[OPINION] Playing games with petrol subsidy

By Simon Kolawole

It took me less than one hour into President Bola Tinubu’s administration to spot a giant red flag. His famous words at the inauguration, “subsidy is gone”, instantly set off an alarm in my head. In my article on it, ‘Why (Most) Nigerians Oppose Subsidy Removal’ (June 4, 2023), I wrote: “With all of Tinubu’s experience in government, I thought a presidential pronouncement on such a very sensitive and emotive topic could have been better managed.” My worry, on hearing his declaration, was that it lacked strategic thinking and it was going to create chaos everywhere as there would be panic buying. Little did I know that chaos was going to be the core administrative model of his government.

To start with, President Muhammadu Buhari budgeted for petrol subsidy for only the first half of the year. It went without saying that from July 2023, subsidy would be gone — unless his successor decided to retain it. Why, then, was Tinubu in a hurry to announce the death of subsidy one full month ahead of schedule? The Nigerian National Petroleum Company Ltd, aka NNPCL, quickly issued a statement to “clarify” that the announcement would take effect from July, but it was a waste of time. That would only lead to hoarding and hardship. A couple of days later, NNPCL announced a new price of N488/litre in Lagos, up from N185. In other parts of Nigeria, it was as high as N557.

When Tinubu made the ill-advised Eagle Square declaration, the price of crude oil was $75/barrel and the FX rate was N463/$. In June 2023, when the pump price of petrol was adjusted, I understand that the base assumption was an exchange rate of N600/$ — thereby creating some wriggle room in case of depreciation of the naira. Two weeks later, the Central Bank of Nigeria (CBN) decided to float the naira in its “willing buyer willing seller” policy which — as overly optimistic projections go — was supposed to stimulate the inflow of billions of dollars into the economy, undercut the black market and stabilise the naira around N650/$ at most. The poorly managed float ended up killing the naira.

In July 2023, the theory and practical of floating parted ways as the naira started spinning out of control, hitting N800/$. The Tinubu administration reacted by increasing petrol price to about N600. Thereafter, the naira went fully naked in the FX market, crossing the N1,000/$ mark in September 2023 and racing towards N2,000/$. To make matters worse, oil went up to $93/barrel. However, petrol price remained unchanged. Shockingly, the government and NNPCL insisted there was no subsidy. By the end of August 2024, the FX rate was about N1,600/$ and oil was close to $80/barrel, but petrol remained N617. Amazingly, NNPCL kept saying there was no subsidy, just “a shortfall”.

Alhaji Umar Ajiya, the chief financial officer (CFO) of the NNPCL, added some comedy to the tragedy, saying: “What has been happening is that we have been importing PMS, which has been landing at a specific cost price, and the government tells us to sell it at half price. So, the difference between the landing price and that half price is a shortfall.” Ajiya was only doing what NNPCL historically does: pulling the wool over our eyes. Now that NNPCL has adjusted petrol price to around N855/litre, we are still being told government does not fix the prices, that the market has been “fully” deregulated and it is the market forces that are at work, or at play — a barefaced lie that will go unpunished.

Before the latest price hike, NNPC was buying petrol at N1,200 and selling at N600. To cover the “PMS shortfall” from January to July 2024 alone, NNPC forked out N4.2 trillion. By December 2024, we will have spent about N8 trillion on “PMS shortfall” for this year alone — money that should have otherwise been shared by the federating units. Even if we (expectedly) steal or waste 50 percent of it, there will still be some N4 trillion left to spend on education, roads, health, water, etc. As our forefathers would say, “at all at all na him bad pass”. That is, half a loaf is better than none. The reality is that we have been subsidising petrol consumption since most probably August last year.

Nigerians have been very patient with Tinubu but it appears he does not appreciate this. He would do well to come clean on this subsidy issue. The starting point is the need for conceptual clarity. What exactly is he trying to do? Is he increasing petrol price to reduce the subsidy bill? Or is he trying to generate more revenue from the sale of petrol? When he says “subsidy is gone”, is he deregulating the pricing so that any marketer can buy petrol and sell at a price that covers the cost and provides a profit margin — as the case has been with diesel for decades? Or is he just making a political statement for the cameras? Until we know what he is doing, we cannot have a meaningful debate.

Secondly, it is very clear that there was no preparation for this policy. There was a lack of proper thinking — and this should be surprising for someone who said what he wanted in his life was to be president. You would think he had developed a solid blueprint over the years, but the impression I keep getting from the day he was sworn in till now is that he has been doing things on an ad-hoc basis. For a major issue like the pricing of petrol, you would have expected scenario painting. If the cost of petrol per litre is x, are we going to sell at x plus profit? Or are we going to modulate the price? Where will funding come from? Floating the naira after removing the subsidy was so reckless.

Thirdly, the lack of transparency in the whole game is so irritating. Why is Tinubu playing games? While NNPCL and Senator Heineken Lokpobiri, minister of state for petroleum, were busy playing with words on the latest petrol price hike and saying it was all about market forces, Tinubu was saying in faraway China that the increase was because he had to take “hard decisions” for the sake of Nigeria’s development. Don’t they have a WhatsApp group where they can co-ordinate what they tell Nigerians? In any case, “subsidy scam” was one of the catch phrases the APC used to oust the PDP in 2015. Buhari famously asked: “Who is subsidising whom?” It is now an albatross around APC’s neck.

On assuming power and seeing the reality of subsidy in 2015, the first APC administration resorted to semantic sophistication, preferring to call it “cost under recovery” — as if that would solve any problem. They belatedly ended the denial by finally calling a spade a spade. The second APC administration, headed by Tinubu, has rebranded subsidy as “shortfall”. Subsidy denial amounts to lying to your doctor about your illness. Obviously, the denial is also an ego thing. Tinubu, who reputably tamed the Atlantic Ocean, is also celebrated as having slain the subsidy dragon, thereby doing what Napoleon — and all previous Nigerian leaders — could not do. So why burst his bubble?

I know that petrol has been regarded as the most important product in Nigeria and issues around its pricing are tricky. Diesel pricing is free of government control and we have moved on with our lives. Same for kerosene and Jet-A fuel. The labour unions have never called a strike over diesel price, even though a large chunk of inter-state transport is by luxury buses which run on diesel. Most goods — foodstuffs, equipment, etc — are moved across the country by trucks and trailers running on diesel. Medium to large-scale businesses run on diesel. All these impact on the cost of living. Diesel was N700 when Tinubu came in and is now N1,300 or thereabout, but there are no calls for strike.

Why always petrol? I asked a senior friend last week and he reasoned that it was because it is one product that affects the life of every Nigerian. Really? More than the prices of garri, rice, yam, maize, tomato and beans? I have never heard that anybody went on strike because of rising prices of yam or rice. Does that mean Nigerians consider petrol to be more important than food? I don’t think so. My conclusion, which may be tenuous, is that we think, rightly or wrongly, that petrol is “government property”. Therefore, government should take sole responsibility for the pricing in the interest of Nigerians, whether or not it can afford the bill. We classify petrol as a socio-political commodity.

Early 2023, when petrol was N185 in Lagos, I told a filling station attendant that I had just returned from Ghana where a litre was about N700. He replied: “But their government is doing something for them. Fuel subsidy is the only thing we enjoy in Nigeria.” His sense was that Ghana was spending the revenue from petrol on its citizens. I wanted to explain to him that the Ghanaian government does not sell petrol, that it is purely the business of private companies, but courage failed me. Petrol price in Ghana is determined like the price of yam: how much did I buy it? How much did I transport it? How much will I sell to make a margin? We have been unable to achieve this in Nigeria since 1986.

I don’t know who brought up this idea that with Dangote Refinery, petrol would be cheap because it is locally refined. How? The major cost input is crude oil. If crude oil goes for $80/barrel, products cannot be cheap — except we subsidise the crude. A benefit of local refining is the elimination of shipping cost, which does not amount to much. Shipping is the cheapest form of cargo transport across the globe. The biggest benefit of local refining is that we would conserve the FX we spend on fuel imports. The downside, though, is that if we sell crude in naira, we will lose the opportunity to earn FX from oil exports and that could further hurt the naira. Every policy comes with a trade-off.

In the final analysis, whatever we do with petrol subsidy, there will be repercussions. We remove it, Nigerians will suffer but the treasury will suffer less. We retain it, Nigerians will suffer less but the treasury will suffer more. Know that, know peace. It is for the government to weigh its options. But this administration has been disingenuous. They should come out and tell us the truth with their chest. They should lay bare their thinking. Do you want to treat petrol as a socio-political commodity? Do they want to truly deregulate? Why play games? In 2024 — over 180 years after education came to Nigeria — we are still being treated as a colony of ignoramuses. It is what it is.

Culled from TheCable