New subsidy formula: From frying pan to fire

Premium motor spirit (PMS), widely known as petrol, is the only refined petroleum product in Nigeria that the federal government still regulates its price.

Deregulation has priced kerosene and domestic cooking gas (LPG) out of the reach of thousands of households in the lower end of the middle income bracket and inadvertently heralds the return to firewood as cooking fuel.

Because of its multiple role in the economy, the pump price of petrol has remained regulated. That makes it a thorn in the flesh of the rulers of Nigeria.

The rise in oil price in the international market, which is something Nigeria should celebrate, is partially responsible for the crushing weight of petrol subsidy. The landing cost of imported petrol is dictated by movements in the price of crude oil. Now that it has risen to a five-year high, crude oil exporting countries that are self-sufficient in refined petroleum products are smiling their ways to the banks.

Nigeria is a crude oil exporter with a difference. It exports the highest quantity of crude oil in Africa, but ironically imports all its refined petroleum products. Each time the price of crude oil heads north, Nigeria’s rulers slip into hysterical ambivalence.

Refined petroleum products are more expensive than crude oil. Consequently, Nigeria imports refined petroleum products at twice the cost of the crude oil it exports.

The plummeting value of the naira is another factor behind the crushing burden of petrol subsidy. The cost of petrol subsidy rises phenomenally as the naira depreciates precipitously.

Nigerian National Petroleum Corporation (NNPC) is the greatest enemy of petrol subsidy in Nigeria. The daily consumption figures flaunted by NNPC determines how much Nigeria spends on petrol subsidy.

On February 2020, the defunct Department of Petroleum Resources (DPR), NNPC’s regulatory arm, announced that Nigeria consumes 38.2 million liters of petrol daily.

Many economy watchers contested the authenticity of the figure.

In fact, NNPC itself announced at the deregulation of petrol price in 2016 that consumption had dropped to 28 million liters per day as a result of the phenomenal increase in the pump price of petrol from N85 to N145 per liter.

The DPR figure was swallowed with mixed feelings as people waited for better days. The better days never came. NNPC countered the DPR figure with claims that Nigeria consumes 60 million liters of petrol daily. A few months later, the consumption figure was hiked to 102 million liters per day.

NNPC blamed smugglers for the phenomenal rise in petrol consumption figures. Ironically, NNPC’s figures stand simple economic logic on its head. Nigeria consumes more petrol than the other 12 countries in the Economic Community of West African States (ECOWAS) put together.

No one could explain how 42 million liters of petrol were smuggled daily into five tiny impoverished countries that cannot consume 2 million liters of petrol in a day.

The 36 state governors grumbled loudly because they knew that NNPC was swindling the federation account by deducting subsidy on 102 million liters per day when actual consumption was less than 38 million liters.  No one was bold enough to challenge the federal government to call NNPC to order.

The figures remain sacrosanct and the economy shudders under the trumped up cost of petrol subsidy. Now with the World Bank warning that Nigeria would spend N2.9 trillion on petrol subsidy in 2021 alone, it has become glaring that the burden of petrol subsidy was no longer bearable.

The federal government has decided to drop the burden for a rather bizarre option that looks more like jumping from frying pan to fire. The projection is that subsidy removal would push up inflation rate by a minimum of five per cent.

Government plans to protect Nigeria’s 40 million people eking a living below poverty line with a monthly cash subsidy of N5,000 per person. N5,000 per month multiplied by 40 million amounts to N2.2 trillion in a year.

What government would spend on the cash subsidy is larger than what it spent in 2020 on petrol subsidy which arguably benefitted all segments of society.

The irony of the new subsidy formula is that minimum wage earners who are on the border line of poverty would not benefit from the federal government largesse.  When inflation climbs by five per cent on the removal of petrol subsidy, it will simply price the minimum wage earners out of the food items market and consequently escalate the number of Nigerians starving due to inflation.   

The summary of the cash subsidy is that more money than was spent on petrol subsidy would be used to protect a small segment of the population from the simmering effect of inflation fueled by petrol subsidy withdrawal.

The surging inflation would devastate the economy and impoverish even the 40 million on the cash subsidy pay roll. It simply boils down to jumping from the frying pan to fire.

Besides, with corruption on the rampage, no one can guarantee an even spread of the N5,000 cash subsidy to everyone toiling below poverty line. Nigeria does not have a list of the poor. Under that circumstance, government officials would fill the cash subsidy pay roll with names of the dead. The dead would get their pay first before the living are grudgingly considered.

Petrol subsidy had an alluring way of benefiting the entire population as it kept down transport fares and the cost of evacuating food items from Nigeria’s inaccessible rural communities.

Now it would be replaced with a system that would cost more money, protect only a segment of society and expose the entire economy to spiraling inflation.

No one knows why government opts to spend more to protect a few and devastate the economy with inflation.

Cash subsidy is calamity waiting to happen. It should be discarded.

The federal government is responsible for the crushing burden of petrol subsidy. Government incomprehensible apathy allowed corruption to ruin Nigeria’s four refineries and make Africa’s largest economy a net importer of refined petroleum products. For the lame excuse of ensuring the nation’s security, government has clung tenaciously to ownership of the failed refineries which should be promptly privatised.

Government knows how to tame petrol subsidy figures to bearable limits and can do it if it musters the appropriate political will to confront NNPC.

Government can, and should compel NNPC to be transparent with daily petrol consumption figures on which petrol subsidy is calculated. If Nigeria is paying subsidy on 38.2 million liters of petrol which it consumes daily, there will be enough money to be shared by the three tiers of government.

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