*Nigeria risks going back to full blown fuel subsidy regime if the current balancing act of miscellaneous quasi-subsidy payments to marketers for FOREX fluctuations and increase in crude oil prices continue*
The ring bells of fuel subsidy resurfaced recently after reports that the federal government has made fuel subsidy payments of a whopping N164.9 billion to oil marketers in August 2023. These payments signal an era of quasi-subsidy whereby fuel subsidy bounces back but in a camouflage.
The quasi-fuel-subsidy is represented as payments made by the federal government to marketers to stop them from jerking the price of petrol above the current ex-pump price of N617 per litre (depending on the location). Officially, fuel subsidy is gone but realistically, fuel subsidy is still part of us albeit in a different form. If the federal government continues to pay N164.9 billion or thereabout monthly to marketers so that they (marketers) do not increase the pump price of petrol above N617 per litre, in 12 months, the federal government would have spent N1.978 trillion on quasi-subsidy which somewhat equates to a full subsidy regime. Is fuel subsidy back?
N617 * 12 months = N1978.8 trillion per year
The federal government should be commended though for stopping the double whammy direct sales direct purchase (DSDP) method of corruption whereby the government pays cash to marketers for imported petrol and simultaneously uses crude oil to swap for the petrol it (the government) has already paid for. Stopping DSDP is a step in the right direction as it has stopped the double whammy grand corruption.
It has always been economically impossible to remove fuei subsidy in Nigeria at one-go. This is because any one-off removal of fuel subsidy will result in hyper inflation and unprecedented hardship to the already struggling Nigerians. Based on the consumer price index (CPI), inflation rose from 22.22% in April 2023 before the removal of subsidy to 24.08% in August 2023. This is the highest lift in inflation for 10 years and is linked largely to the removal of fuel subsidy. Any increases in the price of petrol will translate into increase in prices of goods and services as these prices are remote-controlled by the price of petrol.
A more economically, advisable and people-friendly option would have been a phased removal of fuel subsidy over a period of time in such a way that the removal will have a minimal impact on already struggling families. Yes there is a lot of corruption in fuel subsidy which is another form of handout to the corrupt but the government could have gone after the fuel thieves and brought them to justice instead of outrightly removing subsidy at once and transferring its aggression on the masses.
The federal government was compelled to apply quasi-subsidy in order to ‘balance the equation’ and stop the ‘moochy’ nay desperate oil marketers from arbitrarily jerking up the price of fuel to N800 per litre in July 2023. The marketers want full deregulation so that the fundamental market forces of demand and supply can determine the price of petrol and other white products viz: diesel (AGO) and kerosene (DPK). But is Nigeria ripe for full deregulation of the downstream sector of the oil industry? Can the government itself survive if it allows marketers to fix the price of petrol? Will the country stand if it lets the people at the mercy of oil marketers who want to make profit ‘at all costs’? Will there not be a revolt by the people?
Now they (the marketers) want to push the pump price of petrol or premium motor spirit (PMS) to N1000 per litre and above. God knows whether heavens will fall if the pump price of petrol hits N1000 per litre. Remember, the price of everything in Nigeria will increase four-fold and the people will be pushed to the wall and be forced to revolt. The price of fuel is ramping up anti-government sentiments up and down the country and steadily pushing the people against the government. I have never seen this level of anti-government sentiments in Nigeria since records began.
It needs no emphasis that Nigeria depends on fuel importation as the country’s refineries are comatose and moribund. What needs emphasis though is whether the continuous arbitrary increase in the price of petrol can be justified. The marketers who import fuel have continuously claimed that their hands are tide and they have to jerk up the price of petrol because of a number of reasons including the exchange rate USD to NGN. However, the price of petrol cannot be increased at will if its landing cost hasn’t been established. For the marketers to be given the leeway to increase the price of petrol, the federal government should first of all establish the landing cost of the product. Based on the landing cost, the federal government through the operator NNPC and the regulator NMDPRA should work with their counterparts to provide e marketers to establish the ex-depot and ex-pump price of petrol. This price as agreed by the NNPC and the NMDPRA should be enforced through the price control board. This calls for the establishment of a price control board to ensure that the marketers do not shortchange struggling Nigerians and the public interest is protected.
Government cannot allow oil marketers to inflate the prices of petrol and related products else petrol could hit N1000 per litre anytime soon and there will be anarchy because the people will revolt as they will be pushed to the very end of the walk. The economic power of everyday Nigerians cannot absorb fuel at N1000 per litre. Moreso, much as he has good intention for Nigeria, the second term ambition of President Tinubu will be jeopardised if the pump price of petrol continues to rise and this untold hardship arising from the removal of fuel subsidy continues unabated.
The marketers are working in league with the media who are promoting the notion that ‘petrol prices in Nigeria are the cheapest in the world’ Haba!
The follow up question to this notion is ‘What is the purchasing power of the average Nigerian compared to that in those countries where petrol is purported to be ‘expensive? What is the rate of poverty in Nigeria? What is the minimum wage in Nigeria?
For example, the minimum wage in Nigeria is N30,000 which is less than £30. Britain sells fuel at £1.49 N1,490) per litre with a minimum wage PER HOUR of £9.50 (N9,500). This means that a worker in Britain earns about N12,000 per hour. For a full time 9 am- 5 pm job (8 hours) the British worker earns not less than N90,000 daily which is almost 3 times what the Nigerian worker earns in a month!
In fact, a worker in Britain can earn, in three hours (£28.5 equivalent N35,910) more than what the worker in Nigeria will earn in 30 days (N30,000). So where is the justification to equate the price of petrol in Nigeria with that of Britain or other countries with a much higher minimum wage compared to Britain?
PRIVATISE THE 4 GOVERNMENT-OWNED REFINERIES
Fuel subsidy is with us because the refineries are not working. So the solution will be to get the refineries to work. This can only be achieved through a total privatisation of the ailing government-owned refineries in Port harcourt. Kaduna and Warri. There is the urgent need for the government to privatise the refineries so that they can come back on stream. It is preposterous that Nigeria has crude oil but cannot refine it. Corruption made sure that Nigeria imports petrol when we should be exporting refined petroleum products. Modular refineries cannot meet the demand for petroleum and related products
in Nigeria.
Our dear country needs at least 250,000 barrels refining capacity to meet the 35 million litres of petrol daily consumption rate. Most modular refineries refine about 10,000 barrels so how many modular refineries do you need for 250,000 barrels? Moreover, there are both safety and quality issues associated with modular refineries so you will expect a constant supply of adulterated fuel from modular refineries because Nigeria has very weak regulatory agencies to check the excesses of the modular refineries. Dangote cannot solve Nigeria’s needs for petrol as he will want to make the most profit. Moreover, offering an unsolicited monopoly to Dangote could be economically unviable as it will push the price of petrol to sky levels.
The Tinubu administration has taken the key decision to stop fuel subsidy. Now is the time to take the next big decision and privatise the 4 government-owned refineries. The privatisation of the refineries is the starting point towards a realistic long term sustainable solution to the fuel subsidy debacle in Nigeria.
