It is time to put sentiments to one side and bury the lie that subsidy helps the poor. The poor will be better served if the trillions of naira spent on fuel subsidy were invested in schools, hospitals, power and other public infrastructure, instead of making dollar millionaires of oil marketers, NNPC officials and Petroleum Product Pricing Regulatory Agency (PPPRA) staff.
Nigerians are yet again facing the misery of fuel scarcity for the umpteenth time. It is unfortunate that NNPC’s group managing director, Dr. Baru continues to blame so called saboteurs and hoarders for the fuel crises, instead of taking responsibility for the corporation’s failures. This misleading narrative was sadly repeated by the president in his new year address to the nation. Since private operators stopped importing refined petroleum products into the country, NNPC has been struggling to close the supply gap left by them due to capacity and logistical challenges. This is the real reason for the fuel scarcity in the country. The hoarding of petrol was just incidental and a consequence of the shortage of supply. Nigerians must now brace themselves for a long period of sporadic fuel scarcity until we address the thorny issue of price regulation of petroleum products in Nigeria. This is at the roots of the problem of fuel scarcity that has plagued Nigeria for decades.
In a free market, government may be able to control price but they cannot force anyone to supply a product at a loss to themselves. Removing price regulation would end petrol shortages at once. In the medium/long term, competition will drive down prices as private operators begin to invest in building refineries in Nigeria. The government itself will save billions of naira on bureaucracy and the huge cost of enforcing price control regulations across the 36 states of the federation.
Nigerians often wonder why we don’t have our own refineries here in Nigeria, instead of relying on more expensive imports of refined petroleum products. The simple reason is that no one would invest billions of dollars in building you refineries if there is a risk they may not be able to recover their costs due to price control policies. Until as a people we address the issue of price regulation of some petroleum products, there will continue to be incessant fuel scarcity in Nigeria.
The landing cost of petrol has been increasing since 2017, with rising crude oil prices that are currently trading above $65 a barrel. With the landing cost well above the control price of N145, NNPC has effectively begun to subsidise petrol prices, be it through the backdoor. Some estimates indicate that the cost of subsidising petrol to the country in 2018 could be in excess of N1.5 trillion, if oil prices continue to rise. This is more than the combined budgets for education, health, agriculture, works, power and housing!
The reason often advanced by supporters of fuel subsidy is that ‘Nigerians have suffered enough’. On the contrary, Nigerians are suffering precisely because of a policy that allowed over a quarter of the entire federal budget, on average annually, to be spent on one line of expenditure, to the detriment of other critical sectors of the economy.
We cannot continue to bury our heads in the sand on this issue of subsidy, as if it does not exist. The government must address this issue honestly, without sentiment and in the best interest of Nigeria. It will be irresponsible not to do so. Even Saudi Arabia, with all her wealth, is gradually phasing out subsidies as part of the Kingdom’s drive to bolster state finances.
The reason often advanced by supporters of fuel subsidy is that ‘Nigerians have suffered enough’. On the contrary, Nigerians are suffering precisely because of a policy that allowed over a quarter of the entire federal budget, on average annually, to be spent on one line of expenditure, to the detriment of other critical sectors of the economy.
At the height of the oil boom in 2011, Nigeria was believed to have squandered as much as $14 billion in hard currency on petrol subsidies – over half the entire federal budget for that year, spent on just one line of expenditure! Truckloads of Nigerian petrol were smuggled abroad and sold at market price, while Nigerians suffered from fuel scarcity. In the ten years up to 2016, Nigeria was believed to have expended nearly N10 trillion on fuel subsidy to the detriment of the entire economy. The policy that was supposed to help the people became a huge albatross on Nigeria’s economic development, depriving the nation of much needed funds for job creation and infrastructural development. N10 trillion would have resurrected the entire railway network without the need to borrow from China Exim Bank, creating millions of direct and indirect jobs. It would have built and equipped thousands of hospitals with the latest technology, saving millions of lives. The money would have built millions of social housing units and constructed thousands of kilometres of roads, creating millions of direct and indirect jobs. Instead, we chose to give it all as recurrent expenditure to a few oil marketers.
Price control of any product always inevitably leads to scarcity. In Venezuela today, people queue up for hours to buy bread, milk, meat and other basic necessities, because of the government’s attempt to control prices. For decades, expensive and unsustainable subsidies on fuel have curtailed growth in developing countries.
The truth is that the subsidisation of petrol distorts the market and has resulted in inefficiencies and substantial loss of revenue to the government through corruption. The policy has contributed to the collapse of local refineries by making them unprofitable for private sector investment. Fuel subsidies have been responsible for sporadic fuel shortages at fuel stations, as corrupt marketers, after receiving subsidies, have then proceeded to sell the subsidised fuel to neighbouring countries at higher prices.
Price control of any product always inevitably leads to scarcity. In Venezuela today, people queue up for hours to buy bread, milk, meat and other basic necessities, because of the government’s attempt to control prices. For decades, expensive and unsustainable subsidies on fuel have curtailed growth in developing countries. Most countries like Malaysia that once had this policy have since abandoned it, releasing resources for investment in vital job creating infrastructure.
If you have cancer or any serious medical condition in Nigeria today, the prognosis for you, humanly speaking, is dire. This is the reality for over 90 percent of Nigerians who cannot travel to India or the West for treatment. Sadly, thousands of our fellow citizens are dying every single day in hospitals across the land from treatable illnesses because of the lack of drugs and basic medical equipment. The poor are bearing the brunt of past fuel subsidy policies that have impacted on investment in critical sectors of the economy. Like most successful economies, the government should be subsidising the cost of travel (mass transit), and not petrol at the pump. The poor would benefit more through this targeted measure.
It is time to put sentiments to one side and bury the lie that subsidy helps the poor. The poor will be better served if the trillions of naira spent on fuel subsidy were invested in schools, hospitals, power and other public infrastructure, instead of making dollar millionaires of oil marketers, NNPC officials and Petroleum Product Pricing Regulatory Agency (PPPRA) staff.
Emmanuel Nwachukwu is a international business consultant. Email: Emmanuel@pssolutions-ltd.com.
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