Black market petrol vendors selling oil in jerricans to motorists in one of Nigeria’s major cities.
Oil subsidy is as result of failure of leadership to have effective and efficient refining capacities since 70s.
Elite mafia must remove hands in oil business or rally to sacrifice interest for the nation.
Tinubu returned to orthodox monetary policy will help much needed investment in the oil industry.
By ISHAKA SHITU ALMUSTAPHA, PhD. 13 July 2023.
Fuel subsidy is not uncommon in other developing countries and/or oil producing countries. Oman is a crude oil rich nation, and it subsidizes Petrol motor spirit (PMS). Oman is a small nation with very less population and yet it subsidizes petrol price.
Significantly, subsidy means reduced in petrol price by the government of a country to benefit the poor man. In the case of Nigeria is a strong tradition since in the 70s.
Historically, 80 percent of Nigerians appears do not understand the word SUBSIDY before January 2012. In 2012, former Nigeria’s President, Dr. Goodluck Jonathan removed oil subsidy before it was reversed due to massive protest across the country. Former President Buhari called it a fraud before his success as winner of 2015 Presidential election. Throughout his eight years in power, he paid subsidy despite attempt to remove it several times. Major difference between Buhari administration and Jonathan is that in the case of former, it is ONLY NNPC that imported refine oil while later had many briefcase businessmen and women that does the same job.
Further, to focused on the cost of subsidy in real terms is a big question. There is no exact cost of subsidy conundrum because many parties were involved as well as different business model adopted. Even immediate past Buhari administration have realised that this is unsustainable in the long run. Hence the rationale not to include it in 2023 Federal government budget. Importantly, subsidy gulped $7B in the first 6 months of 2023, this runs into billions and trillions of naira. In a country where the poverty rate is growing and with massive cars on the roads of major cities such as Abuja, Lagos, Rivers, and Kano. Subsidy removal impact will be hugely felt by rich and the poor absolutely.
How do Nigeria arrive at petrol subsidy? This is simple because Nigeria failed to build functional or new modern refineries since 70s. Apparently, this is a failure of leadership. It is worth researching into other crude oil producing countries functional refining capacities in the meantime. I will do more studies on this important aspect. I recollected former President Obasanjo wanted to privatise our four refineries in twilight of his presidency in 2007, this failed due to insincerity.
All these leaders appear did less or nothing in tackling this conundrum. Nigeria faces stark choice to remove or leave oil subsidy which is conditional. I believe removing it appears to be the best option. Nevertheless, the fundamental of removal is key. Now, no sustainable framework except for pronouncement for minimum wage increase. However, there is on-going discussion among policymakers and labour unions. Based on research, see below, detailed explanations of drivers that worsen oil subsidy in Nigeria.
OPAQUE CRUDE OIL SWAP: The state oil company, NNPCL do practice swap, a situation that involves arrangement between oil traders and Nigerian government. Oil traders have given crude in exchange for refined petrol. Over the years, this model worked fine but the issue of sustainability is a great challenge. In fairness, crude oil lifting is usually advertised by the NNPC for interested marketers to apply. It is well known that power that be determined who get this juicy contract in the end.
The drawback here is that you unable to get actual quantity of crude lifted in exchange for refine oil, particularly factoring currency fluctuations, crude oil sales dynamics in terms of conditions, theft, global oil prices, premium and insurance associated with Nigeria as war risk zone.
OIL MARKETERS’ DEBT
It is a known fact that most of international oil companies operated foreign account and Nigeria oil traders have connections with international banks such as BNP Paribas and JPMorgan. Importantly, fraudulent transactions sometimes occur due to supply chains of oil logistics, as crude oil or refine petrol is likely to change hands as many as possible. Research shows lots of arrear’s payment are associated with Nigeria’s oil subsidy.
CRUDE OIL THEFT
Crude oil theft is common to all oil producing countries and Nigeria is not an exception. The cost of theft is unquestionably in recent years. Past governments have shown their anger in private and public. I think all Nigerians ex-leaders have struggled to curb this criminal activity but still a work in progress. As a transport and oil logistics expert, I understand geopolitics, poverty, bad governance, and poor legislation are driving factors. The end to crude oil theft is presence of political will to implement recommended strategies by oil industry experts.
EASING ECONOMIC IMPACT ON THE POPULACE
There is increasing effort to improve economic growth and equality among Nigerians. Subsidizing fuel for the rich and poor is certainly unsustainable with lots of debt serving, salaries arrears, pensions and coupled with dwindling oil receipt in recent times. In my last article I stated around 50 trillion-naira debt and with global economic outlook, lots of factors are not extremely good now but with right economic policies particularly shifting away from statist approach to more business friendly one, you can be assured that Nigeria economy would witness a jump in few months. Accessing foreign exchange is a critical issue over the years, now that it been determined by market forces, hopefully more investment will flow into Nigerian economy through foreign direct investment that appears hamstrung during the last administration.
More importantly, the subsidy fund should be used to touch masses lives not for geopolitics in the last 11 years, because politicians appear use it as vehicle for masses empowerment which is not supposed. I remembered my trip to Ohafia, Abia state in the eastern Nigeria in 2011, I still saw defunct PETROLEUM TRUST FUND(PTF) signboard, that is a legacy of former President BUHARI while he led PTF, this is exactly what is expected of Tinubu’s proposed palliative.
Subsidy is gone as described by the Nigerian leader during inaugural speech, but these words should translate into True palliative is back. My recent visit to Nigeria revealed a lot of impact of removal of petrol subsidy in average Nigerian living standard and rising of cost food commodities to name a few.
Finally, extreme public enlightenment campaign is needed to diffuse the rising tension among poor Nigerians regarding subsidy and how proceeds can be used effectively and efficiently. Time will tell whether we still need subsidy in the future as global economy outlook is susceptible to change and Nigeria is still growing slowly to catch up with human development index accompanied by poor governance indices over the years.
Dr Ishaka Shitu is a Transport and oil logistics consultant and associate to London based Port and Logistics Consultant.Can be reached via email: ishakashitu@gmail.com