Fuel subsidy withdrawal and Nigerian citizens

THURSDAY COLUMN BY SAFIYA ADAMU

Petroleum subsidy removal is synonymous with increase in cost of petrol. It has no other meaning or explanation and it is generally a fact anyway. The reality is that like all products it stabilizes at one point or other. Subsidies are one of the many ways in which governments world over help to stimulate or supplement economic activity in identified sectors. It is that sum of money granted by the government to help an industry or enterprise keep the price of a good or service within an affordable range of the generality of the people. Petrol subsidy was first introduced in 1973 to cushion the effect of global oil shocks. The government then started to price or sell petrol to Nigerians at a cost well below what obtained at the international market. Since then the cost of footing the bill has grown enormously, and given financial and economic crises globally continuing the luxury is no longer viable. 

Good argument may be. But who wants to know? Really who wants to know? 

The idea of subsidy does not create confidence in any one, not in the policy maker nor the target beneficiary. For the policy person it is a pain because it causes distortion in the economy, they argue. For the beneficiary depending on who he or she is and in what context it is an attempt by government to placate them over some perceived wrong or practice that must be concealed. And in the case of Nigeria it is even more complicated because we tend to view issues from discolored lenses a lot of people feel that fuel subsidy is just an attempt to hand over Nigeria to some faceless cabal. Pedestrian, hmm? Well yes, but remember that the average Nigerian does not trust the government. The big question is usually what will government do with the money except to steal it or divert it into private pockets or whatever. It certainly will not be put into collective well being of the people. So it is essentially about trust in government and the people that govern. It is about governance not delivered. It is about all of the inequities and suffering of the people. Petrol is very central to our livelihood and this fact must be appreciated. In Nigeria the people are providers of their energy, education, responsible for their health, providers of their own transportation and you name it. So the perception here is that “ petrol subsidy” or whatever it might mean is a sort of the only relief from government inadequacies or failures. It does not matter that it puts a deep hole in government pocket, or that it eats unfairly into the shares of other social sectors like education and health. For example in year 2020 it cost the government $3.9 billion dollars which was about twice the health budget. By last year, 2021 the cost of petrol subsidy has gone up to $4.5 billion taking with it what could have gone into health and education. Year after year the budgets for health and education fall short of UN recommendation while petrol subsidy pay outs increase and now constitute about 2% of Nigeria’s GDP. 

Subsidies are implemented to encourage production or consumption in specific industries in certain sectors. When implemented to suppliers it is aimed at enabling them to produce more of the goods or services and cushion the effect of the actual cost of the product to the consumer. However over the years in the case of petrol subsidy this has not happened instead what we witness is deepening distortions in the economy.  Will understanding the concept and why it is no longer viable help to build support for its removal? It is a catch twenty-two kind of situation really. 

Subsidy is government’s effort to get prices reduced for target persons, enterprise, or for the purpose of reducing cost for the generality of the populace by paying the difference in real price of the product and that fixed by the government. In the case of petrol as it is, the government pays the difference between the price of fuel in the pump and the actual cost of the product. This actually happens in various sectors of the economy where for one reason or the other the government deduces that there is need to make a particular product affordable to the people to ease the burden of economic crunch on the mass of people. So it is supposed to be a win-win situation, but is it?

There used to be two sources from which Nigerians get the fuel they consume, from the local refineries and imports. Back in when we could trust data from ‘certain’ sources Nigeria used to consume about 294,000 barrels a day. Then imported fuel accounted for about 200, 550 barrels while local refineries supplied 93,450 barrels a day essentially because the production capacity of our local refineries hovered around 21% of total installed capacity. Now the debate should no longer include the question of what the government is doing about our local refineries given that we have a huge refinery purported to be the largest in Africa coming up soon in Lagos. However experts tell us that at 66% of their full capacity our local refineries are capable of meeting or at least closing the requirement gap to the barest minimum. As at 2014 the actual cost of getting and dispensing imported fuel at the pump was N138.19kobo per liter broken down as follows; cost of getting fuel to Nigerian ports was N115.74k per liter, port charges added N6.25k. The port charges are actually avoidable but the inefficiency at that point brings about this additional cost, which took the price up to N121.99k per liter. The fuel is transferred from the ship to the deports around the port at the cost of N3.00k per liter taking the price further up to N124.99k. Then there is administrative charge of 15kobo per liter, bridging fund adds N3.95k, while dealers and transporters margin added N1.75k and N2.75k per liter respectively. At the pump the stations added a general margin of about N4.60k per liter bringing the final actual cost to N138.19k per liter. Official pump price then was N97.00 (this costs are for years 2013/2014/2015) that meant that government subsidized the difference of N41.19k per liter. Today the official cost of landing alone for petrol is N290.00 per liter, try adding all of the aforementioned charges and you would have come up with a good idea of how much is being subsidized from your common earnings. 

When will be the ideal time to withdraw petrol subsidy? Please do not say when Dangote Refinery comes on board, because we will still be carrying the burden of subsidy through tax credits and waivers extended to him. No matter what at one point in time petrol subsidy will have to go, it is a harsh reality we must face. The question or dialogue or debate should now focus on safety nets and cushions for the citizens.