Fuel subsidy: Petrol cabals are back at work

By Matthew Ma

In fact, the middle and upper classes consume more fuel than those at the lower end of the economic spectrum. And when you consider that many of the poorest people in rural areas do not even use petrol to move around, it becomes clear that the impact of these subsidies is not as significant as some might think. Interestingly, Nigeria is the only country to offer a universal price subsidy for PMS.
“It is quite regrettable that a fuel station that sold at N590 a few days ago now sells at N610. One cannot help but wonder if President Bola Tinubu is the one controlling pump prices. Unfortunately, no one seems to have an answer to this question, as petrol cabals are back at work smiling to the bank and feeding fat on fuel subsidy remover. It is even sadder that some marketers and corrupt elements, who are angered that their ill-gotten wealth has been blocked with the removal of subsidies, have continued to unleash suffering on Nigerians.”
President Bola Tinubu’s recent decision to scrap fuel subsidies in Nigeria has sparked controversy. After decades of running a fuel subsidy regime that has done more harm than good, President Tinubu declared it dead on May 29 to save the economy from further ruin. In his inaugural address, he announced the removal of the highly controversial but popular fuel subsidy, which led to high prices and long lines across the nation. Within hours of the president’s speech, hundreds of people flocked to the streets, either in their cars or on foot with yellow jerrycans, to get what they believed to be the last fuel sold at a government-fixed price. Unfortunately, only a few were lucky. To make matters worse, many filling stations stopped selling entirely, while others unilaterally increased prices by more than 200%, causing chaos and artificial scarcity. Although the scrapping of the subsidy was intended to come into effect at the end of June, as outlined in the outgoing administration’s budget, it was too late to prevent the panic. While fuel subsidies do keep the price of fuel affordable for citizens, they have caused nothing but headaches for the government.
Under Olusegun Obasanjo’s presidency in 2003, he tried to eliminate fuel subsidies partially. Unfortunately, this led to an increase in fuel prices at the pump, and as a result, there were widespread protests and strikes. After much deliberation, the government eventually reduced the costs and partially restored subsidies, but it wasn’t the end of the story. Fast forward to January 2012, President Goodluck Jonathan’s administration declared his intention to remove all fuel subsidies. This declaration caused panic among citizens, who were worried about the skyrocketing cost of living. The announcement sparked nationwide rallies, strikes, and even riots! After several days of negotiations and protests, the administration partially overturned the decision but still enforced a partial subsidy decrease. The 2012 demonstrations had a profound impact on the government’s policies regarding fuel subsidies. They began to reduce spending on fuel subsidies and restructure the subsidy system. As a result, the government has had to adjust fuel prices periodically due to changes in the currency rate and global oil prices. Despite all these changes, fuel subsidy removal in Nigeria remains a contentious issue. It is crucial to remember the impact these policies have on the daily lives of Nigerian citizens.
The question now is what is fuel subsidy? It is a government intervention aimed at making fuel more affordable by providing financial support to oil companies and subsidizing its cost for consumers. Nigeria, being one of Africa’s biggest crude oil producers, relies heavily on this resource for its economic growth. But did you know that the history of fuel subsidies dates back to October 2000? It was due to supply inadequacies at the country’s four refineries. According to Ibrahim Mustapha of the Independent Newspaper, the government set up a committee to review all aspects of petroleum product pricing and distribution. The committee recommended the establishment of the Petroleum Products Pricing Regulatory Agency (PPPRA), which uses a price modulation mechanism. This mechanism allows for the prices of petroleum products to be adjusted to reflect changes in global oil prices. So, when international oil prices are high, the government may increase the regulated price of petroleum products in Nigeria to prevent shortages and ensure that independent petroleum marketers can operate profitably. On the other hand, when global oil prices are low, the government may decrease the regulated cost of petroleum products to reflect market conditions and pass on the benefits to the consumer.
Did you know that the Nigerian National Petroleum Corporation (now NNPC Ltd.) is responsible for approving petrol importers to bring petroleum products? These products are sold to independent petroleum marketers at government-regulated prices, usually lower than the landing cost. The independent marketers then sell the products to consumers at a price that includes operating costs and a government-regulated margin. While fuel subsidies have helped make petroleum more accessible to citizens, they also affect the economy. One of these is the increase in corruption and mismanagement due to weak oversight mechanisms. Some companies and individuals take advantage of the system to make illegal profits. Besides, the government spends a significant amount on petroleum subsidies, leading to a rise in public debt. Occasionally, the cost of fuel subsidies has exceeded the revenue earned from the sale of crude oil, Nigeria’s main export. Also, due to price differences between Nigeria and neighboring countries and inefficiencies in the distribution and supply chain, petroleum products were often smuggled out of the country, leading to frequent shortages and long queues at petrol stations. Can you imagine how much the government spends monthly to subsidize the product? It runs into billions of Naira, which is unbearable amidst dwindling revenue generation due to massive oil theft.
Nigeria is a big player in the crude oil industry, but unfortunately, it seems to be having challenges refining its product. Four refineries are under the Nigerian National Petroleum Corporation’s control, with a combined refining capacity of 470,000 barrels daily. Two of these refineries, located in Port Harcourt, can refine 210,000 barrels daily. They are operated by the Port Harcourt Refining Company (PHRC) Limited. The older of the two is capable of refining 60,000 barrels per day and was established in 1965, while the new plant, with a capacity of 150,000 barrels per day, was commissioned in 1989. The other two refineries are located in Warri and Kaduna, with refining capacities of 125,000 and 110,000 barrels per day, respectively. Sadly, these refineries have been plagued with inefficiency due to prolonged neglect and frequent breakdowns. Despite several turnaround maintenance efforts, the refining capacity of the refineries has not improved. Unfortunately, the pricing of petroleum products in Nigeria is shrouded in controversy due to a lack of transparency in the expected open market price of petroleum products. Unfortunately, the opaque nature of the operations of the petroleum industry, especially the Nigerian National Petroleum Corporation, makes it difficult to ascertain the truth of the claims made by the PPPRA.

Rev. Ma, S.J, is a Jesuit Catholic priest and PhD candidate in public and social policy at St. Louis University in the state of Missouri, USA.