With Nigerians still reeling from the aftermath of last Monday’s pronouncement by the newly inaugurated President, Bola Tinubu, on plans to immediately remove fuel subsidy in the country, the Nigeria Extractive Industries Transparency Initiative (NEITI) has offered eight strategic ways to handle the sensitive and highly inflammable issue to forestall crisis.
In his speech shortly after his inauguration as former President Muhammadu Buhari successor on Monday, Bola Tinubu announced that fuel subsidy was gone for good.
But critics have said Tinubu’s pronouncement on such a sensitive issue in his first speech to Nigerians without first undertaking wide consultations with stakeholders on the issue, which has been a touchy concern among Nigerians for a long time appeared a tard insensitive to the possible reaction from Nigerian fuel consumers.
Few hours after the pronouncement, long queues of motorists seeking for petrol, which was rare in recent times, resurfaced at filling stations. Some reports said the development, which has continued to gather momentum in the last 48 hours, was also noticed at most filling stations across the country.
However, although NEITI, which is the government agency mandated to monitor transparency and accountability in the extractive industry, hailed Tinubu’s pronouncement as a welcome development, the agency said announcement over the planned removal of fuel subsidy came with high expectations, particularly as it demonstrated the strong political will, courage and sincerity of purpose of the new administration.
A bold step
The Executive Secretary of NEITI, Orji Ogbonnaya Orji, on Tuesday in Abuja described the pronouncement as a positive statement by the Tinubu administration to fix the issue, which has been a major drain on the country’s scarce resources for a long time.
As part of its contributions to the ways to handle the issue without stirring a maelstrom of crisis, NEITI urged the Tinubu government to closely look at the findings contained in several of its annual reports and decisively implement them.
“This bold step (subsidy removal) is required to block leakages, grow revenues and advance the ongoing reforms in the oil, gas and mining industries in the country,” Orji said.
Some Findings
Making specific reference to some of the recommendations in its reports calling for the removal of fuel subsidies, NEITI said they have remained a persistent request since 2006, given its concerns about the huge financial burden the subsidy regime imposed on the growth of the Nigerian economy over the years.
Between 2005 and 2021, NEITI recorded that the country spent a whooping $74.4 billion, or about N13.7 trillion on the payment of fuel subsidy.
A breakdown of these figures, NEITI said, showed that in 2005, the government paid $2.6 billion (about N351 billion) as fuel subsidy, with $1.99 billion, or N257 billion, and $2.176 billion, or N272 billion paid for the same purpose in 2006 and 2007 respectively.
NEITI said the reports further disclosed that fuel subsidy payments more than doubled in 2008 and 2010, with the highest increase ever ($13.52 billion, or N2.11 trillion) recorded in 2011.
Although the transparency and accountability agency reported a sharp decline in the payment between 2012 and 2015 when the figure dropped to $3.34 billion, or N654 billion in 2012, it said the decline continued in 2016 and 2017 to as low as $473 million, or N154 billion in 2017.
NEITI noted however that the reduction was short-lived, as the payments again ballooned to over $3.9 billion, or (N1.190 trillion in 2018, and $3.6 billion, or N1.43 trillion, in 2021.
“By these figures, Nigeria spent an average of N805.7 billion annually, N67.1 billion monthly, or N2.2 billion daily on the payment for fuel subsidy,” NEITI said.
From these data, NEITI said its reports showed that the amount spent on fuel subsidy payments between 2005 and 2021 was equivalent to the entire budgetary allocations for the health, education, agriculture and defence sectors of the economy in the last five years.
The sum of the payments, NEITI said, also equals the capital expenditure for 10 years between 2011 and 2020, with subsidy payment reaching its peak in 2011 at $13.52 billion, or N2.11 trillion, when fuel subsidies dwarfed allocations to all critical sectors of the economy.
Need for removal of subsidy
Orji said NEITI‘s persistent and consistent calls for the removal of petroleum subsidies were informed by the understanding that the ways and means of funding the expenditure over these years relied more on Federation Accounts funds, the federal government and sometimes from external borrowings, with negative consequences on government overall revenue profiles.
He said NEITI was also concerned that the consequences of funding fuel subsidies resulted in the poor development of the downstream sector of the petroleum industry, declining gross domestic product (GDP) growth, rise in petroleum products theft, pipeline vandalism, environmental pollution and undue pressures on the country’s foreign exchange and reserves.
NEITI said other challenges imposed on the economy from the high premium paid for fuel subsidies included depreciation of the Naira, low employment generation, declining balance of payments and worsening national debt burden.
In a policy advisory released in late 2022, which was re-submitted earlier in the year 2023, to drive home the urgency to remove fuel subsidy, NEITI said it recommended eight strategic ways to manage the fuel subsidy removal debacle.
Eight strategic ways
Orji said the strategic ways, which highlighted the best timing and the rational for the decision, included the urgency to strengthen the implementation of the Petroleum Industry Act (PIA) as a whole and not in parts.
The PIA is the regulatory, legal and fiscal framework enacted in July 2021 for the orderly and consistent regulation, monitoring and management of the country’s upstream, midstream and downstream sectors of the petroleum Industry.
Also, NEITI underlined the importance of unveiling the implementation of a people-oriented welfare programme in the form of palliative to provide succour and relief for the poor and vulnerable segments of the population.
In addition, NEITI gave advice on priority attention to be paid to the nation’s four refineries, located in Port Harcourt, Warri and Kaduna, currently ongoing rehabilitation, while encouraging more private sector investments in establishing new refineries.
Other policy considerations proffered by NEITI included that the government should commission a special investigation to ascertain the actual volume of premium motor spirit (PMS), popularly called petrol, consumed in Nigeria; enforce stringent sanctions for criminal activities in the oil and gas sector, and conduct appropriate stakeholders’ consultations, engagements and enlightenment on the issues, challenges and problems involved in the fuel subsidy payment debacle.
How much fuel do Nigerians consume
While the details of the implementation of the policy by the government are being awaited, NEITI said it was considering commissioning a special research to determine the actual consumption of PMS in Nigeria.
The study, Orji said, would establish precisely what volume of petroleum products the country was consuming, as the figure for petrol continues to vary between 35 million litres per day to as high as 120 million litres, depending on the agency providing them and the purpose.
“NEITI’s view remains that the data on the country’s actual consumption is unknown, resulting in huge revenue losses to the nation through subsidy payments based on estimates,” Orji said.
NEITI expressed satisfaction with the position by Tinubu that the revenues expected to be saved from the fuel subsidy removal would be channelled into the development of the education, health, roads sectors and other critical infrastructure in the country.
Nationwide, regional petrol prices
Meanwhile, NEITI noted that its policy advisory also conducted a survey on the average pump price of petrol across the country outside the major cities of Lagos and Abuja during the era of petroleum subsidy payment.
Details of the survey revealed that in the North West, North East and North Central states, a litre of petrol sold for an of average of N270, N265.80 and N269 respectively.
For the southern states, the average price was slightly lower, with states in the South-South region paying about N232.50, South East N235.20, while the South West states paid about N250 per litre.
Fuel prices by the members of Major Marketers Association of Nigeria (MOMAN) at the state capitals stood largely between N169.90 and N190 per litre.
Besides, NEITI said its study on the petroleum subsidy payment regime also highlighted the prices of petroleum products across Nigeria’s borders and within the West and East African regions.
For instance, a litre of fuel in Senegal sells for about N635.91, while in Guinea, Sierra-Leone, Togo, Cameroun and the Republic of Benin, petrol costs N609.30, N506.96, N497.78, N449.24 and N462.23 per litre respectively.
NEITI said findings from the research revealed that the volume of petrol smuggled across the Nigerian borders to some of the country’s neighbours was largely from the subsidised stock of products imported by the government at huge costs.
Orji said NEITI’s position on the issue of fuel subsidy payment based on the data in its reports has also been strengthened by similar empirical studies and recommendations by reputable international organisations, such as the World Bank and the global Extractive Industries Transparency Initiative (EITI).
He said NEITI calls on the regulatory agencies in the petroleum industry to stand firmly in their mandates and tackle artificial scarcity as a result of hoarding of petroleum products and other man-made obstacles created at the moment to frustrate the implementation of subsidy removal policy.
“With fuel subsidy removal, payments for petroleum products, with its attendant insecurity implications in the country, due to smuggling and products theft, will be significantly reduced,” Orji said.
