By Adedotun Ajayi
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Nigeria has been subsidising petrol for several years to ensure Nigerians buy petroleum products below the global price. And like every government intervention, petrol subsidy has its cost and benefits. The principle behind petrol subsidies is to minimize the impact of ‘rising world oil prices’ on Nigerians. Therefore, buying petrol products at a high price is the main problem and petrol subsidy is used to solve it.
The first petrol subsidy removal was in 1986, with Ibrahim Babangida as President, when he announced a partial removal of oil subsidies, which saw petrol price rise from 20 kobo to 39 kobo per liter. This followed his implementation of the Structural Adjustment Program as set out by the International Monetary Fund. There was a huge uproar against the decision, which reached a crescendo when workers, students and civil society groups embarked on massive demonstrations across the country. Massive and sustained protests against Babangida’s economic policies played a big role in his hurried exit from power, the administrations that followed left subsidies in place. In 2012 the subsidies were removed by Goodluck Jonathan who was then President of Nigeria, the price of petrol became twice as high. One liter of petrol cost about $1, which was half of a common Nigerian citizen’s daily worth. In 2016, the subsidies were canceled once again with the global drop in oil and petrol prices, the government claiming that it was no longer possible to sustain the process.
According to the World Bank, subsidy payments could significantly impact public finance and pose debt sustainability concerns in Nigeria. Nigeria’s economy depends on petroleum, accounting for 90 percent of its exports and one-third of its GDP. However, the petroleum industry recently recorded zero revenue.
The Nigerian National Petroleum Company released a report in October 2022 that revealed that the agency recorded zero revenue from oil export due to the subsidy payment. Petrol subsidy alone for October 2022 gulped N199 billion. Nigeria incurs too much cost to pay fuel subsidies. Experts say there is a need to consider removing the fuel subsidy to fund other sectors of the economy.
Minister of Finance, Budget and National Planning, Zainab Ahmed had, during the weekly Federal Executive Council meeting, announced that Nigeria secured an $800 million grant from the World Bank as part of its subsidy palliatives measures ahead of the removal of a costly fuel subsidy by June.
“The first tranche of funding from the Washington-based lender will enable us to give cash transfers to the most vulnerable in our society that have now been registered in a national social register,” Ahmed said.
According to the minister, the palliatives would be targeting 50 million vulnerable Nigerians or 10 million households. Ahmed added that engagements are ongoing with the newly established Presidential Transition Council (PTC) and the incoming administration to drive the palliative programme, which includes the need for buses among various considerations.
Ayomide Olupona, a political scientist said the issue of oil crisis in Nigeria is complex and multifaceted, and there is no single solution that can solve the problem completely.
According to him; “The country’s dependence on oil exports for revenue has led to a volatile and unstable economy, with frequent fluctuations in oil prices and production levels.
The removal of oil subsidies has been a topic of debate in Nigeria for many years, with proponents arguing that it could help to reduce government spending and redirect funds towards critical infrastructure projects and social programs. However, some argue that subsidy removal could lead to an increase in the cost of living for ordinary citizens, who are already struggling with poverty and economic insecurity”
He further explained why It is important to note that the removal of subsidies alone is unlikely to solve the problem of oil crisis in Nigeria. Instead, a comprehensive approach that includes diversifying the economy, improving infrastructure and transportation, and implementing policies that promote sustainable energy sources and conservation may be needed.
“Additionally, addressing issues of corruption, improving governance, and promoting transparency and accountability in the oil sector are also important steps to help ensure that Nigeria’s natural resources are managed and utilized in a sustainable and equitable manner.
Overall, the solution to Nigeria’s oil crisis requires a multi-faceted and long-term strategy that involves a range of stakeholders, including government officials, industry leaders, and citizens” he added
On the contrary, Khalid Okunade, a legal expert said removal of subsidy is not completely a bad idea because It would ensure private sector participation in the importation of petroleum products which will free up the market, empower many Nigerians and also allow the government to focus on other key sectors of the economy.
According to him; “It will ensure the ready availability of petrol at all times for all Nigerians as Nigeria will be saturated with petrol and there will be no diversion by marketers, will also curb the greed for higher profits and sabotage by a few players in the oil industry which will positively affect the economy”
He continued and said removing fuel subsidy might be the solution to the oil crisis Nigerians face almost every year because it will ensure competition in the industry and market forces will drive down the price of petrol in the long run as witnessed in the telecoms sector for the benefit of Nigerians.
“And lastly and this is the one of the most important, it will permanently banish queues from petrol stations across the nation and free the country from the endless pains and sufferings that come with fuel scarcity, which makes Nigerians line up in petrol stations for a day” he said
Omolola Abiodun, a financial expert said fuel subsidy removal in Nigeria is an economic necessity, as the subsidy funds could lead to major development gains.
According to her; “The FG spends about ₦40.1 billion daily, subsidizing every litre of petrol consumed in Nigeria by at least ₦600. It means the government spends about ₦1.24 trillion on fuel subsidies monthly. The country is in massive debt and would need more money to subsidize fuel. And according to the Debt management office Nigeria, by May 2023 which is this month, the Debt Stock is projected at N77 Trillion.
The country needs to consider getting investors into the petroleum sector to boost the country’s economy”
“Although the removal of subsidy could have a deleterious effect on the entire nation, if not properly managed. An increase in the cost of petroleum motor spirit (PMS), diesel, and kerosene is set to bring about inflation and ultimately spiral into every sector of the economy. Transportation costs will increase, consequently, the cost of goods and services might skyrocket too” she warned
