Wrong approach to petrol subsidy removal – Punch

The plan to replace the crippling annual petrol subsidy with a N2.4 trillion cash handout scheme exhibits the confusion of successive Nigerian governments in tackling the country’s energy crisis. Bowing to fiscal pressure, the Federal Government says it will finally stop subsidising imported petrol in 2022 that now gulps about N1.8 trillion yearly. In its place, it will provide N5,000 each monthly to 40 million poor Nigerians as “palliative.” Unrealistic and untidy, the plan sidesteps the sensible solution of ensuring self-sufficiency in domestic refining and may worsen the revenue haemorrhage that it seeks to stop.

As unfolded by the Minister of Finance, Zainab Ahmed, fuel subsidy will be stopped by mid-2022 to be replaced by measures to cushion its potential negative impact on the most vulnerable; this will include a “transport subsidy in the form of a cash transfer of N5,000 each to 40 million deserving Nigerians.” Anchored on the desperation to end the N150 billion the Nigerian National Petroleum Corporation claims to incur monthly in “under-recoveries” as the sole importer of petrol, replacing a N1.8 trillion activity with a N2.4 trillion one amid fiscal paucity is laughable.

The confusion deepens when Ahmed says that the N2.4 trillion would be deducted from the Federation Account and that the Federal Government would negotiate with the 36 states to agree to the plan. Moreover, it will rely on lists of the identified 40 million beneficiaries sent monthly by the 36 states and the Federal Capital Territory and computed into a National Social Register.  No tier of government in Nigeria has ever demonstrated the institutional capacity to undertake such a logistical task efficiently.

This ill-conceived plan results from intense pressure. Internally, the government is cash-strapped as oil revenue, its mainstay, slows to a trickle, while borrowings and debt servicing obligations have skyrocketed. Economists and the business community are dismayed by the subsidy. State governors, unimaginative, lazy, and incapable of running their states as vibrant economic units, desperately seek an end to subsidies to increase their takings from the Federation Account. Externally, pressure, especially from the Bretton Woods institutions, has been unrelenting.

Undoubtedly, as Ahmed restated, the subsidy is “unsustainable and economically disingenuous.” Between 2006 and 2015, said the Petroleum Products Pricing and Regulatory Agency, N8.9 trillion was paid to marketers as subsidy. From N257.36 billion in 2007, it rose to N667.08 billion in 2010, and a looting frenzy in 2011 cost the taxpayer N2.53 trillion. Since the NNPC became sole importer in 2016 after the current regime of the President, Major-General Muhammadu Buhari (retd.), claimed (falsely, it turns out) to have ended subsidies, the state oil company has been declaring humongous leakages as “under-recoveries.” In the first 10 months of this year, it declared N1.03 trillion. These translate to shortfalls in remittances by the NNPC to the Federation Account and consequently to the three tiers of government.

This newspaper remains steadfast in its long-running advocacy for an end to the subsidy, but this should be anchored on the achievement of substantial domestic self-sufficiency in refining output. The subsidy quagmire arises simply because of the absence of local refining, nothing more. Nigeria, a major crude oil-producing country, is in this mess because it is not refining; the four state-owned refineries with installed capacity to refine 450,000bpd are moribund and endlessly gulping rehabilitation funds that have failed to resuscitate them. The national folly results in huge sums spent importing refined products; cost of imported petrol jumped by 55.56 per cent to N22.52 trillion January to September this year compared to N1.62 trillion in the corresponding period of 2020.

This regime has wasted six years without solving the refining problem through the transparent privatisation of the refineries, pipelines, depots, and retail outlets. Government has no business in the downstream petroleum business beyond regulation, liberalisation of the operating environment and taxation. Instead, Buhari awarded another $1.5 billion contract to “rehabilitate” the twin Port Harcourt refinery complex, despite the country’s past $25 billion failed rehabilitation spending.

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