Fuel subsidy: Petrol cabals are back at work 

“It is quite regrettable that a fuel station that sold at N590 a few days ago now sells at N610. One cannot help but wonder if President Bola Tinubu is the one controlling pump prices. Unfortunately, no one seems to have an answer to this question, as petrol cabals are back at work smiling to the bank and feeding fat on fuel subsidy remover. It is even sadder that some marketers and corrupt elements, who are angered that their ill-gotten wealth has been blocked with the removal of subsidies, have continued to unleash suffering on Nigerians.”

President Bola Tinubu’s recent decision to scrap fuel subsidies in Nigeria has sparked controversy. After decades of running a fuel subsidy regime that has done more harm than good, President Tinubu declared it dead on May 29 to save the economy from further ruin. In his inaugural address, he announced the removal of the highly controversial but popular fuel subsidy, which led to high prices and long lines across the nation. Within hours of the president’s speech, hundreds of people flocked to the streets, either in their cars or on foot with yellow jerrycans, to get what they believed to be the last fuel sold at a government-fixed price. Unfortunately, only a few were lucky. To make matters worse, many filling stations stopped selling entirely, while others unilaterally increased prices by more than 200%, causing chaos and artificial scarcity. Although the scrapping of the subsidy was intended to come into effect at the end of June, as outlined in the outgoing administration’s budget, it was too late to prevent the panic. While fuel subsidies do keep the price of fuel affordable for citizens, they have caused nothing but headaches for the government.

Under Olusegun Obasanjo’s presidency in 2003, he tried to eliminate fuel subsidies partially. Unfortunately, this led to an increase in fuel prices at the pump, and as a result, there were widespread protests and strikes. After much deliberation, the government eventually reduced the costs and partially restored subsidies, but it wasn’t the end of the story. Fast forward to January 2012, President Goodluck Jonathan’s administration declared his intention to remove all fuel subsidies. This declaration caused panic among citizens, who were worried about the skyrocketing cost of living. The announcement sparked nationwide rallies, strikes, and even riots! After several days of negotiations and protests, the administration partially overturned the decision but still enforced a partial subsidy decrease. The 2012 demonstrations had a profound impact on the government’s policies regarding fuel subsidies. They began to reduce spending on fuel subsidies and restructure the subsidy system. As a result, the government has had to adjust fuel prices periodically due to changes in the currency rate and global oil prices. Despite all these changes, fuel subsidy removal in Nigeria remains a contentious issue. It is crucial to remember the impact these policies have on the daily lives of Nigerian citizens.

The question now is what is fuel subsidy? It is a government intervention aimed at making fuel more affordable by providing financial support to oil companies and subsidizing its cost for consumers. Nigeria, being one of Africa’s biggest crude oil producers, relies heavily on this resource for its economic growth. But did you know that the history of fuel subsidies dates back to October 2000? It was due to supply inadequacies at the country’s four refineries. According to Ibrahim Mustapha of the Independent Newspaper, the government set up a committee to review all aspects of petroleum product pricing and distribution. The committee recommended the establishment of the Petroleum Products Pricing Regulatory Agency (PPPRA), which uses a price modulation mechanism. This mechanism allows for the prices of petroleum products to be adjusted to reflect changes in global oil prices. So, 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. On the other hand, when global oil prices are low, the government may decrease the regulated cost of petroleum products to reflect market conditions and pass on the benefits to the consumer.

Did you know that the Nigerian National Petroleum Corporation (now NNPC Ltd.) is responsible for approving petrol importers to bring 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 operating costs and a government-regulated margin. While fuel subsidies have helped make petroleum more accessible to citizens, they also affect the economy. One of these is the increase in corruption and mismanagement due to weak oversight mechanisms. Some companies and individuals take advantage of the system to make illegal profits. Besides, the government spends a significant amount on petroleum subsidies, leading to a rise in public debt. Occasionally, the cost of fuel subsidies has exceeded the revenue earned from the sale of crude oil, Nigeria’s main export. Also, due to price differences between Nigeria and neighboring countries and inefficiencies in the distribution and supply chain, petroleum products were often smuggled out of the country, leading to frequent shortages and long queues at petrol stations. Can you imagine how much the government spends monthly to subsidize the product? It runs into billions of Naira, which is unbearable amidst dwindling revenue generation due to massive oil theft.

Nigeria is a big player in the crude oil industry, but unfortunately, it seems to be having challenges refining its product. Four refineries are under the Nigerian National Petroleum Corporation’s control, with a combined refining capacity of 470,000 barrels daily. Two of these refineries, located in Port Harcourt, can refine 210,000 barrels daily. They are operated by the Port Harcourt Refining Company (PHRC) Limited. The older of the two is capable of refining 60,000 barrels per day and was established in 1965, while the new plant, with a capacity of 150,000 barrels per day, was commissioned in 1989. The other two refineries are located in Warri and Kaduna, with refining capacities of 125,000 and 110,000 barrels per day, respectively. Sadly, these refineries have been plagued with inefficiency due to prolonged neglect and frequent breakdowns. Despite several turnaround maintenance efforts, the refining capacity of the refineries has not improved. Unfortunately, the pricing of petroleum products in Nigeria is shrouded in controversy due to a lack of transparency in the expected open market price of petroleum products. Unfortunately, the opaque nature of the operations of the petroleum industry, especially the Nigerian National Petroleum Corporation, makes it difficult to ascertain the truth of the claims made by the PPPRA.

In the past, attempts to remove petrol subsidies caused quite a stir, with many people protesting and resisting the change. The debate around fuel subsidy removal had several stakeholders who presented various arguments for and against it. Those in favor of subsidy removal pointed to some convincing reasons. Firstly, importing petroleum products caused a massive demand for foreign exchange, putting a lot of pressure on our exchange rate and foreign reserves, which could destabilize the economy. Secondly, the government spent a disproportionate amount of the state budget on petroleum subsidies that removed resources from other crucial sectors like health, education, and infrastructure. Thirdly, as our oil reserves are finite and depleting, we must invest the remaining resources into projects that will benefit future generations. Fourthly, the fuel subsidy regime was inefficient and plagued by corruption, leading to leakages and waste. Finally, some people argued that the existing fuel subsidy mainly benefited the rich, leaving out the poor. However, those against the removal of subsidies argued that corruption in the petroleum sector was the main culprit for the astronomical subsidy payments, so if addressed, the fuel subsidy could remain. Secondly, they believed that removing the fuel subsidy would lead to higher transportation costs, food prices, and other essential commodities that could only exacerbate poverty. Finally, there was a history of unfulfilled promises regarding compensation for subsidy cutbacks, which led to a lack of trust among citizens. Despite the debate, it is clear that the fuel subsidy issue needs careful consideration to balance both economic and social factors.

Given the issues associated with the fuel subsidy program, it is clear the government is no longer interested in its existence. So, after being inaugurated on May 29th, President Bola Tinubu scrapped the subsidy altogether. The President explained that Nigeria’s refineries are not working, which forces us to import refined petroleum. Unfortunately, this puts a strain on our local currency. Plus, the subsidy mainly benefits a select few, allowing them to take advantage of the system and illegally transport gasoline across the border. Sadly, this hurts the economy as it consumes funds that could be used for other sectors. President Tinubu emphasized that we must have patience with the government as we work through the temporary inconveniences caused by the removal of the fuel subsidy. He further stressed that if we want Nigeria to recover and thrive, we must abolish fuel subsidies altogether.

The recent announcement of a hike in petrol prices has left many citizens stranded and outraged. In just two months, the price skyrocketed from a manageable N500 to an unbelievable N617. The CEO of NNPCL Group, Mele Kyari, attributes this to market forces, claiming that the deregulation of the oil sector has left prices at the mercy of market realities. But human rights lawyer Femi Falana has denounced this move as illegal, citing NNPCL’s lack of legal power to increase petroleum prices. He urged the government to find alternative solutions to the problem, including addressing the dollarization of Nigeria’s economy. Falana also believes that Nigerians will challenge this decision and that a legal and political solution will be necessary to combat the fuel increase. Hence, the issue requires a multifaceted approach to find a fair and effective solution for everyone.

Recently, fuel hikes have caused quite a stir in Lagos, Abuja, Port Harcourt, and other cities across Nigeria. Vehicle owners started panicking as they begin buying fuel at the new rate of over N617 per liter, fearing the price might increase even further. Unfortunately, things seem to be taking a turn for the worse for Nigerians after President Bola Tinubu’s announcement regarding fuel subsidy removal on Premium Motor Spirit (PMS), popularly known as petrol. In Makurdi, the capital of Benue State, some officials suspected to be from the cabals or petroleum marketers visited Sobaz Fuel Station along Aliade-Otukpo Road to confront them on why they were selling fuel at N590 per liter. Initially, they thought the fuel station had tampered with their meter. On inspection, they later realized their meter was functioning correctly. After this realization, the officials asked the management of Sobaz fuel station to increase their pump price and not spoil their market. It is utterly disheartening that I bought fuel at this filling station at N610 a few days ago. It is quite regrettable that a fuel station that sold at N590 a few days ago now sells at N610. One cannot help but wonder if President Bola Tinubu is the one controlling pump prices. Unfortunately, no one seems to have an answer to this question, as petrol cabals are back at work smiling to the bank and feeding fat on fuel subsidy remover. It is even sadder that some marketers and corrupt elements, who are angered that their ill-gotten wealth has been blocked with the removal of subsidies, have continued to unleash suffering on Nigerians.

It is not surprising that in every change, there are always resistance forces at work to stop it from growing. The unfortunate truth is that many oil marketers and corrupt individuals have made fortunes overnight at the expense of hardworking Nigerians through the misuse of subsidies. These funds could have been put to better use, improving the lives of everyday Nigerians and boosting the economy. But these unconscionable cabals have twisted the fuel subsidy to their advantage. They continually divert and smuggle petroleum products to neighboring countries, where they can sell them at higher rates and make even more profit, all while collecting subsidy money from the Nigerian government. It is a shameful situation that needs proper attention.

It’s crystal clear that fuel subsidy come with various issues, and it is high time for it to go. If Nigeria is to achieve sustainable development through petroleum-generated revenue, the new government must initiate comprehensive reforms to tackle these challenges. However, any reform of fuel subsidies can often lead to a significant increase in fuel prices that can hurt consumers, including households and businesses. This is why the government needs to show compassionate and courageous leadership that is transparent and people-focused. Therefore, leading the transition from a fuel subsidy removal to a market-determined pricing regime requires a prudent, humble, and accountable disposition. Political leadership must take the first step by involving critical stakeholders in monitoring performance and addressing the challenges of managing the transition to a liberalized market for fuel. Under such a regime, the appropriate price for petroleum products could differ across the country, reflecting the specified cost of distributing petroleum products to different locations. So, let’s work together to achieve sustainable development through petroleum-generated revenue by taking bold, compassionate, and transparent leadership in reforming fuel subsidies.

The fuel subsidy removal has sent shockwaves throughout Nigeria, leaving millions of citizens anxious about how it will impact their daily lives. The cost of education, food, and healthcare are all main concerns, as people fear they won’t be able to afford them anymore. The government has not presented any solutions to help alleviate the burden on low-income earners. While the government has the right to remove the subsidy to meet it challenges, it should not do so in a way that jeopardizes the ability of people to maintain a decent living standard. Social protection measures must accompany the subsidy removal to cushion the shock. Nigerians should not have to pay the price for years of political and economic mismanagement of the subsidy scheme. The government must finally listen to calls from civil society and lawmakers to investigate the fuel market chain and hold corrupt officials accountable. Urgent measures need to be put in place to protect the rights of those most affected by subsidy removal and to address issues such as hunger, unemployment, and declining living standards.

Regarding the impact of fuel subsidy removal on people’s lives, experts are considering a range of solutions to ease the burden on those most affected. One option policy analyst have suggested to the government is providing palliatives, like cash transfers or buses for workers’ unions, to help alleviate the immediate effects of rising prices. However, the success of these measures depends on several factors. While they can provide some relief to vulnerable households, it’s often difficult to identify and reach those most at risk, specifically when there’s a lack of reliable demographic data to draw on. In fact, palliatives can become costly and ineffective and may even be prone to corruption. That’s why a more comprehensive approach is needed, one that relies on evidence-based strategies for identifying the most vulnerable populations and creates a robust system for administering palliatives, complete with built-in safeguards. By taking this multifaceted approach, we can create a sustainable, long-term solution that makes a difference for those who need it most.

It is often assumed that eliminating these subsidies would disproportionately affect poor people. However, this is not necessarily the case. In fact, the middle and upper classes consume more fuel than those at the lower end of the economic spectrum. And when you consider that many of the poorest people in rural areas do not even use petrol to move around, it becomes clear that the impact of these subsidies is not as significant as some might think. Interestingly, Nigeria is the only country to offer a universal price subsidy for PMS. This opinion means that regardless of income status, everyone benefits from this subsidy. But the downside is that the wealthy benefit the most since they use more petrol than the poor. So, when it comes to liquid fuels, subsidies are generally regressive. Given this, it’s not surprising that many governments have opted to eliminate PMS subsidies first.

It is evident that the Nigerian government is sticking to its guns on the fuel subsidy removal policy. They asked citizens to hang in there and deal with the current difficulties, promising to use the resources saved for developmental programs. However, the government has not mentioned what they will give up themselves. Plenty of people are calling for officials to cut back on things like lawmakers’ allowances, selling off some presidential planes, reducing the number of cars in government convoys, and nipping wasteful spending and unrealistic budgets. You cannot get rid of subsidies without trimming the fat in government. You cannot live it up while everyday people struggle to make ends meet. You are supposed to be the leader, setting an example and earning trust.

It is very important to take into account the impact that the recent increase in petrol prices will have on the people of Nigeria. We need to make sure that those who are going to be hit the hardest are properly compensated, or else we could be looking at some serious consequences. But it’s not just about short-term fixes; we need to see this as a chance to overhaul the whole system. That means the government needs to lay out exactly how the new system is going to work, how they are going to calculate prices, and what changes we can expect. And we can’t forget about the bigger picture—how is the government going to create jobs and deliver the essential services that people rely on? These are the steps that are going to make all the difference in ensuring that this reform is a success and that it benefits everyone.

It is time for the Nigerian government to step up and create a transparent system for the fuel subsidy program. Redirecting the funds into infrastructure, support for small businesses, and safety net programs is a great start, but we need to ensure that these programs are adequately overseen by civil society. That is why the government should assemble a committee of significant civil society organizations to monitor the use of these funds. We cannot let this opportunity go to waste – these programs need to target the most vulnerable in our society, including mothers and infants, and improve road quality and access. And let us not forget the big picture – these investments must contribute to Nigeria’s long-term development goals. Let us ensure we make sustainable investments that benefit all Nigerians, not just a select few. So, let us not settle for pork barrel-type investments that will only appease some people in the short term. It is time for real change that will benefit our entire country.

BY: Mathew Ma

SOURCE: Blueprint

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