May 3, 2023

Will the real beneficiaries of petroleum subsidy allow its abolishment?

Will the real beneficiaries of petroleum subsidy allow its abolishment?

By Anthony Agbo

NIGERIA has been confronted with the economic quagmire of petrol subsidies for the past 20 years. Though the programme dates back to the 1970s, the fact that it has since become a conduit for the corrupt few around the corridors of power has been concealed by our stupendous national wealth, which eventually yielded to the mismanagement of successive governments. With our national wealth depleting faster than a rocket set for orbit, it became clear that this programme was unsustainable. 

Regardless of this obvious fact, many continue to hammer on the dangers of abolishing the programme and the possible negative impact on the ordinary person on the street. These doomsayers have big mics, too, and they talk straight to the nerves of ordinary Nigerians who swallow their bait hook, line, and sinker. The result has been the engineered uproars we see each time the matter is discussed.  

Looking across the different interest groups, I have observed that regardless of the perceived benefits to our society’s various facets, marketers and ordinary Nigerians need help to account for these benefits. Instead, it has been more about the fear of removing the subsidy leading to a worse situation than we already are. In other words, the focus has been on averting a worst-case scenario, despite no apparent benefits. 

With the subsidy, government is supposed to keep prices low and ensure that the product is available. Government was supposed to pay the difference between the landing cost of the product and the pump price to marketers to achieve a desirable price.  

On the contrary, government has paid huge amounts, reflecting increasing consumption patterns, but the product is scarce and mostly available in black markets. Marketers also complain of unsettled waybills by government, and even where they are settled, the numbers still need to be more encouraging. So, one is led to ask the question: “Who really benefits from this programme?” Subsidy as an idea is good but subject to all the conditions for successful implementation at work. The government’s capacity to conveniently carry the subsidy burden has to be clear, and implementation has to be transparent. This is important because if you operate a free enterprise economy and attempt to set prices simultaneously, you will end up creating a black market in the system. To effectively implement a petrol subsidy, government must be able to continue to provide an alternative incentive to investors. Otherwise, they will find alternative means of getting motivation for their investment, as we have seen in the inordinate volume of products pouring through our borders to neighbouring countries.  

I can hardly recall when we had petrol available in filling stations at a regulated price for six months uninterrupted. Over the years, the black market has replaced the official petrol market. Many petrol station operators close their stations during the daytime and sell to black market operators at night. The only filling stations you can go into, buy fuel, and go out just like that, are in relatively remote locations that sell at prices slightly lower than the black-market price. 

This is because marketers claim that government has not lived up to its end of the bargain and is not providing adequate cover for the losses they incur by selling at a regulated rate; yet we read the humongous amount government claims to be spending to subsidise the product year after year.  

The prevailing black market situation also meant that the average Nigerian bought petrol at N350 instead of the N165 intended by government. At the Government Accountability Series earlier this year, the Minister of State for Petroleum, Timipre Sylva, was quoted as saying he would not feel bad buying fuel at N300 a litre, alluding to a possible deregulated pump price around that corridor. 

Also, in a recent presentation to the National Assembly, the Minister of Finance, Zainab Ahmed, estimated the current subsidy amount to be N245. Add this to the official pump price at the time of N165, and you will arrive at a deregulated price of N410. Many Nigerians have already been buying fuel in the price range of N300 – N450 for most of 2022 and early this year. So, I ask: What are we afraid of? The potentially worse situation we fear so much is already here. 

So, if government removes the subsidy today, what difference will it make? All things being equal, the product’s availability will improve if players are permitted to source products independently. More players will also encourage competition, lowering prices in the medium to long run. Secondly, the funds siphoned through the subsidy can now be redirected toward improving other sectors of the economy, namely: health, education, transport, and security. These sectors have far greater and more widespread benefits for the ordinary person than the subsidy. 

Thirdly, it will mean one less motive for forces that have kept our refineries from functioning for many years. If government truly wishes to remove petrol subsidy, it would embark on an aggressive national orientation campaign to educate the common man, who has been used as an instrument by the real beneficiaries of this fraud to agitate whenever removal is contemplated. 

But this is difficult for government since any credible campaign will also indict them. I remember the War Against Indiscipline campaign of the 1980s and its impact on society. Though it was a pre-social media era, the message got to every nook and cranny of the country, and it received massive buy-in from the populace until another coup truncated the process. Today, such a campaign will not only be far cheaper, but it will also be quicker and easier to achieve. People need to know their real enemies and be well guided to make the right decisions for themselves and their country.  

Very few people are exposed to and understand the workings of the Nigerian economy as well as the governor of the Central Bank. At a forum organised to debate the removal of fuel subsidies in Lagos in 2012, a distinguished former governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi, exposed the fraud that has gone on for far too long in the petrol subsidy. He also warned of the dangers facing our country if we do not retrace our steps. Of course, we carried on as if he did not make sense. Almost 11 years later, all his predictions have come true, and we still behave as if no lessons have been learned.  

Following the passage and signing into law of the Petroleum Industry Act in August 2021, the Buhari-led government announced an end to petrol subsidies to take effect in January 2022. They retracted and announced an 18-month suspension that will terminate in June 2023.  Even as there is a seeming build-up of this dated approach, the reputation of the government (both past and present) on the matter leaves one with little or no faith that this will eventually materialise. Government’s excuse for going back on the initial take-off date of January 2022 was the 2023 elections and the national population census. 

They claim that implementing the policy at the same time these activities are taking place is the wrong timing. Given the notoriety of handling petroleum subsidies so far, my understanding of election time as wrong timing is why many feel it must be removed by all means, like yesterday. Notwithstanding all the noise about the $800 million World Bank loan preparatory to removing petroleum subsidies, I can’t help feeling that while the drawdown on the loan is as inevitable as day and night, the goal post for the actual abolishment of subsidies will shift yet again. I hope they prove me wrong.

Agbo, a banker and certified accountant, is the CEO of UNIGAS Global Energy Ltd., wrote via: [email protected].