Nigeria’s federal government is smiling broadly with one side of the mouth but grimacing grievously with the other. The reason is obvious. The price of crude oil in the international market leisurely crossed the $60-mark last week.
That is a cool $20 above the 2021 budget oil reference price of $40 per barrel. If the current trend in the oil market is sustained, the economy might climb out of recession in the second quarter of 2021.
The government is however grimacing with the other side of the mouth because the bad news in the surge in crude oil price is that the landing cost of petrol is above official pump price. Currently, when the N23 logistics and retailers margin cost is added, the open market pump price of petrol would be in the range of N185 per liter.
Right now, with the Nigerian National Petroleum Corporation (NNPC) still the sole importer of petrol, the federal government is inauspiciously subsidizing petrol consumption at a minimum of N23 per liter in what NNPC dubiously tags “under-recovery”.
Based on NNPC’s devious claim that petrol consumption in Nigeria stands at 50 million liters per day, the federal government might be insidiously subsidizing petrol consumption with well over N1 billion per day. At the end of 2021, the government might have doled out something perilously close to N600 billion on petrol subsidy.
Petrol subsidy is a thorn in the flesh of the federal government. Zainab Ahmed, Nigeria’s minister of finance, vowed three weeks ago that the government would never return to the days of petrol subsidy.
Ironically, as at the time the minister displayed her impotent rage over petrol subsidy, government subsidy on petrol had crossed the N10 per liter mark without anyone in government budgeting for it.
Nigerians stubbornly resist any move to withdraw petrol subsidy for obvious reasons. The first reason is that the government is responsible for the outrageously high cost of imported petrol. As the sixth largest exporter of crude oil in the Organisation of Petroleum Exporting Countries (OPEC), Nigeria has no reason to import petrol.
Unfortunately, Nigeria imports practically all the refined petroleum products it consumes because endemic corruption has crippled government’s four refineries. Right now, the government burns its candle from both ends.
It spends trillions of naira annually on refined petroleum products importation and billions of naira maintaining comatose refineries that only benefit the managers who swindle the government annually with phantom turnaround maintenance (TAM) bills.
The second reason is that the federal government is responsible for the persistent depreciation of the naira which has contributed immensely to the high cost of imported refined petroleum products. Again, unbridled corruption is behind the persistent depreciation of the naira even when oil price is surging.
The Kenyan shilling trades at 110 to the dollar. That is the currency of an economy ranking a distant 61 in the global economic list of 190 nations where Nigeria is a respectable number-27. The naira has no business trading at a humiliating N470 to the dollar.
Perhaps the most grievous reason for the resistance to petrol subsidy withdrawal is the fact that Nigeria’s income distribution system is catastrophically skewed in favour of an infinitesimal political minority, while the inconsequential majority wallow in penury.
The truth is that Nigeria has one of the lowest pump price of petrol in the world. In a list of 160 countries graded by GlobalPetrolPrice.com, Nigeria’s petrol price is number 10 in a list presented in ascending order. Venezuela has the lowest pump price at the equivalent of N72 per liter, while Hong Kong has the highest with N874 per liter.
Ghana, an economy ranked number-71 in global economic list, maintains a petrol pump price of N354 per liter without any of its citizens grumbling over high petrol prices.
Ghanaians do not complain about high petrol price because they see what their government does with the tax on petrol. Power supply is constant.
Nigeria’s eternal darkness has driven away hundreds of investors. Some fled to Ghana where they are sure of uninterrupted power supply. Ghana’s income distribution system is egalitarian. It taxes the strong and uses the proceeds to strengthen the weak. Nigeria steals from the weak to strengthen the strong. Looting and hoarding of COVID-19 palliatives by greedy politicians is a sad reminder of this.
That explains why Ghana with its lean income has a commendable poverty rate of 13.3 per cent, while 50 per cent of Nigerians are poor. Nigeria’s income distribution system is ruthlessly anti-poor. It drives six people below the poverty line every minute.
Resistance to petrol subsidy withdrawal is fueled by the perception that cheap petrol is the only share of the poor from the grossly abused national cake.
Besides, any hike in petrol price is a hike in the cost of generating power from an estimated 64 million private micro-power generators.
The federal government is in a dilemma over petrol subsidy. With a $3.5 billion loan from the International Monetary Fund (IMF) hanging on its neck, Nigeria can no longer subsidise petrol consumption.
The IMF dictated that as a condition for the loan. Ironically, the government has to choose between the devil and the deep blue sea on the issue of petrol subsidy.
The IMF is the devil. Nigerian people are the deep blue sea. The two are equally dangerous. IMF can squeeze the federal government for spending frivolously by funding cheap petrol.
On the other hand, Nigerians might respond to petrol price hike by kicking up street riots that could dwarf the arson and looting of last October.
Government is very conscious of the precarious thin line it is navigating. That probably explains the finance minister’s impotent rage over petrol subsidy.
With food inflation almost at 20 per cent during the peak of harvest in December 2020, any careless move on the price of petrol could see inflation spiraling out of control. That would simply price food items out of the reach of many and push millions more below the poverty line.
The World Bank has predicted that 15 to 20 million more Nigerians would be pushed below the poverty line by 2022. A sharp increase in petrol price could easily double that figure.
Consequently, the federal government might just dare the IMF by bowing to pressures from its impoverished, angry people and grudgingly subsidize petrol. The IMF option is politically inexpedient.
