By Benjamin Ike
On May 29, Asiwaju Bola Ahmed Tinubu was sworn in as president to lead Africa’s largest economy after clinching the February 25 presidential election. On assumption of office, Tinubu was expected to take one of the most difficult political and economic decisions the new government will be faced with and unexpectedly, he did so immediately.
Among the several unmet targets in the energy sector the new administration inherited is the implementation of petrol subsidy removal.
In his inaugural address on May 29th as President, Tinubu affirmed that his administration would not continue to pay subsidy on petrol. He said given the high opportunity cost the Federal Government was suffering to fund subsidies, it was no longer justifiable to continue.
“The fuel subsidy is gone!” Tinubu exclaimed adding that “Subsidy can no longer justify its ever-increasing costs in the wake of drying resources. We shall instead re-channel the funds into better investment in public infrastructure, education, health care and jobs that will materially improve the lives of millions.
“We commend the decision of the outgoing administration in phasing out the petrol subsidy regime which has increasingly favoured the rich more than the poor.”
The Buhari administration had promised to remove fuel subsidies by June and kickstarted the process for the new admission to carry on.
The decision to finally do away with subsidy have been predicated on the enactment of the Petroleum Industry Act (PIA) on August 2021 which provides for total deregulation of the downstream sector, implying the removal of subsidy and enthronement of a free market regime for the sector.
Fuel subsidy removal by President Tinubu indicates a promise kept as the policy was clearly Tinubu’s position during and after the electioneering campaigns. Anchoring his promise on fixing the energy sector, Tinubu in his 82-page manifesto tagged “Renewed Hope 2023 – Action Plan for a better Nigeria”, argued that subsidy payments were most beneficial to the rich and, therefore, ought to be stopped. He promised not just to end the wastage but re-channel the money to the people who truly need it. As president-elect at the time, Tinubu hinted that no matter how long people protest, it would not stop him from removing fuel subsidy.
The president’s announcement has been welcomed by leading agencies in the petroleum sector, the Nigerian National Petroleum Company Limited and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) asserting that the removal of fuel subsidy is in the best interest of the country and that it will help to improve the economy. The Group Chief Executive Officer (GCEO) of NNPC Ltd, Mele Kyari, in an emergency press briefing in Abuja, explained that the company had been spending a significant portion of its profits on petrol (PMS) subsidy.
The NMDPRA on its part said the announcement is in line with the Petroleum Industry Act (2021) which provides for total deregulation of the petroleum downstream sector to drive investment and growth. “We are working closely with NNPC Limited and other key stakeholders to guarantee a smooth transition, avoid any disruptions in supply as well as ensure that consumers are not short-changed in any form,” it said in a statement.
“The NMDPRA reassures all Nigerians that the removal of subsidy on PMS is a step towards building a more sustainable and prosperous future for our nation. We will continue to monitor activities and implement necessary measures to enhance transparency and accountability in the petroleum downstream sector.”
Valuechain reports that majority of Nigerians including labour and trade unions as well as oil industry experts agree that removal of subsidy is a necessary step towards long-needed reforms and because of how fuel subsidy continues to crowd out other development spending. State governors had been feeling the heat in the monthly allocations from the Federation Accounts Allocation Committee (FAAC), while continued borrowings to service the government’s expenditure mount pressure on earnings.
A report in September 2022 by the Nigeria Extractive Industries Initiative (NEITI), showed that the country had spent N13.7 trillion on fuel subsidies in fifteen years (2005-2022). About N3.36 trillion was earmarked as subsidy payment for the first 6-months (January to June) in 2023. This will total an average of N17.6 trillion spent on fuel subsidy from 2005 to mid-year 2023. Fuel subsidy has also discouraged additional investment in the oil sector and this has been especially problematic given that the oil sector is the lifeblood of the Nigerian economy.
On the other hand, the fear of inflation, often considered as the enemy of the common man, and waning trust in the government’s spending plans equally make it difficult for the government to win public appeal for subsidy removal. While it is commonly agreed that with the state of the country’s economy, fuel subsidy removal is non-negotiable, many have not hidden their disapproval of how this would hurt Nigerians considering how the policy had been handled in the past, and how improper application of palliatives have caused more pain to Nigerians.
Barely a few hours after Tinubu’s announcement on subsidy, fuel queues resurfaced in Abuja, Lagos and some states. The announcement triggered a rush for petrol at fillings stations in Abuja and neighbouring states by motorists, as they struggled to get their tanks filled, over fear that once subsidy ends, the cost of PMS could rise above N500/litre.
The Independent Petroleum Marketers Association of Nigeria has opposed the plan. Its National Public Relations Officer, Chief Ukadike Chinedu, said the new government should dialogue with marketers before taking the decision to remove subsidy.
“We are not in support of the removal of fuel subsidy at this time. We have said it repeatedly that our refineries should be fixed before taking such decision that will cause galloping inflation and inflict more hardship on the masses.
“The government of President Tinubu should not adopt what is in the transition document handed over to it by the administration of former President Muhammadu Buhari. Someone (Buhari) who for eight years did not remove subsidy is advising a new government to remove it.
“That is not fair and should not be adopted. Rather the new government should sit and discuss with marketers and other stakeholders on how to manage the fuel subsidy regime. We now have the Dangote Refinery, but all our refineries are still not working, so we don’t think removing subsidy is the right thing to do now,” Ukadike stated.
Earlier before the inauguration, the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) had counseled the president, not to rush in removing subsidy because of its socio-economic implications. NUPENG in a statement by its President and General Secretary, Prince Williams Akporeha and Afolabi Olawale, urged the new administration to make all three public refineries functional and should not because of the availability of the anticipatory products from Dangote refinery allow all the hard-earned funds injected into the rehabilitation of the three public refineries (Warri, Port Harcourt, and Kaduna) wasted but concrete efforts should be geared towards making them functional and operate in full capacities to generate returns on the investments.
What are Tinubu’s plan B?
The customary response to subsidy removal over the years is the rollout of new programs and projects, in some cases, strengthening of existing programs aimed at cushioning the effect of fuel price hikes on the vulnerable segments of the population.
The last administration previously announced through then Minister of Finance, Budget and National Planning, Zainab Ahmed, that the country had secured $800 million from the Washington-based World Bank to serve post-subsidy removal palliatives for Nigerians. The Minister said the post-subsidy palliative plans would be distributed to 50 million Nigerians representing 10 million households considered to be most vulnerable, to cushion the effect of the subsidy removal.
“We’ve secured some funding from the World Bank, that is the first tranche of palliatives that will enable us give cash transfers to the most vulnerable in our society that have now been registered in a national social register. Today that register has a list of 10 million households. 10 million households is equivalent to about 50 million Nigerians,” the minister said.
What is not clear so far is the policy dimensions and direction for the savings from subsidy removal, even though the President has hinted that, “..the subsidy money will not be ‘saved’…Instead, we will redirect the funds into public infrastructure, transportation, affordable housing, education, and health, strengthening the social safety net for the poorest poor, thus averting increased security challenges.”
How will the Tinubu administration implement post-subsidy removal palliatives secured by the Buhari administration or will the new government decide some other policy direction?
Crisis times require bold reforms and President Tinubu has the ability to take on the issue of fuel subsidy, one of the most difficult problems in the country at the moment. But in order to succeed, he will also have to take on another challenge – transparency in the management of the subsidy savings. The government must utilize these resources more efficiently to create social welfare and infrastructure improvement programs that will not only improve the quality of life for Nigeria’s poorest but also put the country on track to meet its development goals. It must implement a transparent system for redirecting and monitoring the use of funds from the fuel subsidy program so that citizens can review and scrutinize the expenditure.
Managing palliatives in oil-rich countries is a complex issue that requires careful consideration of a range of factors. It is important for the Tinubu government to work closely with stakeholders such as NGOs, community leaders, and other experts in a fair, effective, and sustainable manner.