We must admit upfront that we have been a long term canvasser for some subsidy in the sale of petroleum products in Nigeria. Our main ground has been that, first, Nigeria being one of the largest oil producing countries in the world but with a largely poor population should never turn her people over to the vagaries of market forces. In other words, Nigerians should never pay the same price for refined petroleum products as consumers in non-oil producing countries.
Based on the fore-going premise, we had argued that subsidy could only be withdrawn consequent upon the establishment of viable refineries and petrochemical complexes. This means that the country would have eliminated the importation of most petroleum products. Recall that we were rather vehement on these positions during the January 2012 ‘fuel subsidy’ protests. Recall also that crucial to the terms of ‘settlement’ of that crisis was the promise by the government of President Goodluck Jonathan to build four green field refineries before the end of its tenure.
Today, three years gone by, no sod was turned anywhere in the land for the construction of any of the refineries. Nigeria, therefore, missed the opportunity to set up crucial infrastructure in the oil sector at a period when the price of crude oil was over $100 per barrel and she earned huge revenues from oil sales.
Price has crashed to below $40 per barrel today; Nigeria’s foreign exchange earning has crashed with it yet she still depends largely on imported petroleum products. She is therefore caught up in a double jeopardy of not earning enough foreign exchange for massive imports of petroleum products yet stuck with subsidising the products.
We therefore think that the time must be now to rethink the entire subsidy regime with a view to either scrapping it in phases or in one swoop. It must be noted that the costs of the subsidy has become too enormous that government’s continued bearing of it is untenable and indeed, would amount to sheer fool-hardy.
We also hold this position in the light of the recently released World Bank Economic Report on Nigeria which states that the Federal Government has spent about N6.9 trillion on petroleum products subsidy in the last five years. As had been noted on this page in the past, the ills of Nigeria’s petrol subsidy regimes are as numerous as they are injurious to the economy. Besides, the common people may have long ceased to enjoy the benefits supposedly accruing from the subsidy.
According to the World Bank: “The $35 billion cost of fuel subsidy during the 2010 – 2014 was a primary reason why Nigeria was unable to accumulate a fiscal reserve in the Excess Crude Account that could have protected the country from the recent oil price shock. Fuel subsidy obligations are expected to reach 18 per cent of all government oil revenues in 2015, and, if the current regulated prices are maintained, this is projected to increase to more than 30 per cent by 2018.”
This is a scary projection. It is also noteworthy that in the years in review, the Federal Government had continually spent about one quarter of her total annual budget on funding subsidy at the cost of massive infrastructural development, including in the petroleum sector.
Finally, the crash in crude oil prices would have naturally instigated a downward slide in the prices of refined products and perhaps an eventual elimination of subsidy. But this has not happened because of the free fall of the naira against the dollar; added to other costs of long haul importation, the story of subsidy remains the same with no respite either for the people or the government.
We urge the government to take a combination of actions quickly. It must drastically eliminate the debilitating corruption in the oil sector; catalyse an aggressive construction of refineries and petrochemical complexes while at the same time, reviewing the subsidy regime with a view to eliminating it. This is the way forward.
