Fuel subsidy: Enough of this pretence, by Zainab Suleiman Okino
Whether we accept it or not, all is not well with the engine room of Nigeria’s economy. The petroleum industry sector, like other public sector administrations in Nigeria, remains shrouded in opacity and subject to meddling, contrary to established global protocols. From all indications, there are obvious contradictions in the inner workings between the presidency and the managers of the nation’s cash cow, leaving a stunned nation in the dark. For ordinary Nigerians, it’s hard to accept that fuel subsidies have returned, even at the exorbitant official price of N617 per litre (before the new hike) that unfortunately was never available at that cost, making it appropriate to ask hard questions.
After months of long queues at filling stations without satisfactory explanations from the government, those in charge are beginning to speak out. Shortly after the Minister of State for Petroleum, Heineken Lokpobiri, spoke of a possible hike to N1000, the Nigeria National Petroleum Corporation (NNPC Ltd) finally acknowledged reports of over $6 billion in debt owed to petrol suppliers. They conceded that “this financial strain has placed considerable pressure on the company and poses a threat to the sustainability of fuel supply,” as stated by the organization’s spokesman, Femi Soneye, in a statement titled “NNPC Ltd Faces Financial Strain Due to PMS Supply Costs, Impacting Supply Sustainability”. The accumulated debts were obviously part of the subsidies the government resorted to cushion the effect of the high cost of importing fuel.
Recall that last month, NNPCL declared a profit in one breath and claimed it was not paying subsidies in another. “We have been importing PMS which has been landing at a specific cost, and the government tells us to sell it at half price. So, the difference between the landing price and that half price is a shortfall,” disclosed Umar Ajiya, the Chief Financial Officer of the company. If subsidy removal is about market forces determining prices, why did the government tell NNPCL to sell at half the price? Who bears the cost of the balance? Your guess is as good as mine, despite the headline-grabbing claim that “NNPCL is not paying subsidies.” So, when the chickens came home to roost with the declaration of “financial strains due to PMS supply cost,” their doublespeak finally caught up with them. Just as I was concluding this piece, news broke of another petrol price hike to N850 per liter, which sells even higher at NNPC filling stations.
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The reintroduction of subsidies not long after President Tinubu pronounced them “gone” on inauguration day was further corroborated by a recent Premium Times report. It validated that the government subsidizes of over N500 per litre: “In recent times, there have been revelations that the government had partly reintroduced petrol subsidies, unannounced, to keep the pump price at N617, given the continued fall in the value of the Naira against the dollar and the price of crude oil in the international market.”
The report also compared the actual landing costs of fuel with subsidized costs. Three of the eight samples surveyed by Premium Times read: In Lagos State, the indicative pump price was N1,067.24 while the actual pump price was N568 per litre, indicating that the government pays about N499.24 as subsidy; in Abuja, the indicative pump price was N1,105.04 while the actual pump price was N617 per litre, meaning that the government pays about N488.04 subsidy for Abuja residents; For Kano, the indicative pump price was N1,116.34 per litre, while the actual pump price was N620, indicating a subsidy payment of about N496.34.”
The above shows that although subsidies exist, they have only changed in name, some of them being called “under-recovery,” “shortfall,” or “PMS FX differential,” yet the modalities remain hazy. The NNPC also confirmed their inability to pay taxes and royalties because of the burden of subsidies. What more do we need to know that the government is hiding the realities surrounding fuel subsidy?
Additionally, what other facts do we need than the assertion from another major industry player, the Independent Petroleum Marketers Association of Nigeria (IPMAN), confirming that the landing cost per litre of petrol has made it impossible for them to import? “Right now, the landing cost of PMS is over ₦1,200, without the margin of the marketers, transportation, and other logistics. NNPC sells to marketers at ₦565 or so. That means there is a subsidy of almost ₦600 to ₦700. Whether they (government officials) say there is subsidy or there is no subsidy, the fact on the ground clearly states that there is something they are under-recovering,” said IPMAN National Operations Controller, Zarama Mustapha.
Meanwhile, Nigeria’s “economic guardians,” the IMF and World Bank, also confirmed that subsidy payments will gulp almost half of Nigeria’s projected oil revenue this year. The implicit subsidy will cost Africa’s largest crude producer an estimated N8.43 trillion of its projected N17.7 trillion of oil revenue, as contained in their Accelerated Stabilisation and Advancement Plan (ASAP) presented to Mr. Tinubu by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, in June. They concluded that fuel subsidies are projected to reach N5.4 trillion by the end of 2024, which will “compare unfavourably with N3.6 trillion in 2023.”
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We do not need all this rigmarole. The government should tell Nigerians in clear terms how it plans to achieve its resumed subsidy plans and uplift us as a people and seek understanding instead. If fuel subsidy has returned through the back door supposedly for the good of Nigeria, why is the government reluctant to blow its own trumpet? Why is the cost of petroleum still this high, and why is it even difficult to obtain?
The president’s announcement on May 29, 2023, was followed by misery and unprecedented suffering, but even after the return of subsidy, those ills still plague us. Why have we not felt the ease in our daily lives, in transportation, and in the food crisis generally? The government must, as a matter of urgency, improve its social intervention programmes beyond palliatives. The EndBadGovernance protests and civil unrest generally are symptomatic of unworkable government policies they call reforms.
Nigerians are even more tired of the back and forth, sleeping in fuel queues for what is not available, than swallowing the bitter pill of a final hike in petrol prices if it will be truly final. (I do not envisage the current hike as being the final one.) However, because Nigerians are suspicious of a government that has not shown good faith, doubts have continued to dog their actions, including lying about fuel subsidies, which is now an open secret.
As this piece was at a concluding stage, President Tinubu’s Special Adviser on Information and Strategy, Bayo Onanuga, tweeted about the situation. Now I’m confused. Are these people playing mind games or what? I don’t know what to believe anymore.
Tinubu government did not lie about fuel subsidies
“I have read a series of articles attacking the Federal Government for not telling the truth about fuel subsidy payments, following NNPC Limited’s admittance it was owing suppliers some $6 billion. Some of the stories have been written with relish, as the authors believed they have uncovered some scoops.
The truth is that there is no discovery. No lie uncovered. The government has been faithful to its policy that it was no longer going to pay fuel subsidies since President Tinubu announced the deregulation of the PMS sector on 29 May 2023. Since then, subsidy provisions have disappeared from the budget. It was not in the Supplementary budget of 2023, not in the 2024 budget and the amended 2024 budget.
“So, the giddy headlines about the so-called unraveling of the Tinubu government’s subsidy payment; and return of subsidy were not justifiable.
“Rather what has unravelled was the commendable disposition of the oil company owned by all the tiers of government to absorb the rising costs of petrol at the pump and protect the Nigerian consumer. That generous disposition by NNPC Limited, backed by a compassionate president unwilling to let the people suffer, has been under threat for months, because of the rising cost of crude and the devalued Naira.
“The NNPC cried out recently because it can no longer sustain the price differential on its balance sheet without becoming insolvent. The situation has greater implications for the ability of the three tiers of government to function as the NNPC has failed to pay into the Federation Account, the money that should go to the government.
“There are no easy choices. Something must be done to make NNPC survive, keep the engines of government running and petrol flowing at the pumps. That is the scenario that is unfolding, and the game changer and big relief giver may well be the Dangote refinery and other local refineries which will become the fuel suppliers to the local market. When Dangote Refinery and other refineries, including government owned Port Harcourt Refinery, come fully on stream, our country and economy will benefit on all fronts. There will be many good paying jobs that will be created along the value-chain. There will also be a drop in the huge demand for foreign exchange to import petrol petroleum products”.
Zainab Suleiman Okino chairs Blueprint Editorial Board. She can be reached via: zainabokino@gmail.com
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