Breaking News
Translate

How FG fuel subsidy reforms affect Nigeria’s economy

By Udeme Akpan

THE nation’s fuel subsidy was mainly targeted at supporting poor individuals, households and other stakeholders to meet their fuel needs, thus enabling them to contribute towards the development of Nigeria’s economy.

But this was not to be. The latest study by Spaces for Change, a non-governmental organisation in Lagos and Imo states, obtained by Vanguard, showed that the reforms have over the years culminated in many distortions.

Source: Vanguard’s Energy Database

The report stated: ”Impact of subsidy reforms differs significantly on consumers living in urban or rural areas, and between men and women in those areas. Impact of reforms also varies according to fuel type: kerosene, PMS, LPG, fuel wood, etc. Both location and fuel type inform the coping strategies to reform and ability to switch. Fossil fuel subsidies were not working well for women.

”Subsidies are not directly targeted at low-income households, with women making up the majority of those on low incomes. Women paid and continue to pay much higher prices than the official sales price, especially for HHK. Low-income women, not benefitting from subsidies as they depend heavily on informal vendors and therefore, not procuring their fuels at the subsidised rates.

It added: ”Rapid fossil fuel subsidy reform without mitigation measures can have a negative impact on women. High prices associated with reforms place high demands on household income, especially women’s income. Women cope with price increases by reducing fuel use, paying more, switching to old fuels with implications for health, safety and time. Women predominantly pay for the cheaper, less clean fuels. Reforms not effectively addressing the price differential between official pump price and retail prices of energy products, widening gaps in access to energy.”

It stated: ”Women bear the brunt of supply disruptions, including shortages, losing enormous time at queues. A large percentage of low-income and poor women are still not aware (of subsidies). In order to benefit women and girls, fuel subsidies should be better targeted to support low-income households, and especially women.”

The organisation called on the government to define a strategy to move away from cooking on kerosene towards LPG, and other cleaner cooking fuels, adding that: ”it is also important to reallocate or reinvest subsidy savings on the education of women and girls.

”Better targeting of subsidies to poor women through investment in maternal care, education (for women and girls) or loans for women-led businesses, are very key to achieving improvements in women’s income and facilitate shifts from traditional biomass to cleaner energy.

”Investments in energy-saving appliances or renewable energy lighting that enable women spend less time on drudgery and have more time for productive economic activities which will enhance the disposable income for advancing their families’ priorities. Strengthen distribution systems especially in rural areas to improve access to subsidised fuels.

”Subsidy reform needs to specifically address concerns about making fuel available and accessible in quantities preferred by low-income earners. This is one single factor heightening preference for informal vendors where fuels can be purchased according to size and means of the consumer. Subsidy reform needs to be undertaken with care.”

It added: ”Taking into account the local context and traditional gender roles. If not taken with care, high energy prices associated with reforms increase dependence and switching back to old fuels, defeating official efforts to heighten transition to cleaner fuels, including renewable energy.”

Uncertainty

It added: ”The exact extent to which subsidy reform will affect household incomes is unknown. This is because large shares of Nigeria’s petroleum and kerosene subsidies are captured by black markets: many households pay above official prices for subsidized fuels, and therefore may see little actual cost increases.

”Nonetheless, in most countries it is typically the case that-no matter how inefficient-a share of benefits does reach households and this transfer is relatively large as a share of the poorest households’ total incomes. In addition, reform normally causes inflation, increasing the prices of other essential goods such as food and transport services.”

Policy

In an interview with Vanguard,  Victoria Ibezim-Ohaeri, Executive Director, Spaces for Change, and Laura Merrill, Senior Manager, International Institute for Sustainable Development,  stressed the need for policy shift and commitment to tackling the issues.

She said: ”the rate of transition to cleaner cooking fuels appears to be happening slowly in sub-Saharan Africa compared to other developing countries. One step towards catching up with other developing countries is by diversifying the energy mix into alternative energy sources, appliances and technologies. In the short-term, promoting solar lanterns and solar home lighting systems with the active involvement of the private sector is critical.

There is every reason for Nigeria to continue with strong efforts to both reform and target energy subsidies in the future, especially towards poor women. Other countries have made significant energy access gains and so too can Nigeria.”

Recommendation

Specifically, she disclosed that: ”Officials, policymakers, including stakeholders in the energy sector need to understand that subsidy reform without mitigation measures can have a negative impact on women. High prices associated with reforms place high demands on household income, especially women’s disposable income.

”If reforms proposed and implemented are not taken with care, high energy prices associated with reforms will increase dependence and switching back to old fuels, defeating official efforts to heighten transition to cleaner fuels, including renewable energy. So, there is need for reforms to focus on efficient outcomes for women in terms of access to electricity and cleaner cooking.

”Stakeholders also need to be aware of the link between education and access to cleaner energy. The survey found that the highest proportional use of biomass fuel (firewood and charcoal) was observed among respondents without any form of education while those with tertiary and post-graduate education record zero use of biomass fuel. On the other hand, respondents with tertiary and post-graduate education have the highest proportional use of LPG at 17 percent and 43 percent respectively while those with no education record zero use of LPG.

”Therefore, reallocating subsidies and/or reinvesting subsidy savings on the education of women and girls is strongly recommended. Better targeting of subsidies to poor women through investment in maternal care, education (for women and girls) or loans for women-led businesses are very key to achieving improvements in women’s income and facilitate shifts from traditional biomass to cleaner energy.

”Not only that, investments in energy-saving appliances or renewable energy lighting that enable women spend less time on drudgery and have more time for productive economic activities which will more disposable income for advancing their families’ priorities. Finally, NNPC needs to strengthen distribution systems especially in rural areas to improve access to fuels needed for household use, especially for cooking and lighting.

”Work still needs to be done to allay safety fears around LPG and educate people about the benefits of clean cooking. Here, the government can collaborate with organizations like Spaces for Change to educate women in the urban slums, rural communities and other harder-to-reach localities, about the health benefits of clean cooking.”

MOMAN

Already, the Major Marketers Association of Nigeria, MOMAN, has called on the government to deregulate the downstream sector as the subsidy has stifled the development of the sector. It argued that deregulation will encourage investment, thus creating many multiplier effects in the sector.

 

All rights reserved. This material and any other digital content on this platform may not be reproduced, published, broadcast, written or distributed in full or in part, without written permission from VANGUARD NEWS.

Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.
Do NOT follow this link or you will be banned from the site!