During the early days of the Muhammadu Buhari administration, Nigerians were told to endure the hardship arising from the removal of fuel subsidy so that petroleum products would be available at the pumps at no extra burden to the public treasury. This was also marketed as helping to reduce grand corruption which was prevalent in the oil subsidy scheme. The sum of N145 per litre, being the pump price of fuel, still left marketers with a reasonable margin after deduction of costs. Thus, it worked and everyone seemed to be happy as the Nigerian National Petroleum Corporation and private marketers imported and distributed fuel across the federation. This was at a time the naira exchanged to the dollar at about N200 to $1.
When the naira lost so much value against the dollar and moved from N200 to $1 to the official exchange of N305, (there was even a time during the economic recession that the naira exchanged for almost N500 to the dollar), it became clear that the template used by the administration to phase out subsidy was no longer tenable. Also, with the rising price of crude oil in the international market, it was clear that refineries were buying their crude feedstock at a much higher price than before. As such, they were bound to pass on the higher production cost to the consumers. Yes, increase in the price of crude oil at the international market may be good for Nigeria’s public revenue, but we also have to pay for the refined crude which we import and it will now come at a higher price.
Again, the Buhari administration promised during the elections to get the refineries working at full capacity so that we can reduce our import dependence. Three years down the line, the refineries are either closed or working at less than 10 per cent of their capacity. Beyond photo shows and official grandstanding, there has not been any step taken either at the public or private level to build a new refinery and we are still importing virtually all that we need. The only ongoing refinery construction is the Dangote Refinery which did not start under this administration. According to the Group Managing Director of the NNPC, Dr. Maikantoi Baru, when he appeared recently at the Senate Downstream Petroleum Committee, the sum of N5.122tn was approved as subsidy payments to the NNPC between January 2006 and December 2015, out of which N4.950tn has been received by the corporation leaving a balance of N170.6bn outstanding and due. From this statement, this excludes subsidies approved for private marketers who have been importing refined products during this period.
The implication of this is that we have spent so much on subsidies and petroleum importation, more than needed to build refineries that would satisfy our local needs and position us as net exporters of refined products. Pray, what does it cost to build a medium-sized or even a large refinery? We are spending a very huge part of our foreign exchange on petroleum imports which puts undue pressure on our foreign currency reserves and the value of our naira. Again, we are exporting jobs to those countries that sell refined petroleum to us, as well as missing the companies’ income tax that would have been due from local refining as well as the personal income tax from individuals the refineries would have employed. Furthermore, the nation makes itself vulnerable to being shut down through the activities of marketers or any disruption of the oil import system.
Since the last quarter of 2017, fuel scarcity and queues have resurfaced across Nigeria. It got so bad that a few days to Christmas in 2017, the country was literally shut down as the fuel taps ran dry. The administrative capital city of Abuja and the economic capital city of Lagos had queues that were kilometres long. Residents of these cities and other cities quite close eventually bought fuel at the official price of N145. In other cities across the country, fuel was officially sold for between N200 and N250 per litre. The word “officially” is used for the sole reason that in the South-East cities for example, the accelerated prices were displayed at the pump. They were not hidden; it was not a question of displaying N145 per litre and using calculators to calculate the real price after one had bought fuel. No one from the NNPC and the Department of Petroleum Resources challenged any of these marketers in many cities outside Lagos and Abuja. Besides, the marketers in these cities insisted that they did not buy fuel at the depots at the official price that would enable them sell at N145 per litre and break even.
Today, Nigerians are confronted by the ugly reality, as officially stated by the authorities that the landing cost of a litre of fuel is N171.40 whilst it is being officially sold at N145, leaving an unaccounted balance of N26.4. This excludes the distribution margin of N14.3 approved by the Petroleum Products Pricing Regulatory Agency in its last template, which if added, brings the price to N185.7, leaving the unaccounted sum further to N40.7. Currently, private marketers are no longer importing since they cannot sell at a loss as the importation is only left to the NNPC. Who is paying for the loss or subsidy? The Minister of Finance, Kemi Adeosun, and Vice President Yomi Osinbajo have told Nigerians that it is the NNPC. The Minister of Finance sees it as “under-recovery” as, according to her, it is not a subsidy. This is simply a play on words as buying a product and selling the same below the cost price means that someone is providing a subsidy.
There are challenges arising from this scenario. The first is that the NNPC is now an operator allowed by the administration to pay for subsidies without legislative appropriation or the agreement of the three beneficiaries of the Federation Account, who it now shortchanges. This is wrong. The second is that the subsidy is to be calculated over the 35 million litres, (now stated by media reports to be 55 million litres of the PMS) which we use every day across the federation, at a time when fuel is sold for N145 only in Lagos and Abuja, to less than 25 per cent of the population. The bulk of Nigerians outside these two cities who buy for more than N145 – are they still enjoying a subsidy? It will be wrong to calculate subsidy payment on residents of other cities when they do not buy at the official price.
The third is that the purported jump in consumption from 35 million litres to 55 million litres is suspect. We are back to the days of providing opportunities for creative accounting which allows certain individuals to fleece the public treasury. Alternatively, the state is failing to police our borders to ensure that smuggling of petroleum products does not become a very lucrative trade. And Nigerians will pay the price for criminal entrepreneurs to enjoy.
The Buhari government is faced with a few options. It should stop this “under-recovery” story and proceed to calculate the actual subsidy and appropriate money for the same. The alternative is to increase the price of fuel to reflect the current realities – a notion the government may not dare take considering that 2019 is an election year. Also, the government should ensure uniformity of prices across the federation unless it is abolishing the uniform price policy. In the final analysis, there is really no alternative to building local refineries.