While some believe that oil subsidy is needed to lessen the plight of the poor, others believe it is an open window for corrupt enrichment of a few private and public officials who run the oil business.
The Major Oil Marketers Association of Nigeria (MOMAN) has advised on the need to relieve the impact of the removal of oil subsidy on the general cost of living in Nigeria. The Chairman of the Association and Managing Director of 11Plc, Mr Tunji Oyebanji, made this call last week Thursday during a virtual press briefing in Lagos.
Mr Oyebanji said, “MOMAN is calling for a national discourse among all stakeholders, including government, labour, civil society organisations, the organized private sector and operators, not on merits or demerits of petrol subsidy removal, but on the initiatives that can be taken to ease the impact of the subsidy removal on the most vulnerable in our society.”
The group’s call for dialogue comes amidst speculations that another increase in petrol price is looming due to increase in the price of oil in the international market. In the last 12 months, pump prices of petrol have fluctuated between N125 and N145 and presently moved to N162. Feelers in the transport sector indicate an upcoming increase to about N190 per litre of petrol is in the offing.
A research conducted by IISD shows that Nigerians hold disparate views on the removal of fuel subsidy. People’s responses to the poll reveal that some subscribe to the present deregulation of the downstream oil sector, even though the Petroleum Pricing Regulatory Agency (PPRA) still sets price ceilings and profit margins for Marketers. Some other clamour for full deregulation, wherein the PPRA entirely ceases to manage the pump price of oil. Yet some fear that upward price fluctuations will bring increased hardship on the people, if the government does not provide for subsidies as before.
Those who favour the removal of oil subsidy argue that the fact that The Nigerian National Petroleum Company bore the cost of subsidy, otherwise described as under recovery, contributed to the company’s inefficiency and losses in the year 2019. NNPC declared that it bore a cost of N508 billion as under recovery, due to subsidy on the pump price of petrol in the year 2019. It finally declared a loss of N20.2 billion in that same accounting period.
| NNPC Defrayed Costs | ₦’billion |
| Under-recovery/subsidy | 508 |
| Crude/products losses | 32 |
| Pipeline/management cost | 127 |
| Total | 667 |
Source: NNPC Audited Financial Statement, 2019
The company shared the information in its recently published Audited Financial Statement for the year 2019, noting that “N667 billion was approved as defrayed cost for year 2019 (Under Recovery – N508 billion, Crude/Product Losses – N32 billion and Pipeline/ Management cost – N127 billion).”
Under-recovery is a term the NNPC adopted to represent purported shortages in the amount of revenue from oil sales due to the defrayed cost of importing petroleum products. The federal government’s subsidy on petroleum products requires oil importers to make delivery of their products to the NNPC at a lesser amount than the landing cost. To forestall scarcity, the government agreed to defray the potential loss of the oil importers by paying them the difference.
Besides concerns for the company’s management indiscretion and business losses, others cite accounting irregularities and manifest corruption as grounds for the NNPC to stop administering the oil subsidy regime.
Messrs. Eze Onyekpere and Gregory Okere in a Premium Times Op-ed observed that “NNPC unilaterally and without empirical evidence increased the volume of the national consumption of PMS from 35 million litres a day to 60 million litres, with a difference of 25 million litres a day. This is an additional N525 million a day in terms of the price of PMS being subsidised under the new under-recovery structure. If the entire 60 million litres a day are used for the calculation, we have a figure of N1.260 billion every day in terms of subsidy.”
They submit, “There can be no scenario more licensing of corruption and arbitrariness for an executive agency to jerk up the quantum of products it withholds money on, without the oversight of other agencies that have no pecuniary interest in the matter.”
Presently, Nigeria depends on imported refined oil products to meet local demand for fuel. This dependence on imports exposes the country to oil price fluctuations in the international market. Thus, there is increasing fear that the local pump price of petrol will yet increase, corresponding to the increased international price of petroleum.
While some believe that oil subsidy is needed to lessen the plight of the poor, others believe it is an open window for corrupt enrichment of a few private and public officials who run the oil business.
However, there is a hint from David Coady, Valentina Flamini, and Louis Sears in their paper, “The Unequal Benefits of Fuel Subsidies Revisited: Evidence for Developing Countries” that several “studies confirm that a very large share of benefits from price subsidies goes to high-income households, further reinforcing existing income inequalities”. They further add that more than 40 percent of fuel price subsidies in developing countries accrue to the wealthiest 20 percent of households. In contrast, only 7 percent of the benefits go to the poorest 20 percent.
Dataphyte’s sample of the effect of subsidy removal on transport costs among some commuters in Abuja revealed that the price of transportation has generally increased, albeit, negligibly. Debbie, who uses one of the online ride hailing services, exclaimed, “It’s the same N400 from my work to my home. In fact, the last two times, I paid N300. They said I had a bonus!”
However, in Lagos, the price almost doubled. A man who commutes to work from Fagba to Ikeja and back at N700 daily before the removal of subsidy on petrol said he now spends N1200 daily.
In Abuja, A commuter who often uses the regular taxis remarked, “Last year, after the lockdown was lifted, transport prices increased, because drivers were carrying lesser passengers. Now I can say the price has gone down to what it was before, because people no longer observe Covid 19 protocols”.
Yet the same person said transport on a distance on bike that used to be N50 has now increased to N150. Another passenger that treads the Berger-Mararaba route in Abuja said, “It used to be N150 then, now it’s N200.”
Findings further reveal that those who own their own cars or own several cars spend considerably more on petrol daily than those who travel in a public commute. Likewise, people who ride bicycles or trek to their farms usually do not feel the pressure of petrol price increases as much as the working class in cities. Thus, it appears all the while, the government has been subsidising the petrol consumed by the rich and middle class, who own fleets of cars and are wont to move those vehicles in convoys.
MOMAN’s call for a national dialogue on ways to deal with periodic fluctuations and possible increases in petrol prices need not be taken as a call to revert the decision to remove subsidy on petrol. It may be taken as a challenge to innovate around our energy economics, a call for utilization of alternative energy sources and mass transit infrastructure.
It is also a call for reforms in the oil sector. Experts have also advocated for quick passage of the petroleum industry bill (PIB) to revamp the oil and gas sector and make NNPC a profit-driven entity. This would shore up public finances and allow more targeted spending on critical sectors needed for socio-economic development. The PIB holds the promise of restructuring the industry and eliminating causes of revenue losses, the Board of NNPC said in its 2019 financial statement.
Certainly, the government, citizens and all stakeholders need to chart a course away from the manifest inefficiency and profligacy of the oil subsidy regime. Discourse should look forward to an optimal utilisation of our oil reserves through efficiently run local refineries and a more market-driven oil sector.