The poorly thought-out plan on fuel subsidy removal is biting the economy harder than the foresight of the current administration – leaving the Federal Government to choose either galloping inflation or partial return to the subsidy regime. That the local pump price has remained steady amid changes in the global crude oil price is a testament to the subsidy which the government has denied, and for obvious reasons.
But beyond living in denial of the country’s mortal economic realities and congenital disdain for transparency, the President Bola Tinubu-led administration has no choice but to quicken steps of common sense solution of local refineries and good refining capacity. In five months into the administration and the so-called post-subsidy era, a clear headed and solution-oriented leadership should have a timeline for homegrown and sustainable solution to the oil dilemma.
Globally, oil prices are on track to reaching $100 a barrel this month and for the first time in 2023. This is an almost 30 per cent surge since May after President Tinubu’s ‘subsidy is gone’ declaration. After the official benchmark of N480 and N570 per litre, under the post-subsidy era, Brent crude, the oil price benchmark, rose to a 10-month high reaching almost $94 a barrel, up from $72 at its lowest point in June. As expected, Petrol and diesel prices in the U.S., UK, among others have begun to rise modestly, adding 10p to the cost of a litre since June. In Nigeria too, the price of diesel crossed the N1,100/litre mark, and much to the pains of manufacturing firms. But the local pump price of petrol has remained stable, suggesting that the balance of market-driven exchange rate is being paid in a tacit return of the petrol subsidy-era.
Chief Executive Officer (CEO) of Nigerian National Petroleum Company Limited (NNPCL), Mele Kyari, has denied that the government is paying subsidy. Yet, the Federal Account Allocation Committee (FAAC) report for August 2023 showed that the Nigerian Liquefied Natural Gas (NLNG) paid $275 million as dividends to Nigeria via NNPC Limited. NNPC Limited used $220 million (N169.4 billion at N770/$) out of the $275 million to pay for the PMS subsidy.
Besides supply giants like Saudi Arabia and Russia cutting down on supplies, accelerating a drawdown in global inventories to push prices toward $100 a barrel, the on-going crisis between Israel and Palestine is expected to further push up the price in a matter of days. If the ongoing conflict between Israel and Palestine escalates further, setting off a chain reaction, Nigeria may have to deal with another energy crisis that may force the government to spend N644.8 billion subsidising Premium Motor Spirit (PMS) alone monthly.
With the dollar already exchanging for over N1,000 at the parallel market while Nigeria’s refineries remained dormant, there are indications that the foreign exchange crisis may worsen as the Nigerian National Petroleum Company Limited may spend the federation’s earnings on importing fuel while other marketers scramble for available dollar to import diesel and aviation fuel. With PMS trading at $1,023.00 per metric tonne at the international market as naira exchange at about N1,020/$, crude oil price at about $100 per barrel would push the difference between the current pump price and the actual price to about N400. This difference amounts to about N644.8 billion monthly given the current consumption of about 52 million litres daily. Give or take, the much-vaunted ‘subsidy is gone’ declaration is a ruse.
The expediency of not allowing market forces to determine prices of petrol as expected of a zero-subsidy era is understandable. At the prevailing global rate, it is estimated that the average petrol pump price should by now be more than N900/litre. An already weary economy like Nigeria cannot afford that and its reeling effects on already bad inflation figures. Neither can the Federal Government afford the imminent pushback or a blowout of compounded misery in the public. Therefore, head or tail, the government has been shoehorned in a shoestring dilemma.
For neutrals, Nigeria must appear as a strange country among the oil producing community. Ideally, a spike in the price of oil should be a boom time with locals asking for more. Not in Nigeria, where both the government and the people are literally praying hard against further spike in petrodollars. This classic case of resource curse is, sadly, repeating itself because of the decades of successive irresponsible leadership that had ensured that local refineries do not work, and local consumption 100 per cent dependent on importation.
Sadly, state governments have lately borrowed about N46.17 billion from three banks to pay salaries between January and June 2023. This development followed an $800 million loan from the World Bank taken by Tinubu to cushion the supposed removal of subsidy. That followed an alleged loan of $1.95 billion from the World Bank in the first four months of Tinubu’s administration. The loans are reportedly for education ($700 million), power ($750 million), and women empowerment ($500 million). Amidst the ongoing crude oil theft in Niger Delta region where 1,301 illegal refineries have been discovered in the oil region, Nigeria is only pumping about 1.2 million barrels of oil a day compared to the 2023 crude oil budget benchmark of 1.69 million bpd.
Clearly, too many layers of the oil subsidy dilemma are laced with government opacity, complete lack of transparency and outright frauds. Those are not the hallmark of a government of change or one routinely counting on citizens’ understanding in these harrowing times.
But the president should be reminded that there is no sustainable way out of refining for domestic consumption locally. Beyond the distraction of palliative sharing, there should be a clear-cut plan for refining capacity and exactly when the likes of Dangote and Port Harcourt Refineries are coming up stream and at what capacity. What are the other options with Warri and Kaduna Refineries? To sell-off or retain them, and for what purpose?
The point is that without a revitalised downstream petroleum sector, Nigeria will simply spend a longer time in this slow economic growth, high unemployment, high poverty equilibrium, continuous borrowing to take care of petrol subsidy, and at the cold mercy of brutal international politics!
Source: The Guardian
