Good News in Bad Time: The Subsidy Removal

The payment for the subsidy has been on for many years, and the amount keeps on increasing every month and every year without the actual benefits accruing to the targeted population. After several probing and public hearing in the National Assembly, the business of subsidies keeps on flourishing. The deliberate business of subsidy emerged as a result of the inability of the Federal Government to make the Four Refineries functional to refine the crude oil locally and stop fuel importation. The Four Refineries could not work because of the business of Turnaround Maintenance every year that has failed to turn anything around, which is also lucrative; while the personnel and overhead costs are paid every month for processing zero crude, and naught output. It may also interest you to know that, if the yearly turnaround maintenance worked, and the cabals agreed to refine crude oil locally, there wouldn’t be a lucrative business called subsidy. So, there is a symbolic relationship between the subsidy payment, turnaround maintenance, the political will to refine crude oil locally, and the transactions in the petroleum sector in Nigeria.

According to the media reports, in 2014, Under President Goodluck Jonathan, the yearly subsidy payment was N482 billion, which everyone shouted that it was too much. Under President Muhammadu Buhari, it increased to N722.30 billion in 2018 and later metamorphosed to N4 trillion in 2022 (Thisday, 09/09/2022). But IMF projected it to be N6 trillion going by N500 billion monthly payment as of May 2022 (BusinessDay, 31/05 2022), while The Leadership Newspaper reported in October 2022 that Nigeria may overshoot N4 trillion in 2022. The Petroleum Products Pricing Regulatory Agency (PPPRA) said Federal Government spent a total of N8.94 trillion on oil subsidies in 10 years, 2006-2015 (Premium Times Nigeria, 21/09/2021); while the Buhari government spent N4.39 trillion in 2022 alone. N3.63 trillion was projected for half a year, January-June of 2023 (The Punch, 12/04/2023).

Interestingly, while the subsidy payments were ongoing, the turnaround maintenance of the Refineries was also going on without turning our situation around.

The Guardian Nigeria 18th March 2021 reported that the Federal Executive Council (FEC), under the leadership of President Buhari approved the sum of $1.5 billion, about N575 billion then for immediate rehabilitation of Port Harcourt Refinery. Two years down the line, no news of refining crude oil until Buhari vacated the office. It was also reported that House of Representatives Members probe the alleged neglect, and diversion of crude oil at Warri Refinery in 2021, and nothing happen thereafter. Daily Trust also reported on 11th May 2022 that the GMD of NNPC Ltd, Mallam Mele Kyari attributed the failure of the Turnaround maintenance to yearly poor execution while addressing the House of Reps Adhoc Committee on the investigation. It was also reported that the Nigerian government has spent over $25 billion in Turnaround maintenance of the refineries in the past 25 years with less or nothing to show for it (The Guardian Newspaper, 18th March 2021).

Economically, the subsidy removal is good news, and it is overdue, but it is happening at the wrong time. Better still, there are things to be done to reduce the negative impacts on the citizens, and that will be discussed in this write-up.

No doubt, fuel subsidy removal will bring about liberation in the oil sector and stimulate economic activities. The removal of restrictions will equally bring new investors and businesses into the oil industry, which will increase competition and efficiency. It will spur the practitioners to go into research and innovation to increase market growth as the competition increases. Over time, the increase in competition will lower the price of petroleum products, and give consumers multiple choices. It will break the barriers, and the activities of the cartels, and cabals, and improve the quality of the products and services they render to the public.

The bad thing about this good news is the fact that the necessary mechanisms were not put in place before making such a drastic pronouncement. Fuel queues surfaced at the filling stations immediately after the pronouncement by the new President, Bola Ahmed Tinubu, during his inauguration speech, when he said, “Subsidy is gone”. All filling station owners have started hoarding the available products, thereby causing artificial scarcity, which is bringing about the demand pull and cost push inflation for petroleum products, and other goods and services. The increase in fuel price will cause the cost of transportation to go high, which equally has a multiplier effect on the well-being of the people by increasing the prices of goods and services, especially food inflation. Many businesses are going to be close down, and many people will lose their jobs. If urgent measures are not put in place, Nigerians should expect more crimes, because people must eat.

It is not a good time considering the occupation of the majority of Nigerians, because this is the planting season, and farm produce is yet to come out to reduce the high cost of food items, and the few available will command high prices. Farmers can hardly go to farms in many states now because of the activities of the herdsmen, who use their cattle to destroy the farmlands, and crops and endanger the lives of the farmers. Farmers have to pay levies to the bandits in some places before they could access their farmlands. Insecurity has spread everywhere and halts every economic activity including farming. One would have expected the new administration of Tinubu to see this as a major priority.?Removing fuel subsidies now without adequate measures will cause more harm than good, by increasing the suffering and pains of the poor masses.

Going forward, one would expect President Tinubu to put the necessary mechanism in place before making this hard decision. However, I suggest the Tinubu administration look into the following mechanisms to ameliorate the pains and suffering of the masses if indeed, he means well for Nigerians.

(i) Appoint Credible People in Critical positions before taking critical decisions. To be able to manage the outcomes, and to withstand the public reactions. There is an urgent need to put the right people in the right positions to manage the process. It is highly important to develop the change management process and the public outcry that will follow the subsidy removal to avoid chaos.???

(ii) Public Transportation should be looked into, to ease the movement of commuters. As we all know, private transporters are out to take advantage of a situation like this to make life miserable for the citizens. The previous attempt indeed failed to yield the desired results, as many of those public vehicles disappeared from the road, and some entered private hands for private purposes. I suggest a total overhauling of the management of those public transport companies, including Abuja Urban Mass Transport Company because they have failed to provide the needed services, while some of the vehicles are laying there dormant.?

(iii) Taking a Critical look at the Border Closure and the Associated issues before subsidy removal will help at this point. Border closure by former President Muhammadu Buhari without adequate preparation has led to the food insecurity we are expressing today. Coupled with the activities of the herdsmen and bandits that made it difficult for our people to go to the farm and carry out their farming activities.?Since the activities of the herdsmen and insecurity cannot be stopped to allow full farming activities in Nigeria, it would be better for the government to consider opening the border for food importation for the main time. It will help to reduce the cost of foodstuffs and ease the suffering of the people in terms of affordable food prices and reduce the high level of poverty ravaging the land.

(iv) Issues of Herdsmen and Insecurity must be tackled before creating additional unrest. Government should devise a means to tackle the issue of insecurity to allow the farmers to go back to their farms’ land to produce food for the teaming population. It is improper for the government to ask the citizens to go back to the farm and failed to secure the environment, only for the farmers to be slaughtered on their farms’ lands.

(v) Privatize the Refineries to ensure domestic production of fuel before the removal of fuel subsidy. Government should summon the courage and political will to privatize the four refineries because that is the only way to make it functional to refine the petroleum products locally. Many years of turnaround maintenance could not turn anything around for good, and there is no need to continue in their direction. This should be done openly and competitively to get the right bidders that will make the refineries functional to complement the Dangote refinery in Lagos. And this will help to curtail the monopolistic tendencies we are going to face in the nearest future.

(vi) Government should give Licenses to more investors for modular refineries, and more importers before the removal of the fuel subsidy. Giving licenses to more local or international investors for importation and local refineries will truly liberalize the sector, help to limit monopolistic tendencies, and allow the invisible hands to rule the oil market.

Putting the above mechanisms in place, and setting the guidelines for their operation will do the magic of subsidy removal with minimal pain and suffering.??

Omale Omachi Samuel,

[email protected]

Business Development Officer, Centre for Social Justice, Abuja.

https://omaomasam.blogspot.com/2023/06/good-news-in-bad-time-subsidy-removal.html