It was clear that we cannot afford fuel subsidy anymore. Government revenues are shrinking, while the ordinary people deserve infrastructure which can’t be available without the resources. Government today is convinced that we need to shift to a new reality.”
The statement above was how the Managing Director of the Nigeria National Petroleum Corporation (NNPC), Mele Kyari, justified the removal of oil subsidy by the Federal Government during a TV interview recently.
The COVID-19 pandemic has thrown up new realities in the socio-economic life of nations and Nigeria is not left out.
For instance it has led to the fall in the price of crude oil, and Nigeria’s economy mainstay is crude oil. The Federal Government has said that the subsidy would continue to drain the country’s lean resources, especially in the wake of the global pandemic.
The NNPC GMD further justified the removal by stating some of the collateral benefits it will yield the nation.
According to him, “more people will be in employment, we will be able to create infrastructure and also more jobs” adding that the government will be able to create and fund hospitals, schools and so on, assuring that “the long-term benefits outweigh the immediate pains.”
Despite these and other assurances the decision of the President Muhammadu Buhari administration to remove the fuel subsidy that had existed for decades at this critical period when the economy of so many has been devastated because of the pandemic has not gone down well with many citizens.
The pump price of Premium Motor Spirit, otherwise known as petrol was increased from between N145 and N148 per litre to between N158-N162.
But the figures look even gloomier from Nigeria’s net spending on fuel subsidies in 10 years. According to the Major Oil Marketers Association of Nigeria (MOMAN), the Federal Government has spent about N10 trillion subsidising petroleum products in the last 15 years.
Proponents of the subsidy removal have argued that if this sum had been expended on building infrastructure and improving other sectors, Nigeria would have been better for it, but critics say that the removal would only affect the common man on the streets, who is trying to eke out a living.
The humongous sum aside, the hydra-headed corruption that trailed the subsidies in the past has stirred national debate about the relevance of the subsidy scheme.
In 2012, a report by the House of Representatives claimed that the scheme engineered a $6.8 Billion fraud over a three-year period (between 2009-2011).
The House of Representatives’ report revealed that “The subsidy regime was fraught with “endemic corruption and entrenched inefficiency,” adding that importers were being paid for 59 million litres a day, despite the fact that Nigeria only consumes 35 million litres. Analysts posit that the reported scam may run deeper if investigation net was extended prior to 2009.
Even the recent increase in the electricity tariff has been in the works is also an that had incurred the ire of the people.
The Nigerian Electricity Regulatory Commission (NERC) had said that the review would lead to better quality of service by the Distribution Companies (DisCos) nationwide. However, it would be recalled that at the town hall meetings organised by the NERC in February 2020, the commission indicated that Nigerians were willing to pay for electricity commensurate with guaranteed power supply.
“The tariff adjustment means that the Federal Government will no more pay electricity subsidy and the fund could be channeled into other critical sectors such as healthcare and education,” a public affairs analyst, Umar Adamu, said.
In the wake of the Covid-19 pandemic induced global financial crisis and increasing sovereign debt risk, financing for development is drying up and both developed and developing countries must now look inward to finance their growth and development needs. Crisis times require bold reforms while far-reaching decisions must be made with dedication and commitment by everyone in implementing policies, programmes and projects to improve the quality of their lives and to set the nation on the path of prosperity. Explaining why the decision was made, President Buhari said that with the paucity of funds, it would be grossly irresponsible to borrow to subsidise a generation and distribution which are both privatised, adding that the government had so far spent almost N1.7 trillion to keep the industry going, especially by way of supplementing tariff shortfalls.
It will be recalled that in August, President Buhari approved a one-year waiver for the import of electricity metres in a bid to improve the power situation in the country. According to the Finance Minister, Mrs. Zainab Ahmed, the approval will support NERC in rolling out three million electricity metres, which is under the Meter Asset Provider (MAP) framework.
“An important feature of the MAP regulation is a gradual up scaling of the patronage of local manufacturers of electricity meters with an initial minimum local content of 30 percent with the potential of significant job creation in the area of meter assembly, installation and maintenance,” she said.
At the First Year Ministerial Performance Review Retreat held at the State House Conference Centre, Abuja, on September 7, President Buhari stated that the global pandemic and the economic fallout had “not been any easier for governments, federal and state alike.”
In the speech delivered by Osinbajo, Buhari said, “As a result of the poor fortunes of the oil sector, our revenues and foreign exchange earnings have fallen drastically. Our revenues have fallen by almost 60 per cent. Yet we have had to sustain expenditures, especially on salaries and capital projects. We acted to mitigate the effect of the economic slowdown by adopting an Economic Sustainability Plan but we have also had to take some difficult decisions to stop unsustainable practices that were weighing the economy down.”
Issue of timing
For many analysts, the recent service-based tariff adjustment by the Discos was long overdue and needed to remove the financial burden from the government, saying it was economically unwise for a nation to continue to subsidise generation and distribution of electricity which are both privatised.
The experts, while commending the government for taking such bold steps, said it was gratifying that the government also planned to reduce the burden on Nigerians by ensuring tariff adjustments are made only on the basis of guaranteed improvement in service.
However, Mr. Kehinde James, an energy sector expert, said with NERC’s planned commitment to strictly enforcing the capping regulation, which will ensure that unmetered customers are not charged beyond the metered customers in their neighborhood, it means Nigerians would no longer experience estimated billings.
According to him, with diesel prices at N224.43 per litre, a slight increase in electricity tariffs is a better option in the long-run to run on diesel which is costlier and increases environmental and noise pollution (from running generators).
