By Punch Editorial Board
THE last word on subsidies has not been heard after former President Olusegun Obasanjo declared recently in a viral interview that the petrol subsidy abolished by President Bola Tinubu in his inaugural speech in May 2023 is back. Obasanjo’s assertion contradicts the Tinubu administration’s “fuel subsidy is gone” mantra, which has also been challenged by economic commentators, the IMF, and the World Bank. The key to resolving the subsidy conundrum lies in solidifying the domestic refining industry.
The former president suggested that the Nigerian government should have implemented specific measures to cushion the economic impact before removing the subsidy, which he blamed for the inflation topping 34.19 per cent in June, the highest rate in 30 years. Inflation eased to 33.40 per cent in July.
In his August 4 broadcast in response to the 10-day #EndBadGovernance protests, Tinubu ruled out the possibility of reviving the petrol subsidy, which was one of the protesters’ key demands. The President insisted that the cancellation was “painful but necessary,” emphasising that it had been a major economic obstacle. He likened it to a “noose around the economic jugular of our nation.”
Undoubtedly, the fuel subsidy is back in force. Fuel importers, under the aegis of the Major Energies Marketers Association of Nigeria, asserted that the landing cost of imported petrol was N1,117/litre as of July 16. The NBS put the average price of petrol in June at N750.17/l, while the average price of diesel was N1462.98/l in the same period. The pump price at NNPC retail stations in Lagos is N568 per litre with an implied subsidy of N549 per litre.
During the June Federal Accounts Allocation Committee meeting, the Minister of Finance, Wale Edun, said the Nigerian National Petroleum Company Limited is seeking a refund of N4.71 trillion from the Federal Government to cover outstanding debts incurred for importing petrol.
The demand is based on exchange rate differentials and joint venture taxes related to petrol imports between August 2023 and June 2024. In effect, the NNPC is bleeding from bearing the cost of importing and selling petrol well below market rates. This questions NNPC’s status as a commercial entity.
The situation reinforces notions that little thought was given to the petrol subsidy removal policy from the outset. Prices are at a record high, yet subsidy costs have risen in the real term.
The government is in a fix as a complete removal of petrol subsidy will send pump prices well above N1,000, worsening the punishing inflationary trend with a real risk of triggering chaos and public disorder. Fuel imports cost $600 million monthly.
The situation demands domestic refiners to fill the gap. The Dangote Refinery, with 650,000 barrels per day capacity and the four NNPC refineries under refurbishment, can easily meet Nigeria’s daily fuel consumption requirements.
Dangote has exported fuel cargoes to Europe, and industry watchers have acknowledged that the refinery’s operations have put pressure on European refiners, with about 90 under threat of closure as they lose their West African markets. Nigeria must benefit substantially from this and other refineries, even if it means leveraging state power. The Federal Government needs to minimise the impact of forex on domestic petroleum product prices.
Nigeria will save $7.32 billion yearly selling crude oil and buying refined products from Dangote Refinery at local currency as proposed, a 94 per cent decline from the actual spending.
The government must stick to its commitment to supplying domestic crude to local refiners while all efforts must be focused on ramping up crude production. OPEC figures showed that Nigeria produced just 1.3mbpd in July, much lower than the 2024 budget benchmark of 1.78mbpd despite a potential for 2.2mbpd. Oil theft and pipeline vandalism remain a major drain on the economy and a threat to domestic crude availability for local refiners.
