- Fuel price hike is an economic decision. But it comes with explosive social costs
Predictably, the Federal Government is in a dilemma with the cost of crude oil climbing to about $60 a barrel in the international market. At that price, the landing cost of Premium Motor Spirit (petrol) rose to N179.67 per litre the penultimate Friday, from N158.53 per litre as at January 7.
The pump price of petrol is usually determined after adding other costs, like freight (N8.74), lightering expenses (N4.57), insurance cost (N0.24), Nigerian Ports Authority charge (N2.38), Nigerian Maritime Administration and Safety Agency charge (N0.23), jetty throughput charge (N1.61), storage charge (N2.58), and financing (N1.33). If all these are added, the open market pump price of petrol will shoot to N202.67 per litre from N181.53 per litre.
Unfortunately, the bulk of petrol used in our country is imported. So any increase in crude oil price quickly impacts on the pump price of petrol. With the official policy on deregulation of petroleum products, the challenge for the Federal Government is to determine who bears the differential between the landing cost and the retail dispensing price? If the Federal Government obeys market forces, it will be at a huge social cost.
While the Nigerian Labour Congress (NLC) has warned that any attempt to increase the retail pump price will be insensitive and unconscionable; the Federal Government is in a lurch on how to handle the inevitable increase in the cost of fuel. Inevitable, because the Federal Government has officially ended the payment of subsidy on fuel importation, unless it is willing to reintroduce fuel subsidy, flayed by not a few as corruption-laden. Even then, with how COVID-19 has virtually crushed the economy, it is even doubtful if the government has any cash to fund any subsidy. Yet, counter-lobbies posit that the mass of the people are even much worse for wear, from the COVID-driven gale! Two recessions, the latest and on-going, again caused by COVID-19, are not helping the dire cash situation.
As we had argued here on this subject, it is uneconomical for the Federal Government to be subsidizing the cost of fuel, with all the racketeering involved in it. We recall that under the Presidency of Goodluck Jonathan, some members of the cartel of petrol importers, were getting paid for large quantities of fuel they never imported. In some instances, the vessels submitted as the transporter of such petrol were ships abandoned in remote parts of the world.
There is also the challenge posed by smuggling of petroleum products across the country, such that the quantity quoted as used in our country is usually far higher than our national economy can use. Unfortunately, despite promises, the present government, like its predecessors, has failed to revitalize our local refineries or build new ones. So, fuel importation has continued to put enormous pressure on our foreign exchange reserve.
As important as the reasons to abandon subsidizing petrol are, the nagging challenge is how to mitigate the cost on the ordinary Nigerians, reeling under the pain of recession. While no doubt the Federal Government has failed woefully, despite the trillions of naira spent on the so called Turn Around Maintenance (TAM) to make the aged refineries produce fuel, and bears responsibility for not building new refineries as promised, it is still not in the interest of ordinary Nigerians for petrol subsidy to return.
The interim solution lies in cushioning the impact of another increase, especially on the most vulnerable Nigerians. Of course, the long-term solution to this national embarrassment, of a crude oil exporter importing refined petrol, lies in having sufficient local refining capacity. We urge the Federal Government to engineer an economic policy that will attract private investment in the downstream sector, considering that government involvement is fraught with corrupt practices.
But while awaiting a permanent solution to the petrol importation crisis, we urge Labour and the government to sit and jointly find a common ground, to avoid disruption of our already weakened national economy.
