The Minister of State for Petroleum, Timipreye Sylva, said Nigeria was not benefiting from the high price of crude at the international market. However, an analysis of the minister’s statement only goes to show that the federal government is caught between the devil and the deep blue sea; BENJAMIN UMUTEME reports.
When the federal government announced that it was ending subsidy payment on Premium Motor Spirit (PMS), popularly known as petrol, Nigerians had resigned themselves to what life would be in the post-subsidy era. Some had even started calculating how they would adjust to the new pricing, especially with the anticipated rise in the cost of transportation.
FG’s reversed gear
At the public presentation of the 2022 budget in Abuja, the Minister of Finance, Budget and National Planning, Zainab Ahmed, told journalists and civil society organisations present that the payment of subsidy on petrol would end by June 2022.
She said by virtue of the Petroleum Industry Act, the government was putting an end to subsidies as it had begun the implementation of the PIA.
“Let me start by stating the fact that we did make a provision in the 2022 budget for fuel subsidy from January to June. And that suggests that from July there would be no fuel subsidy.
“This provision was made sequel to the passage of the Petroleum Industry Act that has made a provision that all products will be deregulated.
“It became clear that the timing is problematic, that practically there is still heightened inflation, and also removal of subsidy will further worsen the situation, thereby, imposing more difficulties on the citizens, and Mr. President clearly does not want to do that,” she said.
Mrs. Ahmed disclosed further that efforts were underway by the executive arm of the government to forward a request to the National Assembly to make additional provision for fuel subsidy from July this year till a time deemed appropriate for its eventual removal.
Who usually benefits from subsidy?
The question that readily comes to mind is who really is benefiting from the subsidy? Ordinarily, subsidy is supposed to benefit the poor in society, but in Nigeria that is not the case as the rich continue to enjoy the benefits more than those that it is meant for.
The managing director, SD&D Management Limited, Gabriel Idakolo, told this reporter that the subsidy was actually not impacting the poor because of the high level of corruption involved, the funds expected to be utilised for capital projects are diverted for payment of subsidies.
“Nigeria and Nigerians would have been a major beneficiary of the increased price of crude if we have been producing according to OPEC quota and refining locally because the gains on the exported crude is lost to payment for refined oil.
“If the system is efficient in the first place there will not have been corruption in subsidy payment because at a glance Nigeria would be able to ascertain the accurate average daily consumption of petroleum products and eliminate the waste that is prevalent in the system. So, deliberate inefficiency in the system is the major challenge,” he said.
Speaking further, the expert wondered why the government refused to let go of subsidy payment. Idakolo noted that the federal government’s action simply states the obvious: gathering funds for the 2023 elections.
“The non-removal of the subsidy from the budget in a pre-election year leaves room for suspicion because the ruling party definitely needs a war chest of funds to win the upcoming elections and subsidy funds can help to achieve the aim of the ruling party.”
On his part, a political economist and development researcher, Adefolarin Olamilekan, said even if Nigeria doubles its oil production, Nigerians may not benefit from it because of the opaque nature of the oil and gas sector.
He said, “Arguably, we can even double our OPEC production quota. The bottom line is, are we refining for domestic consumption?
“Are we maximising the potential in exploration of over one million barrels per day through domestic technology? What is happening to the other by-products of crude – diesels, kerosene, ethanol etc? How transparent and accountable is the NNPC in crude sales proceeds?
“What are the percentage arrangements between NNPC and its Joint Venture Partners (JVP)? If we cannot get positive answers to the above questions, the current oil gluts would end up as another cesspool of corruption.”
Consequences
It is obvious that with falling revenue and rising debt-servicing payment, to continue to pay subsidies comes with its consequences. And it did not take long before the Nigeria National Petroleum Company Limited (NNPCL) presented a N3 trillion request to the federal government for the funding of 2022 fund fuel.
For the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria, Chief Ukadike Chinedu, the cost of subsidy on petrol might double this year due to the rise in crude oil prices.
Chinedu said the gains which Nigeria would have made from the rising crude oil prices were being eroded by the increasing amount being spent on petrol subsidy.
“Of course, fuel subsidies could rise by 100 per cent when the current price of crude is benchmarked against the projection in the 2022 budget. This is because oil prices have been climbing higher almost on a daily basis since Russia invaded Ukraine and caused some level of instability in the global oil business,” he said.
Also, the executive secretary, Major Oil Marketers Association of Nigeria, Clement Isong, acknowledged that the current situation did not favour Nigeria.
He said, “It (the projected N4 trn) might be even higher. It is a function of how our exchange rate goes. It is a function of how the price of oil goes. We don’t anticipate that what is happening between Russia and Ukraine will last for too long.
“If things are not on our side, if you do the current calculation as at today, based on all the numbers today, if things do not improve, it can easily reach N6tn.
“So, it can easily reach N6 trillion. It is a function of the exchange rate and the international cost of refining products, among others. So the truth is that we simply need to wean the country of the subsidy. This again is because in all the countries around us in West Africa, there is no subsidy.”
Increased borrowing
The director-general, Debt Management Office (DMO), Patience Oniha, in her view warned that Nigeria might resort to more borrowing due to non-removal of petrol subsidy.
She said at the Presentation of the Public Debt Data to the media that the payment of subsidy meant that trillions of Naira are being added to the budget.
“Nigeria should be excited about increasing crude prices. When the government wants to remove subsidies, everybody will go on strike, and think that over N1 trillion will be added to the budget,” she said.
In the same vein, an economist and a senior lecturer of Economics at the Pan Atlantic University, Dr. Olalekan Aworinde, said the federal government might have to borrow more to cover the increasing cost of fuel subsidy.
Aworinde said the cost of fuel subsidy might exceed N4tn in 2022, which would further have economic implications on the country.
“I think it would likely be above N4tn because of the increase in the crude oil prices due to the invasion of Ukraine by Russia and the possibility that the supply of crude oil will be lower than its demand. It is going to have some economic implications,” he said.
The way forward
Adefolarin said to escape the fuel subsidy traps and enjoy the benefit as an oil and gas producing nation, “there is a need to integrate our local technology in the exploration and refining of crude.”
“Secondly, the PIA is a document of necessity that we must work with from the angle of political, economic, social and equity. Meaning the law has provided a durable part for oil and gas to impact the generality of Nigeria positively.
“The Nigerian state has endured and pampered corruption without addressing it. It’s time authorities tackle corruption through more harsh punishment. If we don’t fight, Nigerians will continue to see subsidies as means to collect from the poor, thereby deepening poverty in Nigeria.”
