In the year 2000, the then Nigerian President, Olusegun Obasanjo, attempted to remove fuel subsidies. His administration argued that it cost the government $2 billion to subsidise the price annually.
The attempt of the Obasanjo-led administration to remove the subsidy was unsuccessful due to protests against its removal by organised labour, which argued that it would deepen poverty and hardship.
In 2012, The immediate past administration of Goodluck Jonathan attempted to remove the subsidy paid on petrol; the move was met with a nationwide protest. According to the planned removal of the subsidy on petrol, the product was to be sold for N141 per litre from the N65 per litre it was being sold.
In 2016, the administration of President Muhammadu Buhari did not make any budgetary provision for subsidies, leading to no subsidy payment for the year, the first significant success in revamping the subsidy regime.
Fuel sold for N145/litre in 2016 due to the subsidy removal this year.
Dr. Ibe Kachikwu, the then Minister of State for Petroleum Resources, had argued that the removal of the fuel subsidy in 2016 was due to the fact that there were no budgetary provisions for its payment in the year’s appropriations.
The Vice President, Yemi Osinbajo, had also noted that the country saved not less than N15.4 billion monthly in 2016 from not paying fuel subsidies. However, in 2017, the government paid a fuel subsidy, recording it as under-recovery in the books of NNPC.
While the government did not officially explain why it re-introduced fuel subsidies after jacking up fuel prices in 2016, a review of crude oil prices may offer an explanation as to why the government made a U-turn and started paying subsidy (under-recovery) in 2017.
The average crude oil price in 2016 stood at $40.76/ barrel but increased up to an average of $52.51 in 2017 (due to more demand than available crude oil supply), meaning that if the government were to keep up with deregulation, it would have had to increase fuel price again from N145 it placed it in 2016.
This is as deregulation works with market forces and with the price of crude oil determining the final price of refined petroleum, another increment would have been in the offing in 2017 if there were no subsidy payment.
Nigeria’s earlier increment of the pump price of petroleum to N145 in 2016 was greeted with condemnation in some quarters. A lawyer and rights activist, Femi Falana, described the development as insensitive.
“In view of the illegality, insensitivity, and immorality of the price increase, the federal government should cancel it, revert to the status quo and consult widely with all relevant stakeholders in the society,” he said in a statement.
A recent attempt by the Muhammadu Buhari-led administration to remove subsidy and replace it with a transportation scheme met a brick wall after condemnations trailed the attempt. The Nigerian Labour Congress, for instance, argued that the government should first address the issue of the importation of refined petroleum. The workers’ union also stated that an increment in the price of petroleum after the removal of petroleum subsidy would “ increase the Inflation in the country, deepen poverty, and heightened social tensions in the country”.
The government backtracked after public out-cry in some quarters on the plan.
Nigeria’s case is more serious, given that the country is heavily dependent on imported petroleum, raising the landing cost of refined oil per liter. Data review shows that between 2018 and the second quarter of 2022, Nigeria imported petroleum worth N13.5 trillion.
The country also has non-functional refineries that make it impossible to refine oil locally. Between January and July 2022, Nigeria spent a sum of N54 billion on refinery rehabilitation; the country also announced that it would spend another sum of N100 billion in 2021.
In March 2021, the federal executive council approved $1.5 billion for the Port Harcourt refinery upgrade. In August of the same year, $1.48 billion was approved for Warri, and Kaduna refineries upgrade.
In March 2021, a dollar averaged N378, meaning the sum agreed for the Port Harcourt refinery equaled N567 billion. In August, at an average dollar rate of N411, the amount approved for Warri and Kaduna refineries equated to N608.28 billion.
Despite these investments, Nigeria’s refineries have remained non-functional, making refined petroleum costlier.
The foreign exchange in-balance also impacts Nigeria’s subsidy removal and the eventual cost of oil per liter in the country; this is even more as the nation relies on imported petroleum in the absence of working refineries. What this simply means is that asides from the price of crude oil, the higher the rate of dollar to naira, the costlier the price of petroleum will be in Nigeria.
The government has announced that it plans to stop payment of petroleum subsidies by the middle of this year, a move that has come with uncertainties, due to the unsuccessful implementation of previous subsidy removal policies, for instance, the removal attempts in 2012 and, more recently, in January 2022.
The government’s plan is to remove subsidies by mid-2023 (June).
By the time the implementation of this plan should take effect, a new government would have been in place. However, it remains unclear if the new administration will be able to be true to the policy and stop payment of fuel subsidies.
For instance, In 2012, Bola Ahmed Tinubu, one of the top candidates for the Nigerian Presidency, led a protest against subsidy removal,
Although the Nigerian government provided the sum of N3.36 trillion in the 2023 budget for subsidy, The amount will only cover the subsidy payment for the first half of the year, when the government planned to stop subsidising petrol.
Subsidies were introduced in Nigeria in the 1970s to respond to the Oil Price shock of 1973. The shock situation led to a global rise in oil prices. If the international rates were to be used, Nigerians would have paid more, thereby forcing the government to regulate local prices for energy products. A decree was further enacted in 1977.
The PPPRA Act of 2003 also enables the agency to regulate the price of petroleum.
A Dataphyte report noted that the subsidy payments cost the country a sum of N5.3 trillion between 2017 and 2022.
Nigeria has spent a substantial amount of its revenue on subsidy payments for many years.
Between 2017 and by the end of June 2023, Nigeria would have spent 26.06% of its revenue on subsidies payment.
Already, there are controversies on how much the country pays to subsidize petrol. For instance, a Dataphyte report questioned the rationale behind the payment of high subsidies during the time when there is fuel scarcity, since subsidy is a factor of consumption.
This followed the altercation between the NNPC and Nigerian customs on actual daily consumption of petroleum in the country.
As of the time of this report, a liter of petroleum sells for as high as N250 in the country, against the official price of N165, with the essence of subsidy payments meant to keep petroleum prices at an official rate throughout the country. Before now, different international organizations, such as the International Monetary Fund (IMF), had advised that Nigeria do away with its subsidy payment, which it says is weighing down on available finance for the country.
Another Dataphyte report stated that the subsidy bill of the country for 2022 stood at 74% of its 2022 capital expenditure. Another report also noted that subsidy payments might deny the country critical infrastructural developments. However, there are arguments that subsidy removal will create more hardship for the country’s citizenry.
By the time the country gets to the middle of the year, a new government would have been in charge of running the country’s affairs..
Already, top candidates have expressed their intention to remove the fuel subsidies; however, it remains unclear if the cog of the past will allow the actualization of the removal of petroleum subsidies in 2023.