrol to, first, N65 per litre and later to over N100 per litre.
It is on record that when the late President Umaru Musa Yar’Adua assumed office, the Nigeria Labour Congress, NLC, resisted the increase and forced him to revert to the N65 per litre.
In January 2012, the government of former President Goodluck Jonathan attempted to remove the acclaimed subsidy but this was stoutly resisted and the commodity which was billed to sell for N97 per litre was later pegged at N87 per litre.
Nigerians have now been asked to buy the product at a peak price of N145 per litre. Government said its decision in this regard is informed by the fact that despite the decline in the price of crude oil in the international market, marketers are finding it increasingly difficult importing refined petroleum products due to scarcity of foreign exchange.
Setting the stage for removal
Prior to the announcement of the new pump price of N145 per litre, the Federal Government had convened a meeting of various stakeholders in Aso Rock. The meeting was said to have been presided over by Yemi Osibanjo, the Vice President, and had in attendance the leadership of the Senate, House of Representatives, Governors Forum, and Labour unions, including the NLC, the Trade Union Congress, TUC; the National Union of Petroleum and Natural Gas Workers, NUPENG and the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN.
However, the duo of the NLC and TUC have refuted the claim that they participated in the meeting.
Nevertheless, it was reported that the said meeting, among other things, reviewed the current fuel scarcity and supply difficulties in the country and the exorbitant prices being paid by Nigerians for the product which has continued to enjoy discrepancies in prices across both major and independent marketers and hawkers of these products, popularly called black marketers.
At the meeting, Dr. Kachikwu noted that the main reason the problem had persisted in the past was the inability of importers of petroleum products to source foreign exchange at the official rate due to the massive decline of foreign exchange earnings of the Federal Government. As a result, private marketers have been unable to meet their approximate 50 percent portion of total national supply of petrol.
The meeting, according to the Minister, concluded that in order to increase and stabilise the supply of the product, any Nigerian is now free to import the product, subject to existing quality specifications and other guidelines issued by regulatory agencies.
Consequently, this means that all oil marketers now have the privilege to import fuel on the basis of forex procured from secondary sources but subject to the template of pricing approved by Petroleum Products Pricing Agency, PPPRA.
Analysts have argued that since the Minister’s statement, heavens have not fallen in Nigeria long known for its antipathy towards any form of fuel subsidy removal. Such advocates believe that the refusal of Nigerians to react in the usual way is an indication that the citizens are now tired, having gravitated from one crisis to another.
More importantly, the masses have endured untold hardship over the lingering fuel scarcity and prevailing power crisis in the country. All these may have weakened the citizenry, making them not predisposed to giving the government any spirited fight over the fuel price increase. But with over N1 trillion expected to be saved from the removal of subsidy, government is being urged to make sure that the refineries work.