20-day BAT Presidency: Petroleum Subsidy Withdrawal and Matters Arising
By
Prof M. K. Othman
Today, 17th June 2023 is exactly 20 days since Senator Bola Ahmed Tinubu took instrument of power from President Muhammadu Buhari as the 16th Head of State and 8th democratically elected president of the Federal Republic of Nigeria. Globally, the performance of leaders is assessed after their first 100 days, then one year in office, and so on but BAT set the ground rolling with a gigantic stride that shook the socioeconomic bonemarrow of the nation immediately. From the day he took over, 29th May 2023, several things started happening in quick succession that makes waiting for 100 days to write the BAT scorecard a herculean task with the possibility of making mistakes. Nevertheless, his earth-shattering policy of petroleum subsidy removal needs a thorough discussion in this Column.
Before digesting BAT’s inaugural speech, Petroleum Subsidy Withdrawal was the first policy that hit us like thunder. I was on a return trip from Katsina on 31st May 2023, I passed the NNPC Filling station and observed scanty cars taking fuel, I made a U-turn to join the cars. As I was entering the Filling station, a fuel attendant waved at me to come to her stand. I was perplexed when I saw the price tag, N540 per liter at NNPC Filling Station. I couldn’t trust my eyes but confirmed the price from a street vendor, which made me speechless. I cogitated on the issue. Was it, not a daylight robbery? How could the price be this much?
For many years, Petroleum Subsidy has been a juicy source of lucrative funds for financing massive corruption and promoting petroleum smuggling across borders. The subsidy has been the major clog that completely blocked the rehabilitation and operation of the nation’s refineries. A nation with the highest crude oil production capacity in Africa but woefully failed to refine the oil for its local consumption due to corruption, sharp practice fueled by nepotism, and inefficient and dysfunctional infrastructure. This is akin to a yam producer who sells his yam at peanut and buys pounded yam at an astronomical price. Still, the price increased from N185 to N540 per liter in a single day because subsidy withdrawal has no justification and produced many questions.
Let us recall, in March 2021, the Petroleum Products Pricing Regulatory Agency stated that after a review of the pricing template of all costs of landing prices in Nigeria that the cost per liter should be N212.61 as against the pump price of N185 per liter. This means there was a subsidy of N27.61 per liter.
On Friday, 4th March 2022, Brent, the oil benchmark for Nigeria’s oil closed the week at $118.1 per barrel, which was the highest level in the last nine years. Then, Nigerian National Petroleum Corporation (NNPC) claimed Nigeria’s daily petrol consumption was at 60 million liters and was paying a subsidy of N168 per liter by selling at a pump price of N165. Nigeria’s daily subsidy amounted to over N10 billion. Thus, the cost of petrol without subsidy was N333 per liter in 2022. In September of the same year, at the House Committee sitting, NNPCL was represented by Umar Ajiya, Chief Financial Officer of the company, he claimed that Government was paying N209 as a subsidy against the pump price of N185 per liter, with an average of 66.76 million liters consumption per day, the government required N3.4 trillion to subsidize the petroleum in 2022. That means the price without subsidy, the fuel price would have been N394 per liter. However, Nigerian Customs Services (NCS) disputed the NNPCL figure of consuming 66.7 liters per day. Between 2011 and 2015, the consumption was between 27 and 40 million liters per day.
On March 24, 2020, the Department of Petroleum Resources (DPR) disclosed that Nigerians were consuming about 38.2 million liters of petrol daily. In March 2023, NNPCL reported daily consumption of 79.8 million liters daily, with a subsidy of N202 for every liter of imported fuel into the country translating to about N400 billion subsidy every month. If the subsidy in March was N202 per liter but in June, Nigerians were forced to pay between N488 and N550 per liter instead of N387 (202+185) per liter, where is the cost of N101 coming from, and who is benefiting from it?
Again, we were made to understand that NNPCL was swapping the crude oil for the imported refined oil with little or no foreign currency exchange. So, the exchange of the USA Dollar with the Naira value has no significant influence on the process. Are the NNPPCL fuel importation figures not bogus and fraudulent as they kept on rising over the years? The need to investigate the activities of NNPCL on the importation of fuel, smuggling, and subsidy over the years cannot be overemphasised. Can EFCC address Falana’s petition to commence an investigation of fraudulent fuel importation by NNPCL? This may unearth those benefiting from the subsidy scam and petroleum smuggling across the nation’s borders. Luckily, NNPCL boasted of being ready for a forensic audit of its petrol supply and subsidy management framework. Was the removal of petroleum subsidy desirable?
Removal or sustaining of petroleum subsidy is a difficult choice to make, analogous to a choice between the devil and deep blue sea, head or tail, there must be casualties. The subsidy removal has a direct correlation with the costs of almost every good and service in Nigeria thereby reducing their affordability and accessibility. At every attempt at subsidy removal, the labor unions were always ready for a showdown with the government. This was what forced the previous governments to sustain the subsidy. The sustenance of the subsidy became unbearable over the years. From 2013 to 2022, Federal Government spent a whooping sum of N11.5 trillion on petroleum subsidies, which was the highest government expenditure followed by defense, education, and health sectors with N7, N6.2, and N4.2 trillion, respectively. The Nigerian porous borders with neighboring countries have created an enterprise for smugglers who purchase large volumes of petrol at a subsidized rate in Nigeria and sell at market prices in neighboring countries. Thus, making the smugglers and nationals of other countries benefit more from fuel subsidies than Nigerians. Additionally, there is economic distortion among the class of subsidy beneficiaries, households in the bottom 40% of the income distribution account for less than 3% of all fuel purchases. This category of Nigerians has already been denied their most cherished subsidy, kerosene, which is mostly used by the poor and is no longer subsidized. Hence, poor households are already paying market prices for their fuel and most of them have resorted to using firewood thereby causing deforestation and environmental degradation. Consequently, the petroleum subsidy does not effectively benefit the poorest of the poor who need it most.
However, subsidy removal was the only choice left for the BAT presidency as the Buhari government did not release the subsidy in 2023. The Group Chief Executive Officer of the NNPCL, Mele Kyari, was reported saying the government of President Muhammadu Buhari did not make provisions for petroleum subsidy in the 2023 budget. “There was a subsidy in 2022 but in 2023, not a single naira was provided to finance the subsidy”. This means that NNPCL is owing the petroleum dealers the 2023 subsidy or how was the subsidy paid? By charging above N500 per liter, are Nigerians being made to pay the subsidy from January 2023? This is the crux of the matter.
President Bola Ahmed Tinubu did the needful by removing the subsidy but Nigerians are being short-changed in paying higher prices for the petroleum than appropriate. BAT should investigate this matter for the benefit of Nigerians. There is an urgent need for rehabilitation of the four local refineries to compete with the new refinery constructed by Dangote. Nigerians do not need the importation of petroleum products and when they begin to refine our crude oil, the prices of the products will surely come down. BAT should take this as a top priority, and bring an end to petroleum products importation. may God see him through it, amen.