Chaos awaits removal of subsidy unless…. Experts advise FG

Oredola Adeola

Economic experts and analysts have told the Federal Government to be creative in managing the transition from the current pricing regime to a fully deregulated arrangement, to avoid the social and political backlash.

They noted that government’s inefficiency and lack of transparency could derail the planned removal of subsidy on Premium Motor Spirit (PMS) by 2022.

They urged the government to initiate workable strategy that would reduce social economic and political impacts upon the removal of the subsidy, insisting that N5000-a-month transportation grant, may not be enough.

Commenting on the proposed removal of fuel subsidy, Dr. Muda Yusuf, Chief Executive Officer, Centre for the Promotion of Private Enterprise, CPPE, insisted that issue is tricky and could pose a serious challenge to government if not tactically managed.

“I believe that there is a need to creatively manage the transition from the current pricing regime to a fully deregulated arrangement.

“It is a tricky issue which could pose a serious challenge to government if not tactically managed. The reality is that the sentiments among the citizenry are not favourable to the deregulation of petroleum product pricing or petroleum subsidy removal. Even some elites are curiously not persuaded on the justification for the subsidy removal.

“If the policy transition is not properly managed, the risk of a social and political backlash could be quite high. No doubt there is a sound economic and business case in favour of fuel subsidy removal. But the social and political contexts are equally critical.

“Certainly, the subsidy is not sustainable, which is why there is need to accelerate engagement with the relevant stakeholders to come up with a policy transition strategy that is sustainable, realistic and pragmatic.

He noted that the conversation around the removal of subsidy should not only be on economic implication, but should also be seen within the scope of social and political environment

An economist, Dr Boniface Chizea, Chief Executive Officer, BIC Consultancy Services warned that the proposed removal of subsidy by 2022, will require thinking out of the box strategy, adding that the proposal will be faced with scary scenario that could lead to unpalatable circumstances.
He disclosed that Nigeria is at a risk if it continues to carry the burden of subsidy payments against the backdrop of the fragile and precarious state of economy.
He said, “The reality of the situation is that we have been on the issue of appropriate pricing of petrol for decades on end. We have been told that there is no provision in 2022 budget for subsidy in the second half of the year.

“The pump price of fuel is expected upon the removal of the subsidy to go as high as N340/litre from the current price of N164/litre; a proposed increase of over 100%. What is rather worrisome is that if the importation of fuel is deregulated now, Nigerians will be in for excruciating future indeed.
“The reality of the situation is that the pump price will increase as the price of crude petrol in the International oil market increases. It would also be dependent on the prevalent rate of exchange. The exchange rate will continue to depreciate for the obvious reason that the economy has an export base driven by essentially primary products with little or no local value addition,” he said.

The BIC Director noted that it will be damning and utterly scandalous for Nigeria to continue to make provision for subsidy, backing the World Bank’s position that Nigeria is the only country in the world that still grants universal petroleum subsidy and it has the worst Revenue/GDP ratio, even worse than Haiti.

He said, “The local refineries are undergoing rehabilitation and the earliest relief could be expected from the refineries is in two years’ time. The Dangote Refinery is projected to come on stream in the first quarter of next year. But from the look of things that is not a realistic expectation.

“It is also a fallacy to claim that subsidy removal will not hurt the poor. Subsidy removal will stoke such massive inflationary pressure that what we are witnessing today would be a far cry. And the misery index in the land already elevated because of a high cost environment due to quantitative easing and the sharp depreciation in the exchange rate will worsen sharply that we risk civil insurrection,” he said.

Mr. Boniface further suggested, in the short term, the exportation of crude oil to neighbouring countries with surplus refinery capacity for refining and re-exported back to the country, noting that the current arrangements for the procurement of refined products as the experience with deregulated diesel and gas markets leaves much to be desired.

He however noted that it remains doubtful that the federal government will summon the political will to push the subsidy removal through as the backlash will badly hurt the party that dares, revealing that, the chicken of not taking prompt decisions when they were opportune has now come to roost. He said, “We are therefore most certainly in a cul-de-sac.”

Mr. Victor Isimi, a social commentator, on his part challenged Nigerians to prepared to bear the social-economic impact of the removal of the subsidy. According to him, the removal will bring a lot challenge, but it’s a decision that has to be taken and done quickly.

He said, “We must not think of the comfort of the present generation, but the future generation. We must also remember that because our revenue is challenged, the N3 trillion annually spent on the subsidy itself is even borrowed.

“FG has no choice than to deregulate the petroleum sector and remove the subsidy. Currently, we are spending about a N1 trillion annually on a single product to the detriment of other sectors of the economy. This is a country where we are lacking critical infrastructure, our educational and health system is challenged.

“While the removal of the subsidy is going to bring a lot challenge to our lives, but it’s a decision that has to be taken and done quickly. We must not think of the comfort of those of us here today, but the welfare of those that will come after us.

Isimi however noted that the proposed payment of N5ooo monthly transport allowance to the poor, is not the most efficient way of spending scarce resources. He however challenged the government show some level of transparency in ensuring that the social benefit reaches the targeted poor.

He added that the transportation grant will help the those who will be directly impacted by the subsidy removal to take care of their transportation cost in the immediate term, while they adjust to the new realities of post deregulation.