Subsidy Controversy: Time to halt Nigeria’s escalating debt, as economic crash looks imminent

EnergyDay Editorial

Petrol scarcity within the last few weeks and the permanent fixture of fuel queues in Abuja since last year, have brought to fore the need for the Federal Government to decide on whether it would continue to retain the controversial fuel subsidy regime which has contributed little to assuaging the country’s energy crisis, or find a way to offset it in phases.

The petrol subsidy arrangement which has taken the shape of a phenomenon in Nigeria’s economic system, is steadily tilting the country to the point of irreversible crisis and indeed, an economic crash.

Nigeria’s chances to effectively run a sustainable economy, amid crude oil windfall, is completely undermined by the burden of using limited revenue to service the country’s escalating debts. The arithmetic is no longer sensible.

This position was affirmed by Mrs. Zainab Ahmed, Minister of Finance, Budget and National Planning, when she lamented that fuel subsidy was causing a massive fiscal burden, saying a situation whereby the federal government borrows for consumption was wasteful.

The Finance Minister had then said that petrol subsidy is costing the country an additional N4 trillion than was originally planned. She described this as an unplanned deficit.

She said, “We have gone to the National Assembly; we have gotten approvals, but the approval was simply for us to cut down on some of the investment costs.

“So, investments that we needed to make in the oil and gas sector which we are delaying and deferring to a later time and reducing the rollout of those investments. But we also had asked that we needed to borrow more which is very serious, the Finance Minister noted.

The World Bank has declared that Nigeria’s inflationary and fiscal pressure increased considerably despite its growth prospect, leaving the economy much more vulnerable. The multilateral institution has projected that Nigeria may post a N5 trillion loss in oil revenues in 2022, as oil prices continue to rally and the war between Russia and Ukraine persists.

World Bank Country Director for Nigeria, Shubham Chaudhuri, has warned that the ballooning cost of fuel subsidy at a time when production continues to decline would mount inflationary pressure on the country thereby compounding its fiscal pressure within the next few months. The facts in figures are clear.

EnergyDay’s check revealed that the country’s debt servicing bill has increased by 109 percent, which is N896.56bn. In a stretch of 15 months therefore, a total sum of N3.83 trillion will go into the pockets of Nigeria’s creditors for debt servicing alone. The unpaid loan itself is in the region of $33bn.

Curiously, the non-debt recurrent expenditures amounting to a staggering sum of N6.83 trillion falls under expense account and 60% of this sum is used for personnel expenses which includes, non- critical overseas travels by government officials, official dinners , purchase of toothpicks and the likes.

EnergyDay is therefore firm in calling on the government to honour its own words on the decisive implementation of the Petroleum Industry Act (PIA), beginning with a fast-paced exit from its involvement in the importation of Premium Motor Spirit (PMS), also known as Petrol.

It is estimated that the country may expend the sum of N6 trillion to subsidize the importation of an unverified volume of PMS into the country this year at a time when it has become extremely difficult to service external debts and reverse the oil trade deficit trend.

Contrary to the expectations of President Muhammadu Buhari that he would succeed in building a crude oil export profile of 1.7 million barrels a day as a buffer to contain the country’s external debt burden of over USD 33 billion, sadly, crude production for exports  has continued to dwindle in volumes and in revenues.

The country is also paying heavily to service its debt obligations. The country, therefore, is at the point where the value and role of the President as Head of Government and Minister for Petroleum Resources should come under critical focus,  scrutiny and constructive engagement.

Undoubtedly,  the apprehension that fuel subsidy removal may create social unrest does sound plausible, but this is quickly invalidated by the fact that the exact volume of imported fuel consumed by Nigerians remains controvertible. A large portion is allegedly smuggled to neighbouring countries and fully subsidized by Nigeria.

Glencore International Company, which is a regular trading partner with the NNPC, affirmed this truth when it recently said that the correct volume of petroleum products sold to the NNPC in exchange for crude oil cargoes is manipulated to achieve corrupt outcomes.

These corrupt international oil trading firms continue to hold sway in the country where the elites have also been enlisted to steal crude oil resources from their own country.

Of course, it is convenient to blame anyone else for this pathetic situation, but industry members would need to take a hard look at themselves and decide on better options.

EnergyDay had previously drawn the nation’s attention to instances where the NNPC claimed to have delivered PMS to depots for distribution to consumers only to discover that the corporation had not delivered the products as claimed.

As the impact of subsidies on petroleum products turns more and more sour, with the country expending  as much as N4 trillion in its 2022 budget provisions, the prevailing but biting effect of petroleum scarcity has now prompted wider public interest and disgust over the circumstances that continue to sustain an obviously inefficient and corrupt system.

The fundamental position of private sector players, including stakeholders in the petroleum industry, is unequivocal, asking the government to exit the subsidy regime in phases if it is incapable of doing so outright.

Unfortunately, the government is dawdling. Government lethargy to take corrective steps over six years ago to revamp the country’s refineries is playing out once more, as the country stands on the threshold of financial crisis, social discontent and business disruption over the lingering  problems associated with subsidies and external debt.

The country’s external debt now stands at over USD 33 billion, while debt servicing gulped the staggering sum of USD 548 million between Jan-March 2022. These figures are obviously going to increase in proportion to the declining volumes of crude oil exports.

This sad scenario is worsened by the lack of proactive engagement between the government and organised private sector players, including labour organisations, to set an exit realistic agenda for the country’s departure from the subsidy quandary.

In a nutshell, re-balancing the economy along the path of growth and within the context of Petroleum Industry Act(PIA) provisions.

EnergyDay’s position going forward begins with an urgent call on the President to convene a dialogue with a cross section of stakeholders focused on the remediation of glaring defects. This will allow the President first hand access to honest views, constructive engagement, and the opportunity to re-appraise his performance.

Some of the lingering matters that industry members, in consensus , have raised include the following, but certainly, there are other severe issues as well.

 
Transparent exit of the NNPC monopoly on the P.M.S market, starting from the month of August  when the corporation would have fully commenced business activities as a limited liability company.