Petroleum Subsidy Removal, N5,000 Transportation Allowance: Solution Or Mockery

There has been a lot of talk about the removal of petroleum subsidies in Nigeria. Governments at all levels, government parastatals, particularly those involved in the distribution and regulation of petroleum products, civil society, and the general public all invest time and energy in discussing this extremely sensitive issue.

This issue of petroleum subsidy removal, whether done or not, turns the government into either an evil political administration hell-bent on impoverishing the masses or continuing the pilfering that is currently going on.

A definition of the subject matter will help shed more light on this highly sensitive matter.

A subsidy, as defined by the Oxford dictionary, is a sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low.

It is also defined as a form of financial aid or support extended to an economic sector, generally with the aim of promoting economic and social policy.

A subsidy usually helps to address a supply problem. In economics, what drives the price of most commodities higher is when demand exceeds supply. In this case, subsidies from the government help keep the price of a subject commodity relatively lower than its true actual value.

Examples of government subsidies in Nigeria include the petroleum or fuel subsidy, fertilizer subsidy, education subsidy, health subsidy for underprivileged citizens, etc.

Perhaps the most sensitive yet controversial subsidy in Nigeria is the petroleum or fuel subsidy. The reason why is that when the commodity is allowed to determine its true market price, it is feared that it may be extremely expensive and drive the cost of living even higher.

This assertion comes against the backdrop of the fact that we do not have any functional refineries, hence our total dependence on imported refined crude oil products.

Secondly, the general public's fear has also been reflected in the exemplary changes in the prices of other refined crude oil products such as diesel (AGO), kerosene oil, and LPG (liquefied natural gas), which are not subsidized but very expensive.

The government has always argued that allowing the market forces to determine the price will drive the price downwards due to greater competition, allow efficiency, save valuable foreign exchange, strengthen the economy, eliminate corruption, and direct wasted government funds into valuable sensitive capital projects.

A brief history of petroleum subsidies in Nigeria should help you understand the complexities behind this sensitive topic.

The federal government of Nigeria started subsidizing the price of fuel immediately after the civil war ended in 1970.

With massive capital projects and reconstruction going on in the entire country thanks to a huge inflow of money coming in from crude oil sales and funding from international agencies, there was a need for the government to protect its citizens from rising global oil prices.

To protect its citizens from the hardship accrued from the sharp increases in the global price of crude oil, the government decided to peg the retail price at an artificially low price and pay the difference. That’s how the word "fuel subsidy" became part of our vocabulary.

Fuel influences our national life. Transportation, food prices, and the cost of housing are largely affected by the price of fuel.

In the 1980s, especially during the administration of Gen. Ibrahim Babaginda (Rtd), he was advised by the IMF, amongst several things, to remove the fuel subsidy, increase taxes, float the naira fully, etc.

Unfortunately, due to large-scale corruption in the petroleum industry, we were unable to reposition the local refineries in such a way that eliminated the need for subsidy continuation.

However, subsidies became a cash cow that fed a select few greedy individuals at the expense of the general public.

Fast-forward to 2012, during the administration of President Goodluck Ebele Jonathan, who, under the advice of Ngozi Okonjo-Iweala, made a bold attempt to remove the subsidy.

Many Nigerians, motivated by some of the politicians in this current administration, protested violently against it. A decision that I believe most Nigerians now regret.

According to the Nigerian National Petroleum Corporation (NNPC) and the Ministry of Finance, fuel subsidies cost the federal government around NGN150 billion/month, which will amount to NGN1.8 trillion a year. This sum is almost 20% to 25% of our annual budget.

As a result of this waste of scarce resources on subsidizing fuel, the federal government, knowing the impact the removal of fuel subsidies will have on our national life, decided to introduce the NGN5,000 transportation subsidy allowance to the extremely poor 40 million Nigerians.

This planned policy of the federal government via the NNPC and the Ministry of Finance looks more like a political game plan than a smart economic move to cushion the effect the removal will have on our national life.

There are many questions still left unanswered. One, why aren’t any of the local refineries working yet (taking into account that billions of dollars have been spent on various turnaround maintenance)?

Two, how many new refineries are currently undergoing construction, and what is the timeline for full operation?

Three, considering the fact that fuel prices are going to be between N320 and N340, how much damage does the government think will happen to the country as a result of this (taking into cognizance the already worsening economic situation in the country)?

Four, is the proposed N5,000 transportation subsidy a month for the 40 million Nigerians living in extreme poverty enough to cushion the devastating effect of the removal (taking into consideration that inflation figures released by the Nigerian Bureau of Statistics showed a jump of 15.99% to close at 20.75% in October)?

Five, how does the government define the term "living in extreme poverty"? What parameters did the government use to arrive at who it classifies as living in extreme poverty?

Does the federal government have a reliable database of the 40 million extremely poor Nigerians? If it does, why didn't it distribute relief materials to the extremely poor Nigerians during the COVID-19 lockdown?

Six, if it truly has a database of extremely poor Nigerians, in which part of the country are they based?

Is it the southwest, the southsouth, the southeast, the northcentral, the northwest, or the northeast? Where exactly, or are they distributed evenly?

Seven, considering the high level of mistrust Nigerians have for this administration, why remove a fuel subsidy now only to give a N5,000 transportation subsidy allowance for a year, in preparation for the February 2023 general election?

Eighth, if the federal government is sincere, why not wait until the Dangote refineries and ongoing turnaround maintenance at the Port Harcourt and Kaduna refineries are completed before removing the subsidy?

Tunde Ibrahim, a legal practitioner, gave his professional opinion on this topic.

He criticized this policy of N5,000 transportation subsidy allowance by the APC-led federal government. He claimed that this policy is a result of the administration's anti-people policies since it took office in 2015.

"How can they be thinking of implementing a policy that will totally worsen the economic situation of most Nigerians kKnowing the fact that N5,000 a day can’t feed a family of four in today’s Nigeria?

"A lot of Nigerians can’t feed well today and they just want to take us for a ride with this wicked policy, "he said.

He also claimed that the subsidy would not address the high cost of living that the removal of the fuel subsidy would cause.

He gave a defeated aura that the government in Nigeria has always deceived the masses with their questionable pro-people policies by insisting on implementing economic policies that the masses voted against.

"Look at the 1984 referendum conducted by Gen Ibrahim Babaginda (Rtd) to get public opinion over the IMF loan. He still went ahead with the loan "despite public outcry," he concluded.

I believe that we just have to wait until February 2022 to see if the federal government will go ahead with its plan for fuel subsidy removal.