The Fuel Subsidy Dilemma.

  
The choice for Nigeria is not between removal of fuel subsidy and retention of the subsidy, but between fuel subsidy removal and accelerated economic liquidation, writes Vincent Obia
A fuel subsidy debate has broken out in Nigeria for the umpteenth time. What is at issue is whether or not to end a subsidy regime that has been a drag on the country’s economic prospects. The federal government, more than ever before, seems minded to remove the subsidy. And it does seem there are few critical voices at President Muhammadu Buhari’s elbow warning him not to touch it.
But the federal government, almost completely, has no alternative but to stop the subsidy that is swallowing nearly 20 per cent of the country’s earnings from crude oil sales annually, with experts projecting an increase to more than 30 per cent by 2018. Between 2010 and 2014, Nigeria was said to have spent $35 billion in fuel subsidy payments.
The major stakeholders appear no longer split down the middle on removing or retaining the fuel subsidy. Such split was the main drawback to previous attempts at ending the subsidy regime. Popular sentiment now tends to favour removal of the subsidy.
Though, the Nigeria Labour Congress and Trade Union Congress have remained opposed to removal of subsidy on petroleum products, saying it will inflict further hardship on Nigerian workers, one of the two key unions in the oil industry, the Nigeria Union of Petroleum and Natural Gas Workers, has recently taken a different position. National president of NUPENG, Mr Igwe Achese, said in Owerri last month that Nigerians would continue to experience petrol scarcity and regular increases in the prices of petroleum products unless the Nigerian National Petroleum Corporation returned to its statutory role as the sole importer of petrol.
Achese bemoaned the lack of political will on the part of the federal government to effect the total removal of subsidy on imported and refined petroleum products. He stressed the need for the federal government to create a conducive environment for private investment in the building of refineries in order to improve local refining capacity to meet domestic demand as well as provide for export
The position of NLC and TUC has been that the federal government should put the four national refineries in optimal operation and create the right atmosphere for fair competition and the entry of private investors into the downstream sector before talking about fuel subsidy removal. Labour, therefore, does not maintain absolute opposition to fuel subsidy removal – it has conditional belief in the stoppage of subsidy.
Members of the Independent Petroleum Marketers Association of Nigeria, which is responsible for about 67 per cent of fuel imports, have also thrown their weight behind the removal of subsidy on imported petrol. The Northwest zonal chairman of IPMAN, Muhammadu Lawal Danzaki, disclosed the marketers’ support for the removal of fuel subsidy in May in Kano, just before the inauguration of the Buhari government.
But it was the transition committee, led by Ahmed Joda, that tended to sum up the widely held opinion when it recommended the removal of subsidy on refined petroleum products to the then incoming government of Buhari. The committee also recommended the enactment of the Petroleum Industry Bill into law to prepare the appropriate environment for investment in the oil industry.
The sharp fall in the price of crude oil makes the need for fuel subsidy removal even more urgent. Oil currently sells for about $38 per barrel – from about $112 per barrel mid last year. The government cannot afford to ignore the warnings to end the subsidy regime.
This is a most auspicious time for the federal government to do the needful, and end at a stroke the fuel subsidy system that is draining precious resources and undermining the economy. The World Bank has also said so. World Bank’s Lead Economist, John Litwack, said recently that the best time for Nigeria to remove fuel subsidy was now that crude oil prices were at their lowest for many years. He stressed that removal of subsidy would not raise the prices of refined petroleum products beyond what the masses were used to.
The commonly used petroleum products in Nigeria are diesel, petrol, and kerosene. While subsidy on diesel has been removed, petrol and kerosene are still being subsidised at the official prices of N87 per litre and N50 per litre, respectively. Yet, the products are nearly always sold above the controlled prices. Fuel subsidy is meant to bring benefits to the masses, but the people hardly ever enjoy such benefits. So Nigerians may really not miss anything with the removal of the subsidy.  
There is no doubt that the key to creating the appropriate environment for real benefits – rather than hardship and ruthless exploitation – from removal of fuel subsidy is the resuscitation of the country’s refineries. Reviving the local refining capacity would reverse the current abnormal situation where Nigeria imports about 70 per cent of its domestic fuel needs. Nigeria is said to be the only member of the Organisation of Petroleum Exporting Countries that depends so heavily on imported fuel.  
The country, with a population of over 160 million, is the sixth largest exporter of crude oil in the world and second biggest in Africa – pushed to second position by Angola only recently. But the country has only four virtually rundown refineries. The combined installed refining capacity of the four refineries is 445, 000 barrels per day, but they are reported to operate below 40 per cent of their capacity. According to experts, with the less than 40 per cent efficiency rate, the country’s four refineries are only able to supply about 13.26 million litres of PMS, 6.8 million litres of diesel, and 2.72 million litres of kerosene/jet fuel per day. This is a far cry from the daily national demand for refined petroleum products. Nigeria is said to consume on a daily basis 30 million litres of PMS, 12 million litres of diesel, eight million litres of kerosene, and 900 metric tons of cooking gas (liquefied petroleum gas). PMS is the most consumed petroleum product in Nigeria, and only about 30 per cent of the needed quantity is refined locally. The rest is imported.
Given the above situation, which has resulted from years of neglect and corruption in the oil industry, it is difficult to put all the necessary structures in place for optimal local refining before the full deregulation of the downstream sector.
But the government can negotiate a moratorium with labour and other stakeholders on the restoration of the refineries and institution of other necessary measures, and then go ahead to remove subsidy on petrol.
The piecemeal approach to the issue of fuel subsidy would definitely achieve very little.
Minister of State for Petroleum Resources, Ibe Kachikwu, said on Monday in Abuja that that the federal government planned to revert to the old pump price of N97 per litre for Premium Motor Spirit, popularly known as petrol, next year. He said this was part of efforts to end fuel subsidy, explaining that if the government observes that the cost implication of fuel subsidy is still high after the reversion to N97 per litre, the government would choose the option of total subsidy removal.
The former Minister of Petroleum Resources, Mrs Diezani Alison-Madueke, had announced the N10 reduction on January 18, 2015.
Kachikwu spoke while defending the petroleum ministry’s plans in the 2016 – 2018 Medium Term Expenditure Framework and Fiscal Strategy Paper before the Joint Senate/House of Representatives Committee on Finance, Appropriation and Banking, Insurance and other Financial Institutions.
Minister of Budget and National Planning, Udoma Udoma, had also said the government was seriously considering removing fuel subsidy next year. He stated this while unveiling the Medium Term Expenditure Framework and the Buhari government’s N6 trillion budget proposal for 2016.
The federal government need not follow the worn approach of occasional increases in the prices of petroleum products, which has not helped the fuel situation over the years. It should go for total withdrawal of the subsidy. When an unresolved quandary poses the kind of threat fuel subsidy has posed to the Nigerian economy, sooner is better than later.