Following the furore that greeted the Petroleum Products Pricing Regulatory Agency, PPPRA’s announcement of a new petrol price regime, the NNPC has countered the regulatory body’s advice, stating “there would be no increment in the ex-depot price of petrol in March”.
In its monthly product pricing template issued on March 11th, the PPPRA reviewed the retail pump price of PMS, otherwise known as petrol, from the current average of ₦162 to between ₦209.61 and ₦212.61 per litre. According to the PPPRA document, the new price reflects the average costs of imported fuel since February 2020.
The NNPC’s choice to ignore the PPPRA’s market-based advice of ₦212/litre retail price means it will continue to support the current retail price of ₦162. This works as the NNPC deducts, on behalf of the government, subsidy of about ₦40/litre multiplied by the millions of litres it claims it supplied to the market every month.
The rationale for subsidies
A subsidy is a form of financial support in which the government pays a part or the product’s total market price. The rationale for subsidies is that the state has a responsibility to alleviate the suffering of the poor. Over time, in Nigeria, the government has claimed it pays subsidies on petrol, electricity and water supply. However, the debate about whether to continue or stop subsidising petrol is based on increasing awareness that petrol subsidy benefits the rich and middle class instead of the poor people it was meant for.
Nigeria’s official poverty count by the National Bureau Of Statistics (NBS) reveals that 40.9 per cent of Nigeria’s population live in extreme poverty, meaning that 80 million persons in Nigeria live on less than ₦400 a day. The NBS’s metadata on poverty further revealed that the lives of the poor in Nigeria are defined primarily by lack of affordable food, shelter and healthcare and not in any way by lack of money to buy petrol.
Next to these, the sample data shows that the poor are trapped in the poverty cycle because they struggle with access to education, employment, acquisition of assets, sustainable income and basic infrastructure. Not once was the inability to afford the market price of petrol mentioned as a factor inhibiting the poor’s emancipation.
Petrol subsidies benefit the rich, middle class and impact the poor
As Ademola Adigun, a policy analyst succinctly puts it, “a government has to decide what to subsidize that benefits the majority.” According to him, “Petrol subsidies benefit the rich and middle class and impact the poor. I would rather subsidize education and health. That benefits us more and builds the future.”
Mr Adigun’s argument that petrol subsidy is not aimed at bringing relief to the poor is backed up by the fact that the government does not subsidise kerosene, which the extremely poor use to make up for their lack of supply of electricity. While the wealthy and privileged buy petrol at ₦162 to fuel their generators and cars and to commute long distances, the poor in Nigeria buy kerosene at ₦350 per litre to fuel their lantern and stoves.
Dataphyte earlier reported 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.”, according to David Coady, Valentina Flamini, and Louis Sears in their paper, “The Unequal Benefits of Fuel Subsidies Revisited: Evidence for Developing Countries”. The International Monetary Fund (IMF) team of researchers stated further: “studies confirm that a very large share of benefits from price subsidies goes to high-income households, further reinforcing existing income inequalities”.
Even though petrol subsidy cannot be proven to be alleviating the plight of over 80 million poor persons in Nigeria, Dataphyte’s analysis reveals that NNPC’s deductions from the revenue due to the government, which it claimed it used to pay subsidies, amount to N10 trillion between 2010 and 2019. This shows that on average, in each of these past ten years, the government lost ₦1 trillion to subsidies, a sum that could have been used to build infrastructures that will benefit everyone, thereby depriving the poor and poorest of the country to make the rich and middle class more comfortable.
Source: Budget Office, Dataphyte Research
For instance, in 2019, records show that the NNPC handed ₦1.37 trillion to the federal government after it held back ₦1.5 trillion, claiming it used to pay for the subsidy. Thus, the NNPC reduced the ₦2.87 trillion oil revenue due to the federal government by 51% in that year alone. Therefore, the value of subsidy in 2019 was 109% of the money the NNPC eventually released to the federal government’s Consolidated Revenue Fund (CRF).
That ₦1.5 trillion deduction in 2019 also implied that the NNPC withheld 35% of the ₦4.33 trillion oil revenue due to the federal, state and local governments and released the remaining 65% of ₦2.73 trillion to be shared by the entire federation. Hence, the NNPC’s ₦1.5 trillion subsidy deduction is valued at 53% of the amount it later remitted to the Federation Account Allocation Committee (FAAC), which is made up of the federal, states and local governments.
Worse still, eight years before this, the NNPC had slashed the amount of oil revenue it ought to pay to the federal government’s CRF account by as much as 56%, remitting ₦1.69 trillion instead of ₦3.8 trillion in 2011. Also, by purportedly paying subsidies, the NNPC deprived the whole federation, comprising the federal, state and local governments, of 38% of oil revenue, by paying ₦3.49 trillion instead of ₦5.6 trillion to the federation account in the same year.
Source: Budget Office, Dataphyte Research
NNPC’s position on subsidies
Surprisingly, the recent NNPC’s opposition to the PPPRA’s price advice comes a year after the Nigerian government committed itself to end the payment of fuel subsidies. Mele Kyari, the Group Managing Director (GMD) of NNPC, assured last April: “There is no fuel subsidy anymore in Nigeria. It is a zero-subsidy forever.”
Mr Kyari had further clarified that: “There would be no resort to either fuel subsidy or under-recovery of any nature. NNPC will play in the petroleum marketplace, just like another marketer in the space.”
Contrary to NNPC’s former stance in line with the government’s policy on removal of petrol subsidy, the NNPC’s spokesperson, Kennie Obateru, capitulated this February, with an excuse that “the Corporation was not contemplating any raise in the price of petrol in March in order not to jeopardize ongoing engagements with organized labour and other stakeholders on an acceptable framework that will not expose the ordinary Nigerian to any hardship.”
However, Mr Obateru was not clear which “ordinary Nigerian” the NNPC was trying to protect from hardship, whether it is the one that buys kerosene at ₦350 per litre every day to cook and refill her lantern or the one that buys 10 litres of petrol at ₦162 per litre every day to commute to work and to refill her generator.
To his credit, the NNPC’s Public affairs manager did not say that NNPC’s willingness to continue to deduct whooping sums of money as subsidy every month, and refusal to support the market price of ₦212 in this instance, was meant to meet the immediate need of the poor who have less than ₦400 to spend each day.
Yet, it was not the place of the NNPC to determine the price it sells its imported petroleum products. “Just like another marketer in the space”, in the words of its GMD, the corporation’s business was to sell within the price range advised by the PPPRA, the price regulatory agency.
While NNPC’s subsidy deductions rob the three tiers of governments in Nigeria of much-needed revenue to provide public goods for all, whether poor or rich, some opine that NNPC should continue to deduct subsidy claims. They harped the argument on the reason that the fund may still be mismanaged by the tiers of government when eventually released to them. They opine that a situation where subsidy is removed would make them lose both ways – losing the cheaper petrol and being underserved due to the government’s spending mainly on recurrent expenditures instead of investing in public infrastructure.
However, apart from the privileged masses that benefit more from petrol subsidy, there have been reports that the NNPC’s management and its cronies also benefit from the petrol subsidy by inflating the number of litres it claims it sold to the market, thereby claiming subsidy costs on fuel that the people never bought.
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 ₦525 million a day in terms of PMS price 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 ₦1.260 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.”
This present stance of the NNPC to support the ₦162/litre retail pump price by subsidising ₦40 on the current ₦212/litre advised by the PPPRA presents another set up for the country to readily lose a minimum of 25% of its oil revenue from each litre of petrol that the NNPC claims it sold to oil marketers monthly. Unfortunately, this deduction from the government’s oil revenue to pay petrol subsidy benefits everyone except the poor.