Fuel subsidy

By ImamMalik Abdullahi Kaga

The removal of fuel subsidies has been a hotly debated and controversial topic in Nigeria for many years, especially now that President Bola Ahmed Tinubu has made the pronouncement. For the longest time, fuel subsidies represented a significant portion of government expenditures, and many Nigerian leaders refused to remove them for fear of political backlash from their citizens. However, President Tinubu’s bold decision has been a critical step towards transforming the Nigerian economy and helping the poor.

The Nigerian government spent an average of  $6.2 billion annually on fuel subsidies, and despite this, the country’s economy did not improve significantly. The fuel subsidy was primarily a means of subsidising fuel prices for Nigerian consumers, and the government aimed to keep the domestic fuel prices low, which, in turn, would help fight inflation and improve the economy. However, the fuel subsidy did not achieve this goal; instead, it distorted the market, leading to corruption, smuggling, and inflation.

Furthermore, fuel subsidies are often perceived as socially unjust because it benefits wealthier individuals more than the poor.  Studies have shown that the richest 10% of Nigerians receive up to 60% of the subsidy, while the poorest 10% only receive 1%.

It is well-known that the country’s wealthy motorists and industries benefit most from the subsidy, not the poor. Hence, the benefit did not trickle down to the poor but only helped the rich acquire fuel more cheaply. However, since most of the poor Nigerians are not benefitting from the fuel subsidy, it’s a commendable effort that the president made.

The removal of the fuel subsidy will create jobs in the downstream sector, increasing the availability of fuel and reducing smuggling, which will contribute significantly to the Nigerian economy’s growth.

Moreover, the government’s removal of the fuel subsidy will allow it to redirect the average amount, $6.2 billion, towards investing in critical sectors such as education, healthcare, agriculture, security, and infrastructure, which will help reduce poverty levels and create employment opportunities for Nigerians. The government’s commitment to investing in these critical sectors will reduce the dependency on oil, the country’s primary source of revenue, and make the economy more resilient to oil price fluctuations.

Tinubu’s fuel subsidy removal will also reduce government corruption, a significant problem in Nigeria. With the fuel subsidy, many government officials’ fraudulently inflated the amount allocated to the subsidy scheme, which was further used to enrich themselves. Removing the subsidy will prevent the exploitation of government funds by corrupt individuals, which will be an essential step toward improving the Nigerian economy.

I urge Nigerians to be patient and prayerful as Tinubu Administration has a lot in store for us– poor Nigerians.

By Ahmad Deedat Zakari

Kwara State Government has reduced workdays to three days for the state public servants. 

The Chief Press Security, Office of the Head of Service, Murtala Atoyebi, revealed the development in a press statement on Monday. 

According to Mr Atoyebi, the action became necessary owing to the need to put measures in place to cushion the effect of the removal of fuel subsidy on workers in the state.

Part of the statement reads:

“The State Head of Service, Mrs Susan Modupe Oluwole announced today that the State Governor, Mallam Abdulrahman Abdulrazaq, has directed that the workdays be reduced from five days to three days per week for every worker.

“Mrs Oluwole directed all Heads of Ministries, Departments and Agencies (MDAs) in the State to immediately work out a format indicating the alternating work days for each worker under them.

The Head of Service however, warned the workers not to abuse the magnanimity of the Governor, stressing that the regular monitoring of MDAs by her office would be intensified to ensure strict compliance.”

By Abdulhaleem Ishaq Ringim

The enactment of the Petroleum Industry Act 2021 was intended to mark a significant shift in the regulation of the downstream petroleum sector. The act aimed to align petrol prices with market dynamics, phasing out the fuel subsidy regime. However, despite the planned full deregulation in February 2022, the government continued to allocate funds for subsidies, leading to financial strain and mounting debts.

Under the Petroleum Industry Act, the government ought to have terminated fuel subsidies and allow petrol prices to reflect the general market rates six months after its enactment. However, the government continued to provide for subsidy costs in its budget. Due to financial constraints, the government could not back the subsidy provisions in the 2022 and 2023 budgets with financing, resulting in unpaid subsidy costs. The Nigerian National Petroleum Company Limited (NNPCL), acting as the supplier of last resort, offset these costs. This resulted in the accumulation of debt of N2.8 trillion for the government in the process.

The new President, Bola Ahmed Tinubu, has pronounced the termination of the subsidy regime. This is in line with the law and is further necessitated by the inability to finance subsidy commitments since February 2022. The removal of subsidies means that petrol prices will now fluctuate based on market dynamics rather than being fixed. 

While the arguments continue on whether the announcement approach was systematic or not, it has to a certain extent, saved the country from the intense speculative buying activities that would have resulted from scheduling the announcement and other implications that would have marred such gradualism. I consider it a welcome development and commend the President for such uncommon courage, which has been missing in the governance space for long. 

However, the repercussions extend beyond price adjustments. The rise in price will naturally raise the costs of transportation, which will, in turn, further pressurise the country’s inflation rate. The government’s lack of resources to offset subsidy liabilities since February and the outstanding debt to NNPCL means there will hardly be any room for reinvestment, including allocating funds for palliatives or post-subsidy shock alleviation. Moreover, it is crucial to note that even when the government was able to offset the subsidy costs, it relied on borrowing rather than revenue to cover the costs, exacerbating the financial burden.

With the subsidy officially and finally gone, the government must prioritise strategies to repay NNPCL’s debt of N2.8 trillion and other subsidy-related debts while refocusing on the productive sectors of the economy and social welfare. This commitment demands immediate attention, as the accumulated debt poses a significant liability and might impede the effective utilisation of government revenues.

An encouraging prospect arises from the current situation as we grapple with outstanding subsidy debts. Once the government’s financial circumstances improve, its focus will permanently shift away from the subsidy regime and towards prioritising crucial areas such as education, health, infrastructure, and other significant sectors. This shift is anticipated and underscores the government’s intention to allocate resources towards enhancing public value and renewing national hope. 

Meanwhile, the government should advisably prioritise the enhancement of public transport systems and collaborate with state governments to improve mass transit systems and infrastructure, especially by incorporating more diesel-based buses into the stock of public transport vehicles in their various states. The situation should also serve as an incentive for state governments to renew focus on developing Bus and Light Rail Transit systems. 

To consolidate this hard decision, the government should consider the privatisation of state-owned refineries to enhance efficiency and promote private sector participation in the downstream sector. By opening up the refineries to private investment, the government can improve their operational performance, output and overall local refining capacity. As the Dangote refinery gets ready to begin operations, the government should also support other private oil-refining projects like the BUA refinery in Akwa Ibom.

Additionally, the Nigerian National Petroleum Company Limited (NNPCL) should explore the possibility of an initial public offering (IPO) to raise capital and expand its operations. Emphasising the development of the gas sector could also be beneficial, considering its potential for revenue generation and reducing dependency on imported fuels.

Abdulhaleem Ishaq Ringim is a political/policy/public affairs analyst. He writes from Zaria and can be reached via haleemabdul1999@gmail.com.

By Muhammad Aminu 

The Federal Government (FG)has proposed June 2023 after the general election to eliminate subsidising fuel in Nigeria.

Minister of Finance, Budget and National Planning, Zainab Shamsuna Ahmed, disclosed this at the hearing of the House of Representatives Ad Hoc Committee Investigating the Petroleum Products Subsidy paid between 2013 to 2022 on Thursday.

Ahmed, who disclosed that the FG is planning a new date to end payments on under-recovery between the landing cost and regulated pump price of PMS, stated that the subsidy regime was not sustainable and may force more borrowing in 2023.

She said that the government, in the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper planned for payment of the subsidy for only the first six months of 2023. 

Ahmed further disclosed that President Buhari transmitted the MTEF/FSP to the Senate and the House of Representatives as approved by the National Economic Council and the Federal Executive Council.

“One thing that stands out in the Medium Term Expenditure Framework was that if the nation holds on to fuel subsidy as it is designed now, we will be incurring from January to December a subsidy cost of N6.4tn. But we suggested to the Federal Executive Council, and the council approved that maybe, we could look at the option of exiting the subsidy (regime) for half a year. So, if we did that, then the cost would be N3.35tn, which is half of the N6.7tn.

 “The Federal Executive Council approved the second option. That is the option that was conveyed by His Excellency, the President, to the National Assembly. But Let me also say that even though this is a reduced option, it would mean that we are borrowing more than we would have borrowed if we did not have fuel subsidies.  In 2022 we are carrying the cost of subsidy throughout the whole year.

“Recall that the initial MTEF and approval by the parliament was for us to exit the subsidy by June of this year. But during the course of the year, making assessment of the difficult fiscal challenges in the economy and the hardship that our citizens are bearing due to high inflation and other challenges, we were asked to re-submit our plans and review them to include provision for fuel subsidy throughout the year 2022. That was how we came back to parliament with an incremental expense from N443bn which we had planned to up to N4tn subsidy expense in 2022,” the minister said.

She added that“This situation is not desirable and it is not sustainable. It is putting the country in a very serious, dire financial situation and we do hope that we will be able to exit this subsidy regime in the shortest possible time.

“The N3.35tn in the approved MTEF that is now before the National Assembly for consideration could have been funds that would apply to other vital sectors of the economy such as health, education and social protection. So, we are carrying a burden and we must sit back as citizens and really assess whether it is beneficial for us to continue to do so.”

The minister also presented a breakdown of withdrawals from the Consolidated Revenue Fund and the Excess Crude Account for payments to oil marketers under the subsidy regime.

She said, “Deduction of PMS under recovery shortfall by NNPC for the period 2013 to 2022: We are reporting that there is a total sum of N4.436 trillion which was deducted as PMS under-recovery by NNPC for the period January 2013 to December 2021.

“In this report, we are reporting the sum of N1.774 trillion has been paid to independent oil marketers as subsidies from 2013 to 2016.

“I will like to call the attention of the committee to note that the total sum of N6.210tn – that is the N4.4tn plus the N1.774tn – was expended on PMS under-recovery by NNPC as well as payment of subsidy to independent oil marketers from 2013 to 2021.

“I want to report on the funding of subsidy payments to independent oil marketers for 2013 to 2016. Payments that have been made to them were directly from the domestic Excess Crude Account through the reduction of Sovereign Debts Instruments that we call the SDIs.

“The SDIs are negotiable short-term instruments that were issued by the government at that time to give marketers comfort and enable them access financial support from their bankers for the importation of PMS. The instrument was approved by the then President in 2010.”

 She added, “It is also important to note that there were instances where funds were transferred from the Consolidated Revenue Fund to the domestic Excess Crude Account for subsidy payments.

 “For 2015, there are two instances: N31bn from the FGN’s excess domestic account, transferred from the CRF. Again in 2015, N156.1bn transferred from the CRF in another instance to the domestic Excess Crude Account.”

The minister, however, told the committee to request the statement of account of the NNPC from the company directly.

The committee resolved to request documentary evidence of the beneficiaries of the N500bn after some members expressed their reservations about the payments, especially without knowing the actual volume of PMS consumed daily.

By Lawan Bukar Maigana 

The Nigerian government was lucky enough to salvage itself from the intractable calamity it wanted to put itself in—the implications of removing subsidies on petroleum products from July this year. Whoever advised FG to suspend their noxious plans to remove subsidies on the products mentioned above is a true lover of the vast majority of Nigerians and Nigeria as a country.

Even though virtually every country in the world today battles an economic downturn, it is still unjustifiable for the FG to remove subsidies on petroleum products at this critical point. The country is fighting ethnoreligious conflict, refuse-to-end Boko Haram, kidnapping, banditry, mass employment, non-quality education, poor health services for the masses, illiteracy, and unpatriotic leaders, which other countries or most don’t. 

I said it even before the government took a second look at its ugly plan to make subsidies on petroleum products history at the detriment of patients citizens. Had the plan come true, the country would have scattered, and perhaps the avoided fear would have been unavoidable because no one can bear the impact of removing subsidies on petroleum products, not even the haves can. 

Nigeria would have had an unprecedentedly historic hike in foodstuff prices, transportation fare, building materials, medication, among others. And there would be a collapse of many companies in the country because they too cannot bear it, and the cost of living would be unbelievably unexplainable. 

The inflation rate has never been so alarming as today in the country, and it keeps rising every day. Yet, the FG wanted to turn a blind eye to it and remove subsidies on petroleum products from July this year until a group of genuine professionals reviewed the plan and finally rejected it because of the nation’s current state. 

Kudos to the considerate committee for being truthful to themselves. Every reasonable person knows that doing anything that will result in a hike in prices of commodities and services in Nigeria is untimely because most people are still ‘youth.’ Anyone who is economically unestablished is a youth regardless of their age. 

In 2021, the National Bureau of Statistics (NBS) extrapolated that “ Nigeria’s annual inflation rate rose to 15.63% in December of 2021, after eight straight months of decline, amid a slight acceleration in prices of major component food (17.4% vs 17.2% in November), linked to the increase in demand during the festive season. Upward pressure also came from non-food products, including transport (15%, the same as in November); clothing & footwear (15.1% vs 14.8%); miscellaneous goods & services (14.1% vs 14%); housing & utilities (11.1% vs 10.6%), among others. 

The annual core inflation rate, which excludes the prices of agricultural produce, rose further to 13.87% in December, the highest since April of 2017, from 13.85% in the prior month. Monthly, consumer prices inched up by 1.82%, the most since May of 2017, after a 1.08% increase in the prior month.

The Consumer Price Index (CPI) measures the change over time in the prices of 740 goods and services consumed by people for day-to-day living. The index weights are based on expenditures of both urban and rural households in the 36 states. The most important categories in the CPI are Food and Non-Alcoholic Beverages (51.8 per cent of total weight); Housing, Water, Electricity, Gas and Other Fuel (16.7 per cent) and Clothing and Footwear (7.7 per cent). 

Transports account for 6.5 per cent of the total index and Furnishings and Household Equipment Maintenance for 5 per cent. Education represents 3.9 per cent of total weight. Health is 3 per cent, Miscellaneous Goods and Services 1.7 per cent, and Restaurants and Hotels 1.2 per cent. Alcoholic Beverages, Tobacco and Kola account for 1.1 per cent of the total index, Communications for 0.7 per cent and Recreation and Culture for the remaining 0.7 per cent.” 

So, tell me how we can endure the impact of removing subsidies on petroleum products in Nigeria? I am happy that the Nigerian government has indefinitely suspended the planned removal of subsidies on petroleum products. 

Lawan Bukar Maigana writes from Maiduguri, Borno State, and can be reached at lawanbukarmaigana@gmail.com

I support the removal of fuel subsidy with conditions attached for the government. I have known that fuel subsidy is giving corruption a legal garb. But IMF didn’t tell government the whole truth. For government that cares for its people, removing fuel subsidy should only be done after the following conditions are taken care of:

1- Repair the refineries. As long as the refineries are working, petrol will come at reasonable price to Nigerians. The transport, NPA, custom duty and throughput components of the price will be taken care of.

2- Stop importation of petrol- fuel subsidy is not the only way government wastes money. Fuel importation in the most corrupt and wasteful venture of the government. As at June 2021, Nigeria spent N1.09trn on fuel importation. It is the cause of the deteriorating value of the Naira and Nigeria’s biggest import, the cause of our balance of trade and current account deficits. In fact fuel importation is the major cause of Nigeria’s economic crisis. As long as Nigerians will buy fuel without subsidy, they will be subsidizing government corruption and inefficiency.

3- Address the macro-economic crisis facing the country especially exchange rate and food inflation. Life is unbearable for Nigerians and removing fuel subsidy that will increase price of petrol will add more hardship to Nigerians. Fuel price increase has negative multiplier effects on cost of rents, transportation, school fees and prices of goods and services. When Nigerians are down with excruciating economic problems why add more hardships on them by jerking up the price of fuel?

4- Provide effective transport system like rails, good roads and bus services. In Nigeria, only Lagos has public transport system, even at that Lagos does not have rail system. Abuja has no public bus system and the light rail only covers a small fraction of the town. You can live in Abuja for months without seeing the train because it covers few stops. Other Nigerian cities don’t have public transport system.

5- Improve salaries of workers. Even without fuel price increase inflation has made Nigerian workers paupers. Without commensurate increase in salaries people will be working for nothing.

6- Solve the deliberating security situation affecting the roads and villages. People have no livelihood because they can’t farm. People cannot connect with towns and do business because of insecurity. Bandits have overrun most states in the Northeast and Northwest and people can’t till their lands or rear livestock.

7- Reduce cost of bureaucracy. The minister of finance said government did not budget anything for fuel subsidy for year 2022. But ask her, how much does the government budget for maintaining political appointees and you will know that the government thinks of itself not the poor Nigerians. According to former CBN governor and former emir of Kano State, Malam Sanusi Lamido Sanusi, at least 70% government revenue is spent on officials.The money to be spent on the president, vice president, ministers and CEOs of parastatals and members of house of assembly is far more than the fuel subsidy they are talking about. That covers fat salaries, allowances, estacodes, new expensive cars and even planes. But they will not touch their welfare. It is the same at state levels.

If the government can address these it can go ahead and remove fuel subsidy, otherwise it will be punitive to make life unbearable for Nigerians. Even the rich are crying in today’s Nigeria.

Aliyu Nuhu: is a social analyst, he lives in Abuja.