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Petrol subsidy payments grew by 349.42 per cent from N350 billion in 2019 to N1.573 trillion in 2021, propelled by the rising price of crude oil in the international market and the falling value of the Naira.

The cost of subsidizing the product in 2020 was N450 billion. In 2022 alone, the total cost of subsidy in January and February was N396.72 billion, the latest data from the Nigerian National Petroleum Corporation, NNPC, has shown.

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Federal legislators approved the sum of N4 trillion to be spent on petrol subsidies in 2022.

The Federal Government had previously disclosed through the Minister of Information, Alhaji Lai Mohammed, that it spent N10.413 trillion on fuel subsidies between 2006 and 2019.

With Nigeria importing all its petrol from refineries abroad, the low value of the Naira has had a significant impact on the pricing of the product in-country.

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None of the three government-owned refineries is currently operational, despite huge investments in their Turn Around Maintenance (TAM) by the government.

The current administration has failed on its promise to make the refineries operational within a short period of assuming office.

Deregulation on hold

A plan by the government to deregulate the sector, following enactment of the Petroleum Industry Act (2021) that prescribes a free market for the downstream sector of the petroleum industry has been abandoned, with the government seeking and obtaining budgetary approval to spend N4 trillion on petrol subsidy.

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The annual expenditures on petrol subsidy under the current administration contrast very sharply when compared with fuel subsidy under the government of former President Goodluck Jonathan, which was accused of fuel subsidy fraud.

According to data published by the defunct Petroleum Products Pricing Regulatory Agency, PPPRA, the Federal Government paid a total of N2,105.92 trillion in 2011, an increase of N1,437.84 trillion from the 2010 payment.

It also noted that in 2012, N1.35 trillion was paid as a subsidy, the highest within the period under review.

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“A total of N 1, 316 trillion in 2013, N1,217 trillion in 2014 and N653.51 billion in 2015 was paid as subsidy claims,” it added.

It noted that the NNPC since 2016, had been the sole importer of the product to the country.

Determined to curb fiscal leakages associated with the fuel subsidy regime, President Jonathan had announced deregulation of the downstream sub-sector, with a view to eliminating fuel subsidy.

However, incumbent President Mohammadu Buhari, and other opposition party leaders, under the Save Nigeria Group, organised nationwide protests to stop Jonathan from going ahead with the decision.

Other notable Nigerians that led the mass protest included Pastor Tunde Bakare, who was Buhari’s running mate in Congress of Progressive Change (CPC) and Governor Nasir el-Rufai of Kaduna State.

The protests forced Jonathan to rescind the policy. When Buhari took over power in 2015, his government initially refused to pay fuel importers for products imported into the country.

It took a fuel crisis, characterised by long queues, to force the government to pay the debts, as the marketers insisted that they would not import more products unless their earlier bills were settled.

The Buhari administration was to later come to terms with the realities of the rot in the industry.

President Buhari made himself Minister of Petroleum and by so doing, has directly managed the petroleum industry. However, he has failed to make any policy changes.

‘Global price of crude determines petrol price here’

Speaking in a telephone interview from Ibadan, Director, Centre for Petroleum, Energy Economics and Law, University of Ibadan, Professor Adeola Adenikinju said the price of petrol is determined by the international price of crude and cost of foreign exchange.

Adenikinju noted that the government’s decision to continue subsidy payment was more political than economic, given the revenue challenges facing governments at all levels.

He pointed out that by retaining the petrol subsidy, the government would find it difficult to meet other commitments.

According to him, “It is a political decision, not an economic one. Economically, we know that subsidies have been very costly to the country and this is going to have serious implications on government revenue, particularly the state governments.

“The states are going to feel it more because they depend heavily on revenue from the Federation Account and secondly, they do not have the leverage to borrow like the Federal Government.

“If it goes ahead, the states are going to be hard-hit financially and it is going to be extremely difficult for them to meet all their commitments in terms of payment of salaries and keeping their obligations to pensioners”.

He noted that he would not be surprised later in the year if the states and local governments are unable to meet their commitments.

The university teacher also pointed out that the decision went beyond just revenue but would also have implications for the oil industry.

“It is also at the heart of the deregulation of the downstream sector. It will have implications for the implementation of the Petroleum Industry Act 2021 significantly because the decision on pricing is about market forces being at play to allow investment decisions to be made.

“This is going to hinder investment, so we can say that until the issue is resolved there is not going to be much private investment flow to the downstream sector.”

He blamed the middle class and the elite, who he said are the main beneficiaries of the petrol subsidy regime for mounting pressure on the government to retain the policy.

“Once you touch the middle class, the elite, they react. The argument is about the protection of the privileges of the middle class to which the labour unions belong. This is because kerosene was deregulated, nothing happened, diesel was deregulated, nothing also happened but once you touch something that affects the middle class, it becomes difficult to implement because they have access to the media”, he added.

(Vanguard)