Will petroleum subsidy end by June?

By Ibrahim Mustapha Pambegua

The new government should come up with comprehensive reforms aimed at addressing these challenges if Nigeria is to achieve sustainable development through petroleum-generated revenue. The Tinubu’s incoming administration which will inherit petroleum subsidy should consider complete deregulation of the petroleum sector to allow market forces to determine the prices.

Barring change of circumstances, the payment of petroleum subsidy will end by June this year, as hinted by the minister of finance and National planning, Zainab Ahmed Shamsuna. According to the finance minister, World Bank has released the sum of $800millions to pay palliatives to Nigerians in order to cushion the effects of subsidy removal. Though, advance countries of the world offer subsidy to their people in different aspects of human development, in Nigeria, petroleum subsidy has become thorn in the flesh of any government in power. There is no doubt, successive administrations including the outgoing one had tried to stop the payment of subsidy but could not succeed. It is estimated, in the last 16 years, Nigerian government has spent whopping sum of $30 billions as petroleum subsidy to Nigerians. These huge funds spent on subsidy could have been used to revamp our ailing power, fix our decay education and above all infrastructure deficit. There is no gainsaying the facts, subsidy payment has raised more questions than answers. The money guzzling intervention has been dogged by corruption. It is alleged that marketers in collaboration with some corrupt government officials feed fat from the program through bogus submission of false claims. Subsidies are form of government intervention set to reduce the cost of fuel by providing direct financial support to oil companies, and as such, subsidize the product to consumers. Nigeria is one of Africa’s largest producers of crude oil, and it relies heavily on this resource for its economic growth. In addition, oil account to Nigeria’s GDP and provides employment opportunities for many Nigerians.

The history of fuel subsidy dates back to October 2000 was due to supply inadequacies from the country’s four refineries. The Nigerian government set up a committee to review all aspects of petroleum product pricing and distribution. The committee recommended the establishment of Petroleum Products Pricing Regulatory Committee (PPPCRC), which later metamorphosed into Petroleum Products Pricing Regulatory Agency (PPPRA). PPPRA uses a price modulation mechanism, which allows for adjusting petroleum product prices to reflect changes in global oil prices. When international oil prices are high, the government may increase the regulated price of petroleum products in Nigeria to prevent shortages and ensure that independent petroleum marketers can operate profitably. When global oil prices are low, the government may decrease the regulated cost of petroleum products to reflect the market conditions and pass on the benefits to consumers.

Under PPPRA, the Nigerian National Petroleum Corporation (now NNPC Ltd) gives approval for importers to bring in petroleum products. These products are sold to independent petroleum marketers at government- regulated prices, usually lower than the landing cost. The independent marketers then sell the products to consumers at a price that includes their operating costs and a government-regulated margin. Although fuel subsidies have been beneficial in terms of making petroleum more accessible to citizens, they have also had some negative impacts on the economy. For one, they have led to increase corruption and mismanagement due to weak oversight mechanisms, with some individuals and companies taking advantage of the system to make illegal profits.

In addition, the government spends a significant amount of money on petroleum subsidies, leading to increase public debt. In some cases, the cost of subsidies can exceed the revenue earned from the sale of crude oil, Nigeria’s main export. Furthermore, due to the price differences between Nigeria and neighboring countries and the inefficiencies in the distribution and supply chain, petroleum products are often smuggled out of the country, leading to frequent shortages and long queues at petrol stations. Subsidy prices encouraged the overconsumption of petroleum products, leading to increase in air pollution and greenhouse gas emissions, discouraging investment in the domestic refining industry and alternative energy sources. In terms of monetary cost, government spends N400 billion monthly to subsidise the product. The cost of maintaining it, is unbearable amidst dwindling revenue generation due to massive oil theft. Given these issues associated with fuel subsidy programs, it is clear that there is the needs for it to go. The new government should come up with comprehensive reforms aimed at addressing these challenges if Nigeria is to achieve sustainable development through petroleum-generated revenue. The Tinubu’s incoming administration which will inherit petroleum subsidy should consider complete deregulation of the petroleum sector to allow market forces to determine the prices. This would reduce the burden on the government to provide subsidies, encourage competition, and attract more private investment into the sector. Lastly, the incoming government should incentivize investment in renewable energy sources such as solar and hydropower for speeding national development.