Economy

The Struggle with Oil Subsidy

Mr. Timipre Sylva, the Minister of State for Petroleum Resources, has disclosed that the Nigerian Government is yet to fully stop subsidizing petroleum products in the country. According to the Minister, President Muhammadu Buhari’s administration has commenced the deregulation process of petroleum products. He added that if the subsidy was taken out completely, there would be more increase in the pump price.

This is, however, contradicting as the Minister earlier told the media this year that there is no fuel subsidy in Nigeria. ‘It is zero subsidy forever,’ he stated, adding that ‘going forward, there will be no resort to either fuel subsidy or under-recovery of any nature’. Following this is the President’s announcement that ‘there is no provision for fuel subsidy in the revised 2020 budget. We simply cannot sustain petroleum subsidy.’

In September, Timipre disclosed that since the commencement of the deregulation policy in March 2020, the country had saved about N1tn, and the government would be making use of the fuel subsidy to create job opportunities.

Past governments in the 4th Republic had introduced petrol subsidies but were only intended to last just six months. Four decades later, they remain. Nigeria, which is the biggest producer of oil in Africa, has the continent’s longest queues in filling stations. The four refineries in Nigeria have produced no petrol in more than a year.

About 70% of the nation’s annual budget was used to fund fuel subsidy. Nigeria expends trillions annually on fuel subsidy, yet the government has not been able to keep the refineries running. N1.5tn was spent on fuel subsidy in 2019 and the same year, N365.77bn went to the health sector, making up just 4.1% of a total budget of N8.83tn. This points to the obvious that fuel subsidy at N.1.5 tn, with a national total budget of N8.83tn, consumes the bulk of income. Based on a 2012 report of the House of Representatives Ad hoc committee on fuel subsidy removal, N2.587tn was paid in fuel subsidy as of December 2011, but only N245bn was appropriated in the 2011 budget (the 2011 national budget was N4.6tn). A bulk sum of N1tn was paid to non-existent companies, that is, Nigeria’s oil cabal received fuel subsidy payment on fuel which they did not supply.

The Nigerian National Petroleum Corporation (NNPC) has always been described as an industry that lacks transparency. Efforts have been made to reform the national oil company to bring about accountability to Nigerians which had been unsuccessful. There have been personnel reshuffles, structuring and restructuring of divisions, various attempts to track payment from oil and gas companies, yet there has only been a slight achievement. Shareholders of the NNPC have also bore the brunt for decades. They have been denied their dividends because the company has always declared losses. Recently, the NNPC said it would announce profit by end of the year because it had reduced the company’s loss by N803 billion. There are performance indications that show that the company made an operating surplus of 20.23billion so far. The firm hoped to increase the production of crude oil to three million and reserve 40 million barrels of oil as a target for 2023, but it is obvious that it would have to reengage its goals.

The dented image of the organization has continued to scare investors away. The NNPC has a long-term record of operational losses. Before Timipre Sylva took over as Minister of State for Petroleum in June last year, the NNPC, for 43 years since its commencement, had refused to open its operations to public scrutiny. There has been a lot of debate concerning the failure of the organization in the area of accountability and organizational disclosure in the NNPC. However, five months ago, the NNPC, under its Group Managing Director, Mallam Mele Kyari, officially released its audited statement of account to members of the public for the first time. The initiative was based on the resolve of the new management to become more transparent in its operations. The move received commendations from stakeholders including BudgIT, a reputable non-governmental organization

NNPC had previously announced zero-subsidy payment in April and May 2020 after it recorded under-recovery of N43.31bn, 20.68bn, and N37.66bn in January, February, and March 2020 respectively. Kennie Obateru, NNPC spokesman, said the cost constituted temporary payment to marketers who buy imported fuel and then sell it. He stated on Monday during an interview with Channels TV that the government still provides some level of subsidy to the NNPC to make fuel accessible to the public. He added that ‘there is still a subsidy element and we are not in a hurry to take that off now’ as it will impact the people. This is in opposition to his previous announcement of zero-subsidy payment.

Despite the pledges made by President Muhammadu Buhari’s administration not to incur any more subsidy on petrol, the fuel subsidy was reintroduced in September. This has led to high levels of doubt in the industry as most stakeholders have consistently referred to the fuel subsidy scheme as a fraudulent exercise, since the highest benefits go to the people who own vehicles, which is a small fraction of the population.

A survey research in 2018 revealed that 15 percent of people couldn’t buy fuel at all. It further states that 18 percent paid black market prices far above the official subsidized price. Some people have expressed the belief that subsidies waste scarce resources. Since 2006, fuel subsidy expenditure has been higher than budgets that have more pressing state functions, including education, health, defense, and infrastructure.

Since the 1970s, 11 out of 12 Nigeria’s Heads of State have attempted to reform fuel subsidies. None has recorded success. President Muhammadu Buhari attempted the reform earlier in 2016. Then, it was intended to be a permanent removal, yet subsidies were back within two years. The unclear resolve of the government in the area of subsidization leaves the nation hanging on the precipice of indecision and opaqueness. The instability in fuel prices and inconveniences experienced by the citizens is a call for the government to fix the nation’s refineries. The recent revelation that the FG signed an agreement with Niger Republic to import oil reveals the nation’s level of degradation. Surprisingly, Timipre disclosed that he doesn’t consider it an embarrassment at all. This reveals that there are no plans to commence the rehabilitation of the nation’s refineries.

Read Also: NNPC, CBN Summoned Over Unremitted N3.2tr Oil Revenue

The Nigeria oil sector remains fraught with tensions and backhand politics that continue to hinder its growth. The country has relied on it as mainstay for too long, and is finding it difficult to diversify to other sectors. But while many petroleum sector pundits have asserted that the approval and implantation of the Petroleum Industry Bill will go a long way to liberate the sector from corruption, unaccountability, as well as reconfigure the NNPC as a core regulator of the sector, government feels that it must reign in some controls and play the part of being the supplier of last resort in order to stem the uproar of possible protestations and the emergence of strike actions in the country.

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7 replies »

  1. Celem zycia jest: w swojej malej jednostkowej duszy odbic jak najwiecej kosmosu. – Henryk Elzenberg

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