The announcement that fuel subsidy has been removed has prolonged queues at filling stations, turned the tables against greedy fuel merchants, and portrayed the government as “promise and fail”. Correspondent SAM NWOKORO reports.
Minister of State for Petroleum Resources, Ibe Kachikwu, announced on Wednesday, May 11 that any Nigerian entity is now free to import petroleum products subject to guidelines issued by regulatory agencies.
That effectively ended fuel subsidy.
Marketers will be allowed to import with foreign exchange (forex) procured from secondary sources, and the template of the Petroleum Products Pricing Regulatory Agency (PPPRA) will reflect this in the pricing of fuel.
“Pursuant to this, PPPRA has informed me that it will be announcing a new price band effective today, May 11, 2016, and that the new price for PMS will not be above N145 per litre,” Kachikwu said.
Subsidy was removed after a meeting attended by federal lawmakers, Governors’ Forum, Nigerian Labour Congress (NLC), Trade Union Congress (TUC), Nigeria Union of Petroleum and Natural Gas Workers (NUPENG), and Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN).
Corruption, scarcity
Kachikwu noted that there is persistent fuel scarcity because importers are not able to source forex at the official rate due to the decline of forex earnings by the government.
“As a result, private marketers have been unable to meet their approximate 50 per cent portion of total national supply of PMS.”
For years, fuel subsidy has been a polarising issue in Nigeria. It was put in place to help reduce the price of fuel but burned deep holes in government’s pocket.
Subsidised official pump price was N86.50 per litre. This was a significant subsidy while crude oil sold just under $60 per barrel (pb) a year ago. But now selling less than $35, the subsidy has essentially been wiped out.
Fuel subsidy has been linked to both corruption and scarcity. Its removal is another major move by President Muhammadu Buhari who has focused on reform in the oil sector since taking office.
After firing the top brass of the Nigerian National Petroleum Corporation (NNPC) last year, he has set about instituting a more efficient and transparent mode of operation at the opaque NNPC.
Last month, the government cancelled the Offshore Processing Agreement which could help save $8.7 million daily at current oil prices.
Reforming oil sector
While oil sector reform is a key agenda of the government, the reality is fuel subsidy came at a very high cost.
Nigeria spent over $5 billion in the first four months of this year to keep subsidy in place, but given a severe cash crunch and the need to fund capital projects, subsidy does not make economic sense.
In 2012, marketers and transporters embarked on strike over the failure of Africa’s largest oil producer to pay up to $1 billion subsidy.
The Goodluck Jonathan administration abruptly announced removal of fuel subsidy but the move was roundly rejected by Nigerians leading to a nationwide strike that shutdown the economy.
Given the credibility deficit of the Jonathan government and its lack of transparency, the general sentiment was that savings from subsidy removal would not be ploughed into infrastructure projects, and would end up in private pockets.
Those fears have been validated by the $2 billion arms fraud scandal ripping through the country and several other allegations of financial sleaze in the Jonathan years.
Now, the mood is different. Most Nigerians understand the necessity of subsidy removal and Buhari’s strict anti-corruption stance leaves them a bit more secure in the knowledge that the billions saved will be used optimally.
Fall out
When the government mooted subsidy removal in December last year, the NLC said it was illegal and diversionary, and that it would fight tough if Abuja went ahead with the plan billed to take off in January 2016.
The NLC was reacting to the statement made by Kachikwu that “for the first time people will understand that the pricing modulation I was talking about is not a gimmick. It is for real. The objective is that we cannot afford to continue to subsidise.
“We can’t even understand where those subsidies were going to. There is a lot of fraud element in it so we need to cut that off.
“The second reason is that the earning capacity of the federal government is deteriorating by the day with lower prices of crude.”
Kachikwu, who doubles as the group managing director of the NNPC, also said late last year that a new fuel price regime that may see fuel sell for N85 per litre would be announced to reflect the new market conditions.
Thus the latest price hike to N145 per litre confounds both Labour and the general public who are not abreast of the nuances of Kachikwu’s postulations.
Reacting to the new pump price, NLC President, Ayuba Wabba, said though Labour is yet to receive the details, subsidy removal is wrong-headed and illegal because it did not follow due process.
But Wabba had promised before now that Labour would hold Buhari accountable on his promise not to tinker with subsidy.
“We will hold him (Buhari) accountable on his campaign promises. If they were going to remove subsidy, that was not part of their campaign promises during the elections.
“Buhari has promised Nigerians that he will not remove fuel subsidy – that is his promise, we will hold him to his words,” Wabba had said.
“The Petroleum Products Pricing Regulatory Agency (PPPRA) by law is supposed to regulate petroleum products prices and it is made up of a board of stakeholders. NLC is also part of the board.
“For some time now, that organ has not been constituted. I don’t think anybody can fix the prices of petroleum products. So removing fuel subsidy and fixing petroleum products – that is illegal.”
Wabba argued that the government should focus on how to “refine petroleum products in Nigeria” because to remove subsidy and at the same time fix pump price is “diversionary”.
Last Wednesday, NLC Secretary Peter Eson, issued a statement which said:
“The unilateral increase in prices of petroleum products today by the government represents the height of insensitivity and impunity and shall be resisted by the Nigeria Labour Congress and its civil society allies.
“With the imposition on the citizenry of criminal and unjustifiable electricity tariff and resultant darkness and other economic challenges brought on by the devaluation of the naira and spiralling inflation, the least one had expected at this point in time was another policy measure that would further make life more miserable for the ordinary Nigerian.
“The latest increase is the most audacious and cruel in the history of product price increase as it represents not only about 80 per cent increase but it is tied to the black market exchange rate.
“Furthermore, the process through which the government arrived at this is both illogical and illegal as the board of the PPPRA is not duly constituted.
“In our previous statements and communiques, we had stressed the need for reconstituting the boards of the NNPC and PPPRA and wean both away from the overbearing influence of the minister of state for petroleum resources who has assumed the role of a sole administrator.
“The allusion to the fact that this increase was arrived at after due consultation with stakeholders is not only ridiculous and fallacious, it goes to show that the brief meeting held today [Wednesday, May 11], during which the government was advised to shelve the idea until at least it meets with the appropriate organs of the Congress, was in bad faith.
“Accordingly, we urge the government to revert the prices to what they were.
“We would want to put everybody on notice that we shall resist this criminal increase with every means legitimate ….
“Our affiliates, state councils and civil society allies are requested to commence mobilisation.”
Some have argued that considering the low standard of living in Nigeria, the government should have removed the fuel subsidy in phases, to avoid the economic tremor the masses now experience.
However, it is reported that Nigeria saves N647.2 million a day from subsidy removal. If the savings are managed properly the masses would also benefit.
Public reaction
A Lagosian who identified himself simply as Cyril saw nothing wrong with the removal.
“The nation is equally endowed with tin columbite, iron ore, lead, zinc, palm oil, peanuts, cotton, rubber, wood, hyde and skin, and materials for textile and cement. Without doubt, Nigeria is fully blessed with abundant natural and human resources.
“However, it appears that 95 per cent of Nigeria’s wealth is controlled by less than 5 per cent of the population who bathe in profligate wealth while the masses seethe in abject poverty,” he lamented.
A commenter on the internet poste that “fuel subsidy removal is a good policy for the country in general.
“Some may argue it is a bad policy with the trappings of bad things, inadequate planning and lack lustre implementation. There will be no perfect time to implement a policy such as fuel subsidy.
“It is understandable that the policy will cause a temporary hike in fuel prices and most filling stations will exploit it”
Another posted: “It could be generally concluded that Ibe Kachikwu, the minister of state for petroleum, is the face of the policy and the consequent criticism, but he seems to be a bold public servant to find it crucial to embark on this controversial policy.
“The benefits of this policy to the country are substantial.”
A level three student of economics at the University of Lagos (UNILAG), who gave her name as Bola, said: “Our beloved country Nigeria is full of astonishing contrasts in the midst of its enormous natural and human resources and is edgy because of fuel subsidy removal by the federal government.
“Interestingly, besides oil and natural gas, Nigeria is stupendously endowed with varieties of solid minerals of various categories, ranging from precious metals to diverse stones, including industrial minerals such as marbles, barytes, gypsum, and Koalin, just like any other country – while its population is suffering extreme poverty.”
The price change took many by surprise. They woke up on Thursday, May 12 to discover they could no longer buy fuel at the then unofficial going rate of N125 per litre.
Transportation fare has increased nationwide, with ripple effects on consumer goods, including foodstuff, and household items.
Former Kaduna State Governor, Balarabe Musa, criticised the new price and called on the government to reverse it or he will support Labour going on strike.
Edith Muomaife, a primary school teacher in Enugu, expressed anger at the turnout of events in the past few days.
She lamented that “filling stations here still sell fuel for N170 per litre, even as high as N200. Not even one is complying with the new system.
“Even the new price of N145 is displeasing to everybody. They promised us that the price would go down, now see how much they are selling fuel. People are really disappointed in Buhari’s government.”
A student in Enugu, Patricia Ngozi, told TheNiche that “before the announcement was made, filling stations were selling for N200. But a lot of them have dropped down to N150. The queues in filling stations are now gradually going down.
“In fact, the rate at which they sell now is as if there had never been scarcity all this while,” she said.
John Olokpo, a member of the National Youth Service Corps (NYSC) in Gombe, said: “I can confirm to you that fuel is now sold for N145 here. Black marketers used to sell for as high as N600 per litre.
“Thanks to the general change, the filling stations are now selling at N145. And the queues at the filling stations are beginning to lighten up.”
Promise
The latest removal of petrol subsidy may be the last of such social shocks until Buhari’s tenure winds up in 2019.
The government envisages that by the last quarter of this year when it may have achieved 100 per cent turn around of the refineries, and the shortfall in fuel supply – which causes all sorts of price spikes and speculations to feed greedy fuel importers, and accentuate the subsidy bill – may have been achieved.
However, there are new concerns over the recent blowing up of newly repaired Warri-Escravos pipeline that supplies crude oil to the refineries in Warri, Port Harcourt, Kaduna by Niger Delta militants.
It took more than 15 years to repair the damaged pipeline, the major one that feeds the refineries with crude. It appears Nigerians would have to contend with high petrol prices and the economic dislocations and adjustments.
