Despite the nation’s unsustainable fuel subsidy regime, President Muhammadu Buhari has rejected the calls from experts and global financial institutions to remove it. The allegation that the subsidy regime is corrupt and tailored to benefit a few individuals at the detriment of the masses has heightened the debate on the desirability or otherwise of it. This can possibly explain the World Bank’s recent reopening of the subsidy debate. According to the multilateral lender, Nigeria faces imminent ‘fiscal time bomb’ if the government continues to subsidise petroleum products, especially petrol. It describes the subsidy regime as ‘opaque, costly, unsustainable, harmful, and unfair.’
Some weeks ago, oil marketers claimed that the amount spent on every litre of Premium Motor Spirit (PMS), commonly known as petrol, consumed in the country was above N600. Also, the latest figure from the Nigerian National Petroleum Corporation (NNPC) shows that the year-on-year daily consumption of petrol in the country is 66.8 million litres.
Therefore, going by the figure from the NNPC, which has been disputed by the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, it implies that the Federal Government spends about N1.24trillion on fuel subsidy every month. Oil marketers also claim that the cost of subsidising fuel is much higher than that of diesel. The Federal Government had initially budgeted N443billion on petrol subsidy between January and June this year, but later got the approval of the National Assembly to subsidise the product with N4trillion this year.
The government had, on January 24, suspended plans to remove fuel subsidy this year. It also proposed to extend the subsidy removal implementation period by 18 months and promised to engage the National Assembly for the amendment of the Petroleum Industry Act (PIA). In the first quarter of this year alone, the management of NNPC revealed that petrol subsidy gulped N947.53billion, with no remittance from the corporation so far to the Federation Accounts Allocation Committee (FAAC).
In spite of all of this, the International Monetary Fund (IMF) and the World Bank continue to push for the removal of fuel subsidy, warning that a fiscal time bomb could explode in the country if the government delays any further. President Muhammadu Buhari’s response to their calls to do away with subsidy payments looks reassuring. It is in line with the organised labour’s position that subsidy removal is untenable. Labour wants the government to deal with the fraudulent practices in the subsidy payment system. President Buhari had, in a recent interview with United States-based Bloomberg News, defended his government’s retention of subsidy against the advice of the global financial institutions and other experts. According to Buhari, while western countries are implementing one form of subsidy or the other, it is untenable for Nigeria to do away with fuel subsidy. We advise that President Buhari can do better than rejecting the suggestion to remove fuel subsidy by initiating far-reaching measures that will ensure accountability and transparency in the subsidy regime. Without mincing words, the subsidy payment system is fraudulent. It has become an avenue of enriching a few privileged Nigerians at the expense of the masses. Without doubt, the current subsidy regime is unsustainable, harmful and laced with utter corruption.
We agree with the World Bank that the increasing cost of subsidy on petrol will make it extremely hard for the NNPC to pay for the federation’s cost of production of its equity oil and gas in full. Such a possibility is real, and points dangerously to the urgency of phasing out petrol subsidy either now or in future. However, it must be pointed out that most Nigerians do not support the removal of fuel subsidy because they do not trust that the government will utilise any financial savings arising from it for the good of the masses. The smuggling of petroleum products to neighbouring countries at higher pump prices has worsened the case of consumers in the country.
In real terms, it imposes an unsustainable fiscal burden and makes wealthier Nigerians and oil marketers benefit more at the expense of poorer Nigerians. This could trigger unrest with unpleasant consequences. In all, the government should, as a matter of urgency, fix the moribund refineries and build new ones before contemplating any plan to remove fuel subsidy. Let government take a cue from some state -owned oil companies like Saudi Arabia’s Aramco, which has been efficiently and effectively run with huge returns on investment.
Investors can only invest in the nation’s oil and gas industry if the ease of doing business is improved and sharp practices reduced to the barest minimum. There is also need to improve the crude oil production by addressing the problem of oil theft.