Fuel Price: Nigeria Buries Subsidy Albatross, Raises Hope Of Infrastructure Development

Last week, the Petroleum Products Marketing Company announced a new ex-depot price of N151.56 for petrol raising pump rice of the product to N161 per litre-a development some see as insensitive in view of the prevailing Covid-19 induced economic hardship.

But the move is one which economic experts would certainly describe as long overdue, largely because it signals the Federal Government’s desire to stop the corruption-ridden fuel subsidy regime which had benefitted only a few.

Subsidy payment had continued to increase over the years, hitting N1.149trn in 2019 which was the year when only a mere $1bn (N387bn) was provided in the budget. This development had resulted into a massive deficit budget which the government had to patch through borrowing.

It is the burden of this massive budget deficit that the government is beginning to shed with the withdrawal of subsidy payments which had inevitably led to the increase in pump price of petrol.

 
With landing cost of petrol currently at N207.98, government would have to pay N62.98 as subsidy per litre of petrol and the NNPC has to defray an estimated N3.149bn per day under what is tagged “under-recovery.”

Experts agree that this cannot be sustainable in a country such as Nigeria where the subsidy fund could do a lot to develop critical infrastructure to grow the economy.

The argument against subsidy payment is buttressed by the current lopsided situation where Nigeria’s low fuel price has encouraged smuggling of the product to other West African countries where prices are far higher.

For instance, in Niger Republic which borders Katsina State, petrol sells for N346 per litre while in Cameroon it sells for N449. In Ghana it is put at N332, while in Benin Republic down south, the product sells for N359 per litre.

In Senegal, the price of petrol sells for N549, Guinea N363, Burkina Faso N433, Sierra Leone N281, Mali N476, and Liberia N257 among others.

According to data from www.globalpetrolprices.com, Nigeria  is the only country in West Africa where petrol sells for less than N200 per litre, and this has allowed unscrupulous marketers to promote smuggling of the product to the detriment of the country.

The argument that Nigeria is an oil producing country and should provide petrol at cheaper cost does not hold water since the country had relied largely on importation for local consumption.

Nigeria’s refineries have not worked at optimum capacity in the last two or three decades due to lack of adequate maintenance and corruption in public expenditure.

Experts are of the view that Nigeria now has the opportunity to invest the huge sums that would have been spent on subsidy payment into the four refineries to make petrol available locally, which is the only viable way the product can be cheaper.

Those who protested against removal of subsidy under the Goodluck Jonathan government did so because of lack of confidence in the ability of the administration to manage the surplus fund well, in view of the widespread perception of his administration being corrupt and unwilling to stop the squandering of public resources.

From all indications, there is no doubt that the President Muhammadu Buhari administration has amply demonstrated that public resources would no longer be imprudently managed and had shown a desire to invest in infrastructure projects across the country.

Many would argue that some opposition political parties criticizing the Buhari administration as a result of the withdrawal of fuel subsidy are being hypocritical because they know it is the right thing to do.

In 2012, when Jonathan government’s attempted to withdraw fuel subsidy which was protested by Nigerians, the then Minister of Finance, Dr Ngozi Okonjo-Iweala was quoted in a TELL Magazine interview as saying “Nigerians would have to decide whether they want to remove fuel subsidy or they want the country to collapse.”

These words are even truer today after emerging from a devastating Covid-19 pandemic economic lockdown.

As noted by the Minister of State for Petroleum, Timipre Sylva, the removal of subsidy and the deregulation of the oil sector is an economic imperative.

He said, “The government is no longer in the business of fixing prices for petroleum products, we have stepped back. Our focus now is on protecting the interest of the consumers and making sure that marketers are not profiteering.

“The deregulation of petrol is a necessary and an inevitable policy direction that we had to take at this time. And we have so far saved over N1trn from it.”

The Minister noted that by the deregulation exercise, the government has backed out of the business of determining the price of Premium Motor Spirit, adding that the price is to be determined by the marketers who import the product.

He said, “At this point the government no longer fix prices for the product, we now allow the marketers and market forces to do so.

“But we watch keenly to ensure that the marketers do not charge too much for the product”.

The Minister speaking further, said that efforts are ongoing to introduce LPG, LNG as well as CNG as a cheaper alternative for PMS.

“PMS is a refined product from crude oil, and whenever the crude oil goes up, the price of the refined product will also go up. That is why we have the sudden increase in the price”.

“We are working to introduce a cleaner and cheaper form of fuel, such the LPG, CNG, and the LNG to be an alternative to consumers. This will be rolled out in October,” he added.

The decision of the Federal Government to move away from the oil subsidy regime has also received support from Petroleum Industry players and stakeholders

The stakeholders advised that the move would ease the pressure on the Nigerian economy which had over the years shouldered the burdensome subsidy system.

Stakeholders who spoke on the issue across the country said that it would enthrone a downstream deregulation era leading to the prevailing cost-reflective price of N160 per litre of petrol and allow market forces determine the price of petrol

The Chairman, Major Oil Marketers Association of Nigeria, Adetunji Oyebanji, said the association welcome government’s action in allowing the market to determine prices.

He noted that this would prevent the return of subsidies while allowing operators the opportunity to recover their costs.

He said the move would in the long run, encourage investment and create jobs.

Oyebanji explained that though prices at the pump would need to be adjusted to reflect realities of the increase of ex-depot prices by the Petroleum Product Marketing Company, the magnitude of the increase, timing and location would be determined by each individual company.

The MOMAN chairman, however, called on the Ministry of Petroleum Resources to intensify its public awareness drive to educate the populace on the current realities.

He added, “The Ministry of Petroleum Resources should also be telling Nigerians that we can no longer afford subsidy.

“If we keep it, the investment in infrastructure, health, education, will not be possible.

“We are borrowing so much to finance our budget. We spent over a trillion naira on subsidy last year. It is unsustainable.”

MOMAN’s position was re-echoed by another stakeholder in the Downstream Sector, Sani Yau, a Director at NIPCO Plc and Chairman of SY Petroleum Limited, who emphasized that the price increase was reflective of trending realities in the sector.

He noted that deregulation will foster an eventual price reduction in the nearest future when other market fundamentals would converge to create the desired competitive market space.

The Depot and Petroleum Products Marketers Association of Nigeria also said deregulation will open up the downstream oil sector for fresh investments.

DAPPMAN said deregulation would also bring about market deepening, diversification, and expansion.

It said these would culminate in stable demand and supply regimes, ‘which are critical to ensuring that consumers have uninterrupted access to affordable quality products without the huge financial burden currently borne by the government’.

The association said full deregulation of the downstream sector would enhance economic growth and development of the nation.

The Chairman, DAPPMAN, Mrs Winifred Akpani, commended the government for consistently seeking ways to reposition the sector for effectiveness and profitability.

She said DAPPMAN remained in support of the implementation of a fully deregulated regime, which according to her would make operations in the downstream sector more seamless, enhance transparency, competitiveness and sustainable growth.

She said, “DAPPMAN is mindful of the commitment of the government and the functional organs managing the sector to ensuring value to every Nigerian and we salute them for this as we are indeed up against uncertain times.

“However, we believe that full deregulation of the sector remains the most viable option for Nigeria to effectively navigate this period and ultimately safeguard the future of our economy and the well-being of 200 million Nigerians.”

“We believe these considerations will be duly addressed with a deregulation regime that guarantees long-term benefits and empowers the government to commit savings made in the process to infrastructure development, job creation, agricultural revolution, education and health.”

She explained that deregulation would spur the growth of Small and Medium-scale Enterprises as well as large corporates. This, she noted would further increase Nigeria’s human capacity index, competitiveness and ultimately drive inflow of foreign investments.