The return of Fuel Subsidy

by

By Reuben Abati

I was away on vacation for just two weeks only to return to meet fuel queues still on the streets of Nigeria with the fuel stations rationing fuel in Lagos and other parts of the country. It is a big shame, and an embarrassment that the world’s sixth largest producer of crude oil cannot refine its own petroleum products. Nigeria has the finest blend of crude - Brent Crude notable for its low sulphur content, but as in everything else, we export the best of our assets, including people, only to buy back the same assets from outsiders. With finished petroleum products, we now import the same petrol that flows in abundance in the creeks of the Niger Delta and the backyard of some people’s ancestors. Reuters reported recently, that NNPC Limited, the sole importer of finished products, enjoying a monopoly in that regard was indebted to gasoline suppliers to the tune of over $6 billion forcing traders to backout, resulting in a scarcity of fuel in the country. Under contract terms, NNPCL is required to pay within 90 days of delivery, failing which the traders collect a late payment compensation of $250,000 per cargo. So, when Nigeria tenders for fuel, a number of traders now look the other way. Nigeria has no savings to bail it out, instead the government is desperately looking for money. It won’t be long before the Nigerian government begins to tax persons for dying, or having babies or for marrying or engaging in the basic ordinary tasks of living.  In 2023, NNPCL took a loan of $3.3 billion from Afrexim Bank, but it looks like even that has been depleted.  What we are dealing with, those who are familiar with the subject tell us, is simply the failure of policy, the lack of vision at the highest levels and the cumulative effect of the many years of the oil curse. President Bola Ahmed Tinubu worsened the situation. The crisis that non-availability of fuel in the country has now created, with the high cost of living, inflation, loss of time and capital and the widespread angst in the land could have been avoided. We suffer because of Tinubu’s populism, over-excitement and lack of caution.

On May 29 2023, at his inauguration as President of Nigeria, Tinubu allowed his emotions to get the better part of him when he suddenly announced in his inaugural speech that “fuel subsidy is gone!” Some poorly educated persons in his team must have told him that he should do something radical from the first day, and that after all in Kenya, William Ruto did something radical as soon as he assumed office. Ruto is today rueing the day he caused the tragedy that his exuberance has brought upon him. There may have also been persons around President Tinubu who told him to take a step that would please the IMF and the World Bank, both of which had always argued that Nigeria could not sustain its subsidy regime. What no one told Tinubu was that whereas the removal of fuel subsidy was prescribed in the Petroleum Industry Act of 2023., President Muhammadu Buhari, Tinubu’s predecessor was happy to claim the credit that it was under his watch that the PIA was passed after 13 years – one of the longest running pieces of legislation in recent times - but he was not willing to implement every aspect of it. Section 205(1) of the PIA states that wholesale and retail prices of petroleum products would be determined by market forces, to encourage competition and private sector investment. As of 2022, almost one Naira in every four Naira earned by the Nigerian government was spent on fuel subsidy. Nonetheless, the Buhari administration played smart. It postponed the divine reign of market forces until after 18 months, stating that the removal of fuel subsidy could result in social upheaval, and that the timing would be problematic. Buhari willfully disobeyed the same law that he signed. He postponed the evil day and left a booby trap for Bola Ahmed Tinubu, who clearly out of over-exuberance on Inauguration day proclaimed that “the fuel subsidy is gone”.  His media handlers have said that he was left with no option in the matter, because in any case the extension by the Buhari administration was due to expire. But could Tinubu have considered other options? Could he have chosen the option of a little honeymoon with the Nigerian people?

The least that he could have done would have been to wait and study the situation and not resort to an impulsive policy-making decision to please the Western crowd. The error is not his alone. What happened to the so-called members of the Transition, Hand-over committee? They should have looked at the situation on the ground and advise the President accordingly.  Buhari thought the removal of fuel subsidy would cause social upheaval, Tinubu’s transition team should have embarked on a rigorous interrogation of why and how Buhari tactfully avoided the storm. He must be laughing at Tinubu in his Daura home. And this is without prejudice to the fact that every economist that I know argued that the fuel subsidy regime was unsustainable. It had become an avenue for corruption and sharp practices, the very reason the Jonathan administration decided in 2012 to deregulate the downstream sector of the petroleum industry. The Mafia, benefitting from the rot in the industry including present occupants in the corridors of power, sabotaged the Jonathan government. They have since eaten their vomit, returning to 2012, and they are shamelessly comfortable about it. In 2012, fuel subsidy gulped just about N1 trillion. Tinubu created a perfect storm by removing fuel subsidy and also abolishing the dual foreign exchange rate at the same time. It is simple common sense. Both moves were populist but the timing and the combination were wrong. Within 15 months, Nigeria is literally on its knees. Between May 2023 and now, the pump price of fuel has gone from N197 per litre to N617 per litre and up to N1,3000. President Tinubu promised the people that he would renew hope. He told us “e lo fokan bale.” On the contrary. cases of sudden death syndrome have increased. Nigerian youths are fleeing abroad in droves because they cannot find hope in their own country. Nigeria has not even been able to meet its OPEC production quota. When the spot price of Brent goes up as it did during COVID-19, and now in the face of the conflicts in the Middle East, and between Russia and Ukraine, Nigeria is unable to take advantage of given opportunities. The country is also underperforming in Domestic Revenue Generation as the elites in power, after a fashion, are more interested in their own luxury and comfort. The optics are scary. The Tinubu government has left the people in a place of confusion: Fuel subsidy was removed on a whim, without clarity and proper consultation with stakeholders, and apparently no co-ordination with the sub-nationals.

What I find particularly intriguing is that last week the same Tinubu administration trying to find a way around the fuel scarcity in the country and the fact that fuel now sells for as much as N1,300 per litre in parts of the country, directed the NNPC to use its 2023 final dividends due to the Federation to pay for petrol subsidy, in other words, the Federal Government wants the payment of dividends to the Federation to be suspended, to boost NNPCL’s cash flow. On its part, NNPCL says it will be unable to remit taxes and royalties to the Federation anyway because of on-going subsidy payments or what it calls “subsidy shortfall and FX differential.” In summary, NNPCL says it has been paying subsidy, and the Federal Government says it should pay more. This is enough talk to make anybody have a headache. For, the same Tinubu administration since May 29, 2023, had insisted that there was no fuel subsidy in Nigeria, even when everyone including the IMF reported that fuel subsidy had been re-introduced as far back as December 2023. Nasir el-Rufai and others told us the government had reintroduced fuel subsidy. Senator Atiku Bagudu, Minister of Budget and Economic Planning said this was not true, quoting the PIA, and insisting that in fact the government was saving money from the removal of fuel subsidy, up to about N400 billion monthly.

The lie is now out in the open.  The minimum that the Tinubu administration can do is stop the continuing cycle of deceit and hypocrisy on the fuel subsidy issue. The deceit should stop. We are in the era of transparency and accountability. The word of the government should be its bond. A government can admit that it made a mistake and it has found cause to change its mind. There is nothing wrong in that. It is not enough for President Tinubu to issue an order to NNPCL directing it to use royalties and dividends due to the Federal Government to manage fuel prices. What is the exact amount that we are talking about? What are the details? For how long? If there has been a change of policy, President Tinubu should be courageous enough to come before Nigerians and use the same energy and enthusiasm with which he pronounced “fuel subsidy is gone” to APOLOGISE to Nigerians, tell them a mistake has been made, and explain how his administration hopes to resolve the problem.   The reason there has been so much turmoil in town is because the people feel betrayed. President Tinubu needs to rebuild public confidence in his administration.  He can start by making the government less ostentatious. He wants the people to make sacrifices. The process must begin with him. He needs to reinvent politics. He must lead by example. The nation needs to know the truth. It is normal to make mistakes. It is nobler to admit one’s errors and seek to make corrections.

In the face of the fuel scarcity in the land, Nigerians are asking: what is happening to the refineries in Port Harcourt, Warri and Kaduna?  It does not require divine intelligence to get the refineries working, but what we are confronted with is an endless circus of lies.  We are told again and again that the refineries will be completed, but we might as well be waiting for Godot. In August 2023, we were confidently informed that Nigeria would restart its four refineries by the end of 2024, so said Heineken Lokpobiri, the Minister of State for Petroleum. We heard the same thing in 2022. Lokpobiri repeated the lie. The Nigerian government should stop telling lies! It is irritating.  Where is the Warri refinery that was supposed to start operation in the first quarter of 2024?  Where is the Port Harcourt refinery that was “technically completed” in December 2023? Dates are set. Deadlines are not met. And we, the people, are supposed to understand that we live in a country where promises are not meant to be kept and leaders can do as they wish, without any explanation.? No. No. No. It is offensive that Nigeria is so blessed with oil and gas resources and all we talk about is crude oil theft, militancy in the Niger Delta and the country’s failure to meet production quota. To all intents and purposes, Nigeria is still dependent on oil resources despite argumentations that the country needs to diversify its economy, and invest more in the non-oil sector.

There is the unresolved matter of the Dangote Refinery. This was a project that we all prayed for and hoped for to meet local demands for petroleum products and generate competition and investment. In typical Nigeria fashion, a $20 billion worth of investment and the prospect of a pathway to economic regeneration has been reduced to petty stories about Dangote’s personality and identity, with such questions as why would he, a Kano man, set up such a big project in Yorubaland? Or why would anyone allow an extension of Dangote’s monopoly? How much did he contribute to Tinubu’s election campaign in 2023? As if that should matter? Somehow, the excitement over the proposed 650,000 barrels of petroleum products per day has been abbreviated by typical Nigerian stories. Some kill joys have even tried to de-market the Dangote project.  And then there are others who are saying that Mele Kyari is the problem. Twice on television, I have said clearly that Engr. Kyari is not the problem. In terms of record, he has done much better than his own predecessors. His spokespersons have given us much information about his efforts. I do not intend to be their megaphone, only to add that it is far too simplistic for Nigerians to seek a fall guy for the same problems that could have been easily addressed through long-term visioning. Nigeria waits for you. While you are busy doing your own thing, trying to make an impact, Nigerians have a good habit of waiting till you get to a significant moment and they would pounce on you, to destroy your dream. We must all be careful not to turn this country into a hostile environment for talent, creativity and good citizenship.  Tinubu has a duty not only to fix the loopholes, but also to embark on an urgent national project of moral regeneration. There is too much toxicity in this land.

I end this piece knowing that the fuel queues are still out there. NNPCL has given the excuse of distribution challenges and weather conditions, but can they tell us another story please? Even in countries with the most extreme weather conditions, they have fuel at their filling stations. And how about distribution challenges? A government that is determined to help and serve the people will find the political will to address those challenges whatever their colour or shape. There is no limit to how far a government can go to deceive the people, but there is certainly a limit to the people’s anger and frustration. President Tinubu should know this.