Nigeria’s President Muhammadu Buhari will present the 2023 appropriation bill before the National Assembly in September, and the country’s projection to spend nearly N7 trillion naira on petrol subsidy is already unsettling lawmakers.
Nigeria, the largest oil producer in Africa, is unable to benefit from the global surge in oil prices caused by the Russia-Ukraine war because of petrol subsidy payments which now cost the country N18.69 billion daily, according to the Minister of Finance Zainab Ahmed.
Fuel subsidy is the difference between the landing cost of imported refined petrol estimated at N448 per litre and the official pump price pegged at N165 per litre. As of April 2021, the landing cost was N216 per litre, indicating over a 100 per cent increase within 17 months. The government initially projected to spend N3 trillion on fuel subsidy in 2022 but later revised it to N4 trillion and the World Bank has predicted the cost could go as high as N5 trillion.
Appearing before the House of Representatives ad-hoc committee investigating the subsidy regime from 2013 to 2021 last week, Ahmed said that based on information provided by the Nigeria National Petroleum Company (NNPC), the country projects the average daily truck out in 2023 would be 64.9 million litres per day.
She presented two scenarios to the lawmakers – one involving the continuation of petrol subsidy payment throughout the year 2023 and the second where subsidy payment is phased out after the first half of the year.
“Scenario 1 – the Business-As-Usual scenario: This assumes that the subsidy on PMS, estimated at N6.72 trillion for the full year 2023, will remain and be fully provided for. Scenario 2 – the Reform scenario: This assumes that petrol subsidy will remain up to mid-2023 based on the 18-month extension announced in early 2021, in which case only N3.36 trillion will be provided for,” the finance minister said quoting the 2023-2035 medium-term expenditure framework and fiscal strategy paper (MTEF&FSP).
“The cost is unsustainable, but an election in early 2023 has sharpened the government’s resolve to continue with price regulation,” analysts at the Economist Intelligence Unit said in a report, adding that it expects subsidy for petrol to end in 2023.
However, at an estimated landing cost of N448 per litre of petrol which is subject to rising inflation, Nigerians could buy a litre of fuel for over N450 per litre if the plan to remove subsidy is sustained and it is not yet clear what measures the federal government would announce to cushion the effect on the citizens in a country where food inflation is already at 22.02 per cent.
Nigeria’s over four decades of fuel subsidy management
Fuel subsidy in Nigeria is an old practice that dates back to 1977 after the promulgation of the Price Control Act which made it illegal for some products (including petrol) to be sold above the regulated price. This law was designed to cushion the effects of the global “Great Inflation” era of the 1970s, caused by a worldwide increase in energy prices, but the subsidy payments have always generated controversies.
Since the 1970s, 11 out of 12 Nigerian leaders have attempted to reform fuel subsidies with no long-term success. According to the Petroleum Products Pricing Regulatory Agency (PPPRA), Nigeria spent a total of N8.94 trillion on oil subsidies between 2006 and 2015. From records, there was no subsidy payment in 2016 as a result of the removal of subsidy on petroleum products which hiked the pump price of petrol from N89 to N143, but subsidy was reintroduced in 2017 and although the government has not been transparent about the exact amount spent since then, the indications are that the cost of making petrol cheaper for Nigerians has continued to rise.
In 2020, the NNPC, which is the sole importer of petrol into the country in recent times, announced it had recorded zero-subsidy payments in the months of April and May, after recording an under-recovery of N101.7 billion in the first quarter of the year. However, the zero-subsidy payment success was short-lived after failing to get the support of major stakeholders, particularly the labour unions. The federal government later decided to reintroduce the subsidy until July 2022, to buy it more time to engage with relevant stakeholders.
In a decisive move to overhaul the petroleum sector and ensure speedy removal subsidy, the Nigerian Petroleum Industry Act was introduced in August 2021, which indicated that all petroleum products would be deregulated. Again, the plan to remove the subsidy a year later was suspended after it became clear that the timing was problematic, mainly due to heightened inflation.
The International Monetary Fund (IMF) and other stakeholders have consistently advised the federal government to urgently remove subsidies as its rising cost had become unsustainable. The Minister of finance has also admitted that petrol subsidy is “hurting the nation” and limiting the federal government’s ability to service debt. But the labour unions are worried that the removal would increase the poverty rate and worsen inflation which is already 19.64 per cent.
Subsidy payment controversies
A federal lawmaker representing Esan North and South East constituency in Edo state Sergius Ogun, recently accused the NNPC of purchasing 445,000 barrels of crude oil per day in 2002, at a time when the installed capacity of Nigeria’s local refineries was 445,000 barrels per day. He alleged that due to inefficiency and corruption of critical stakeholders in the value chain, the capacity utilisation of local refineries began to decline in order to justify the export of domestic crude, in exchange for refined petroleum products.
There have also been controversies over the quantity of PMS imported per day in relation to the country’s consumption rate. Last year June, NNPC’s Group Managing Director Mele Kyari, said the daily consumption of PMS reached 103 million litres in May, as a result of smuggling across the borders, but as of April 2022, 74 million litres was declared the average daily consumption. However, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) said using truck out from depots as a yardstick, the average daily consumption of the product was 60 million litres per day.
The Nigeria custom service (NCS) puts the total volume of PMS imported into the country between 2015 and June 2022 at about 2.4 trillion metric tonnes in 3, 703 vessels, while about 876 billion metric tonnes of PMS was exported within the same period in 1, 296 vessels. The House of Representatives is investigating subsidy payments as it says there is evidence that the amounts were being duplicated.
The House Committee investigating the subsidy payment between 2017 and 2021, published a list of 23 unregistered oil companies which participated in the fuel subsidy regime during the period under review. The companies are Emadeb Consortium; Britania-U Nig. Limited; Totsa Total Oil Tradings SA; Petroleum Trading Nigeria Limited; Mocoh S.A; Socar Worldwide; Calson Bermuda Ltd; Hyson; Litasco S.A; Mercuria Energy; Cepsa Lubricant; Trafigura Pte; Vitol S.A; Ocanbed Trading Limited; Bonno Energy; West Africa Gas Limited; Petrogas; Matrix; Masters Energy; Amg; Barbedos; Hindustan and Patermina.
The Chairman of the ad hoc committee Ibrahim Aliyu, the projection that the sum of N6.7 trillion would be required for subsidy in 2023 was worrying, especially against the background that the country had resorted to borrowing to finance some of its previous budgets and Nigeria’s Accountant General of the Federation has been invited to respond to some of the issues raised in a hearing expected to hold this week.
Meanwhile, the Senior Special Assistant to President Muhammadu Buhari on Media and Publicity Garba Shehu, has said the federal government would soon go public with the identity of highly placed Nigerians behind oil theft in the country.
“Oil theft is being tackled. The big problem we have in this country is that we ought to see more commitment from communities in assisting law enforcement agents. In some cases, where some actors in the law enforcement are complicit, it becomes bad.
“We used to fight the OPEC for more quotas; now, they have given us and we are not able to meet up. This is embarrassing. I am hopeful that in the next few days, the office of the National Security Adviser will be presenting to the country, big men who are promoters of this kind of business,” he said in an interview.