As FG shelves fuel subsidy removal, what next?
The move did not come as to surprise some key watchers of the Nigerian roiling political drama. They were convinced that as the theatre of the absurd called Nigeria itches closer to another round of general elections come 2023, the federal government would bow to pressure from labour and the civil society to rescind its plans to remove fuel subsidy.
Prior to the final announcement by government, at EnergyDay, we’ve consistently expressed the view that our leaders seem to always allow politics to trounce common sense and gritty economics.
For us, this is sad and cowardly, thus we’re not in support of government decision to postpone the evil day to satiate political expediency and deity, especially when there are no concrete suggestions as to how to overcome the economic challenges that come with the adopted opinion.
It is all about 2023! Period!
The reasons for fuel subsidy removal are compelling, and this medium is not but disappointed that the government has again chosen to play the Ostrich over the matter.
For us, the decision to rescind is a self-induced mesh we have found ourselves. Worst still when government seems to have surrendered the fate of over 200 million Nigerians to an individual entrepreneur to salvage the situation for us.
The assumption now is that unless Dangote Refinery becomes operational this year to reduce marginal costs associated with petrol importation, the country may be in for the consequences of this decision to continue with the subsidy regime.
One of those who foresaw the current situation was the Centre for the Promotion of Private Enterprise (CPPE). The firm had expressed reservations about government’s political will to remove fuel subsidies as early as last December.
According to the CPPE, the timing of the proposed subsidy removal, alongside the 2023 elections, raises concerns for political actors to implement certain anti-populist policies.
In the 2022 economic outlook released last December, the Chief Executive Officer of CPPE, Dr Muda Yusuf, noted that the burden of petrol subsidies on government finances might persist in 2022 despite enactment of the Petroleum Industry Act (PIA).
The Nigerian National Petroleum Company Limited has put the amount spent on subsidising Premium Motor Spirit, popularly called petrol, between January and October 2021, at N1.03tn.
Muda said: “It is doubtful whether the government will be able to exercise the political will to effect the removal of petrol subsidy given the closeness of the timing to the 2023 elections. He emphasized that if government on account of political exigencies, push back by the ruling party and labour, the economy may have to bear the heavy fiscal burden of subsidy in 2022.
The CPPE chief stressed that making a U-turn also signals delay in the full implementation of the PIA and reform of the downstream oil sector. He however noted that if the Dangote refinery comes on stream in 2022, the fiscal pressure may abate, but not completely eliminated.
In what can be seen as a confirmation of CPPE prediction, the Nigerian government last Tuesday said it will retain fuel subsidy indefinitely and will work on amending the 2022 budget to provide funds for that purpose.
Finance Minister, Zainab Ahmed, who made the declaration said government has realised the timing of its planned removal of petrol subsidy is “problematic”, and will worsen the suffering of Nigerians.
She said the government will not remove subsidy in July as it earlier planned.
Speaking after a meeting with the Senate president, Ahmad Lawan, the Finance Minister said the government is counting on the upcoming Dangote refinery to increase the country’s refining capacity.
On his part, Senate President, Mr Lawan, faulted the timing of the planned removal of fuel subsidy.
He urged the Nigerian Labour Congress and the Trade Union Congress to abort the planned protests against the Federal government’s proposed removal of fuel subsidy, saying the move is “totally unnecessary”.
He stated that in as much as the administration and management of subsidy on petroleum products are flawed, the President Muhammadu Buhari-led government believes that sufficient planning must be carried out before its eventual removal.
But for us at EnergyDay, neither the minister nor the Senate president came up with sound alternative to the subsidy regime. The question that readily comes to mind is, was the government not aware of this situation before its earlier stand? Where are the funds to sustain the petrol subsidy going to come from, knowing that the country is borrowing to run its annual budget.
Listening to the Finance Minister explained that reversal and what government hopes to do leaves one thinking that they are confused.
According to her, efforts are underway by the Executive arm of government to forward a request to the National Assembly to make additional provision for fuel subsidy from July this year till a time deemed appropriate for its eventual removal.
“Let me start by stating the fact that we did make a provision in the 2022 budget for fuel subsidy from January to June. And that suggests that from July there would be no fuel subsidy.
“This provision was made sequel to the passage of the Petroleum Industry Act that has made a provision that all products will be deregulated.
“Subsequent to the passage of the Act, we went back to amend the Fiscal Framework that was submitted to the National Assembly to incorporate this demand, but after the budget was passed we have had consultations with a number of stakeholders.
“It became clear that the timing is problematic, that practically there is still heightened inflation, and also removal of subsidy will further worsen the situation, thereby, imposing more difficulties on the citizens, and Mr. President clearly does not want to do that.
“What we have to do now is to continue with the discussions we are making, in terms of putting in place a number of measures, one of which is the deployment of an alternative to the Premium Motor Spirit (PMS) and also the roll out of enhanced refining capacity in the country, including the 650,000 barrels per day Dangote refinery and also the rehabilitation of the four national refineries that have a combined capacity of 450,000 barrels per day.
“The increased refining capacity in the country means we will need to import less products. But also as we are discussing right now within the Executive the possibility of amending the budget, we may need to come back to the National Assembly by way of amendment to make additional provision for fuel subsidy from July, 2022, going forward, or to whatever period that is agreed as the right time.
“Also, while we are exploring ways and means through discussion with various stakeholders in the executive as well as the Civil Societies and Labour Unions to explore ways by which we can address this removal in a manner that is graduated and will have as minimal impact on the citizens as possible.
“So, we will come back to make further amendments on the fiscal framework as well as in the 2022 budget.”
Unfortunately, she did not say where the funds will come from, but we’re convinced that the way out is to borrow more for consumption today at the expense of our future. We want to be comfortable now so our children can pay later.
Labour, on its part welcomed the development and has shelved the planned industrial action scheduled for January 27.
Ayuba Wabba, President of Nigeria Labour Congress, has blamed the dysfunctional state of the country’s refineries on the profiting few who have allegedly been encouraged by failed leadership over the years.
We wonder why Labour knows so much but seems to refuse to proffer lasting solutions. Why can’t Labour go on strike because the refineries are not working? Must they wait until government make pronouncements that can be used for negotiation to increase wages before they act?
One only hopes that those in employment today who constitute Labour membership realize how many Nigerians are unemployed. If we don’t open up the down stream sector to encourage investment how do we solve the crisis of unemployment?
Government should come forward with a robust alternative plan and inform Nigerians how it intends to execute the plan.