It appears a consensus is building within the Nigerian government on the issue of petroleum subsidy. Most officials agree that the subsidy regime is unsustainable and they are speaking up now. It is a far cry from their strident opposition to the removal when several members of the government were in the opposition.
Backstory: On Wednesday, the Nigerian National Petroleum Corporation’s Group Managing Director, Mele Kyari told Senate leadership that it is becoming “very difficult” for the organisation to make petroleum products available to Nigerians at the current price of $0.40 (N145) per liter. He said that the current “fuel price regime Nigeria runs against the N350 per litre most of the other West African countries operate, encourages smuggling, which invariably affects revenue generation for the agency and by extension the country.”
Governors are saying the same thing. The chairman of the Nigeria Governors Forum, Governor Kayode Fayemi in a meeting with the NNPC GMD, advocated for the review of fuel subsidy, “given the new reality of low oil revenues and rising government commitments….at the current course, subsidy costs will continue to offset any recovery in the oil market.”
Why it matters: Nigeria is on the verge of a fiscal crisis, with rising debt and revenue shortfalls. A recent briefing by the Debt Management Office (DMO) disclosed that Nigeria’s current debt profile is about $81.2 billion (N24.9 trillion). Meanwhile subsidy represents a huge drain on the revenue available to the country. According to reports by national oil company, NNPC, the company incurred about N676.49 billion loss as a result of subsidy (“under recovery”) between January and November 2018.
This diminishes the revenue available to the government as the NNPC deducts the losses from its revenue before the balance is sent to the federation account for sharing to the various governments.
Former Governor of Nigeria’s Central Bank, Emir Muhammadu Sanusi warned on CNBC in May last year that, “deliberate policy decisions such as the continuation of the fuel subsidy” was costly to the growth and development of the country.
Likewise, today’s editorial by The Guardian newspaper (Nigeria) called for the review of the “unrealistic fuel subsidy regime”….. “As a matter of urgency, authorities in Abuja should take the bold steps to address this issue and save the economy from an imminent collapse”
Don’t hold your breath: The President gets to make the call on issues such as this. This means all you are hearing now are mere opinions. In April, the Federal Government put out its position on the issue of fuel subsidy through the then Minister of Finance, Zainab Ahmed. According to her, removing subsidy should not be contemplated at the time. She said that government had “no intention to remove the fuel subsidy” till it figures out a “formula that will work for Nigeria.”
Lest we forget, President Muhammadu Buhari does not believe in fuel subsidy. He calls it a fraud. In the president’s telling, fuel subsidy literally doesn’t exist. Good luck convincing the retired general to change positions on any topic. Don’t take our words for it, hear it for yourself.