Nigeria has in recent months come under pressure to end its controversial subsidy on Premium Motor Spirit (PMS) otherwise known as petrol.
This is even more so as the Ghana National Petroleum Authority announced last month that it had removed the country’s fuel subsidy in response to global oil and petrol market volatility caused by the Russian-Ukraine war and energy transition policies.
According to a report by the Nigeria Extractive Industries Transparency Initiative (NEITI), Nigeria spent a total of N13.697 trillion on fuel subsidy payments which was enough to construct three refineries with the capacity to refine 450,000 barrels of crude per day, but the subsidy payments mainly benefitted the rich.
Nigeria is believed to consume around 66.8 million litres of petrol daily, yet the Initiative disclosed that 90 per cent of the beneficiaries of fuel subsidy payments are the rich, while only four per cent of the poor benefit from the subvention.
The Minister of Finance Zainab Ahmed, has noted that fuel subsidy was a very significant contributory factor to revenue loss in the country.
“In June 2023, we should be able to exit. The good thing is, we hear a consistent message that everybody is saying this thing needs to go because it is not serving the majority of Nigerians,” Ahmed said earlier in the year.
On his part, the former Minister of State for Petroleum Resources, Timipre Sylva, described fuel subsidy as a “criminal enterprise”.
“I have said this publicly before that I don’t know the figure,” he said of the opacity surrounding Nigeria’s petrol consumption figures.
“I am told the figure sometimes rises to as high as 90 or over 100 million litres. I don’t know how that happens. At this rate, if anyone is looking at a criminal enterprise, look no further than the fuel subsidy.”
Previous Failed Attempts to Remove Fuel Subsidy
As of the year 2000, the Nigerian government said it was spending $2 billion to subsidise the price of fuel annually, and the then Nigerian President, Olusegun Obasanjo, had attempted to remove fuel subsidies but the move was resisted by organised labour, which argued that it would deepen poverty and hardship.
In 2012, the government of former President Goodluck Jonathan attempted to remove fuel subsidies which would cause the price of the product to increase N65 – N141 per litre, but the plan resulted in nationwide protests and was again stayed.
President Muhammadu Buhari in his first term took steps to end the fuel subsidy and did not make any budgetary provision for subsidies in 2016, the first significant success in revamping the subsidy regime which saved the country at least N15.4 billion monthly.
However, the following year in 2017, the government reverted to the payments of fuel subsidies after the landing cost of imported fuel jumped to N171, in order to ease the pains of Nigerians.
$800 million planned palliative stirs up fresh criticisms
Nigeria has secured an $800 million relief package from the World Bank to help cushion the impact of a planned removal of fuel in June.
The finance minister explained the money would be disbursed to 10 million households as cash, as well as used to fund a mass transit system to ease the cost of daily commutes.
“We’ve secured some funding from the World Bank. That is the first tranche of palliatives that will enable us give cash transfers to the most vulnerable in our society that have now been registered in a national social register.
“Today that register has a list of 10 million households. 10 million households is equivalent to about 50 million Nigerians,” Ahmed said.
However, this plan does not yet appear to have the support of major stakeholders and there is a palpable distrust among the populace, that the palliatives would be evenly distributed or effective in cushioning the effect of the subsidy removal.
For example, the President of the Association of Senior Civil Servants of Nigeria (ASCSN), Tommy Okon, accused the government of paying lip service to the poverty situation in the country.
“What are palliatives compared to inflation, socio-economic challenges, and lack of welfare for Nigerian workers?
“We are used to hearing about palliatives, it is not a new thing… We are not moved by the palliatives. This is not the first time government is talking about palliatives, because most of them collect palliatives to settle their people,” Okon said.
Similarly, the Director-General of the Nigeria Employers’ Consultative Association (NECA), Adewale-Smatt Oyerinde, has cautioned the government against using scarce resources to fix policy problems.
Oyerinde in a statement on Thursday, said the planned palliative was both unrealistic and unsustainable, even as it made no economic sense to inject cash into an economy that is already beset with unending inflationary pressures.
“The $800 million, at best, is equivalent to about N360 billion. When you divide this by the targeted 10 million households, that amounts to approximately N36,000. What significant or tangible effect would this have on anyone, irrespective of status? We will only end up adding more woes to our shrinking economy.
“What we request is a more all-encompassing institutional structure to manage the gradual removal of the subsidy after fixing the refineries and not the proposed palliatives.
“It is worthy of note that previous palliatives had proved not to palliate the economic woes of the citizens. In reality and within the context of our current economic situation, the majority of Nigerians are vulnerable, especially organised businesses,” he said.
A federal lawmaker from Rivers State, Farah Dagogo, has called on FG to abandon its planned disbursement of $800 million to about 50 million Nigerians and instead invest the funds into the education and health sectors of the country.
Using the Ghana example, some Nigerians who spoke to this newspaper expressed hope that the $800 million would be used to establish a special fund to revamp the country’s refineries and increase their capacity to meet the country’s consumption needs.
The International Monetary Fund (IMF) has said that “the absence of public support for subsidy reform is in part due to a lack of confidence in the ability of governments to shift the resulting budgetary savings to programs that would compensate the poor.”
The IMF urged the government to prioritise strengthening revenue mobilisation, including through tax administration reforms, expanding the tax automation system and strengthening taxpayer segmentation, and improving tax compliance in the country.
Over the years, policies aimed at removing fuel subsidy have been met with stiff opposition and has sometimes led to widespread public protests, as the majority of Nigerians do not see what positive impact it would have on their lives.
Open data analyst and Chief Executive Officer of budgIT, Oluseun Onigbinde, said that although the poor citizens are the least beneficiaries of fuel subsidies, they in would bear the brunt of the inflationary effect of fuel subsidy removal.
“So mitigating this effect is what the government needs to sit down and plan around for palliative. Also, trust is important and the sensitivity of the political class would be very crucial in communicating the removal of fuel subsidy,” Onigbinde advised.