Recently, the Group Managing Director of Nigerian National Petroleum Corporation (NNPC), Mele Kyari, alerted that the era of subsidy on petrol was gone forever. “Subsidy and under-recovery are zero today. And it is zero forever,” the man, who some analysts believe is yet to understand the nitty-gritty of the job was quoted as saying.

The NNPC boss said the decision to finally end the fuel subsidy regime is in the interest of ordinary Nigerians as it would free up funds for the various tiers of government to develop basic infrastructure in the education, health, transport, and other sectors for their benefit.

For economy watchers, the government through the NNPC boss may obviously be starting something it cannot finish. The argument about freeing up funds for development is also viewed by some as a matter for the birds.

It is not a hidden fact that the outbreak of the COVID-19 pandemic and the resultant global economic downturn led to low crude oil prices, putting Nigeria under immense fiscal pressure.

To reduce the pressure, the government took some measures to maximise available revenues, including the review of the federal 2020 budget benchmarks, the cut of the overall approved appropriation Act by N1.5 trillion and the proposal to remove subsidy.

The government decided to adopt a modulation mechanism to regulate petroleum products prices, dictated and moderated by the interplay of market forces. In the first instance the government reduced the pump price of Premium Motor Spirit (PMS) from N145 per litre to N125 per litre.

Among those that hailed the move is a Consortium of Civil Society Groups Advocating for Reforms in the Downstream Sector of the Oil & Gas Industry.

The group comprising about 20 civil society groups said that beyond mere pronouncement, there are issues that would require urgent clarification by the government to bring every stakeholder on the same page and ensure all Nigerians are carried along on these important issues.

“We entreat the government to lay out defined processes and regulatory guidelines to support the announced removal of fuel subsidy. These should be pushed forward and announced by the Presidency and the Minister of Petroleum Resources to give the policy an official seal of affirmation to all Nigerians that we are not in another false expedition,” the group noted.

Most stakeholders not convinced enough on the step the government is taking seem to have bought that word, false expedition. They also think the government is not being very open to the people on the issue and do cannot be trusted.

The immediate past president of the Nigerian Association for Energy Economics (NAEE), Wumi Iledare, sees the current move as a mere announcement designed only for the pages of newspaper.

He thinks the power to set petroleum product price is in the Petroleum Act and that the development may not be about subsidy removal but the power to set petroleum product price.

He sees challenge in the amorphous nature of the governance of the energy sector generally with a lot of institutional limitations, noting that “another Minister or President may come and disregard a previous government executive order on product pricing issue.

“A look at Petroleum Products Pricing Regulatory Agency Act and the Petroleum Equalization Fund (PEF) Act is crucial. There must be an Act of National Assembly to remove price control by regulations or by an executive order of a populist government,” he noted.

Iledare stated that ignorance of consumers makes the path to full deregulation much more difficult to achieve. “We said kerosene and diesel are deregulated, but the price is still high even at this extreme low crude oil prices. Without proper education of the public, the myth that deregulation will lead to higher petrol price is a hindrance.”

He argued that deregulation must not be like a thunder bolt but gradual and with legislative commitment to rules of law which was what the Petroleum Industry Governance Bill (PIGB) was set out to do.”

The Major Oil Marketers Association of Nigeria (MOMAN) had recently shared the view of Iledare when it rejected price modulation and demanded a full deregulation of the market.

MOMAN Chairman, Tunji Oyebanji, specifically noted that oil marketers would rather opt for deregulation against price modulation, claiming that the former would bring about long-term stability in the downstream sector. He recommended a repeal of the law setting up the PEF, stressing that the cost of administration of equalization was too high and the unequal application of payments by marketers distorted the market and created market inequities and unfair competition.

The National President, Petroleum Products Retail Outlets owners Association of Nigeria (PETROAN), Dr. Billy Gillis Harry, lamented that most of the decisions recently taken by the government on the industry were only announced on the pages of newspapers without carrying along the key stakeholders.

For him, talking about full deregulation at a time when Nigeria was dependent on the importation of refined petroleum products, in place of domestic refining, despite four refineries remained worrisome.

“If bridging claims are expected to stop, how will the consumers in hinterland meet their petroleum products requirements? How will transportation of petroleum products be safely and efficiently handled as against the current epileptic nature of trucking and marine deliveries occasioned by bad roads and piracy? The NNPC pipelines network is totally not operational, what are the measures put in place to make the pipelines work efficiently and effectively?” Harry asked.

The issue of total deregulation of the downstream sector of the Nigerian Petroleum industry has remained touchy that the government appears at loss on how to handle the matter without getting into trouble. Yet the weight is becoming obvious daily. The term Occupy Nigeria, came into being when former President Goodluck Jonathan broached this issue. Occupy Nigeria was a socio-political protest movement that began in Nigeria on Monday January 2, 2012 in response to the fuel subsidy removal by the government of Jonathan. Protests took place across the country, including in the cities of Kano, Ojota (part of metropolitan Lagos), Abuja, Minna, and at the Nigerian High Commission in London.

The protests were characterised by civil disobedience, civil resistance, strike actions, demonstrations and online activism.

Proponents of petroleum subsidy removal argue that subsidy payment is simply unsustainable. The present government had adopted a different strategy to solve the knotty issue since it came to power. After the government stopped what it termed a costly and corrupt subsidy programme managed by his predecessor, Goodluck Jonathan, the government has tried to convince the people it is out of the subsidy game.

However what the government calls its spending may have changed, but it still pays the bill to insulate Nigerians from the full cost of petrol prices. Instead of paying subsidies to importers, as was done under Jonathan, the Buhari government made the NNPC responsible for fuel imports and swallowing the difference between its costs and the price at the pump. This may have put a lot of pressure on the economic managers.

While the approach may have brought sanity to the sector since it began, some critics think it is an avenue for the cabal in power to fleeze the country. The Peoples Democratic Party (PDP) presidential candidate in the last elections, Atiku Abubakar, and others have been criticising the Buhari team for the rising cost of subsidy spending and the opacity in their management, which they believe is used to carry out corruption.

International financial institutions like the World Bank and the International Monetary Fund (IMF) do not buy the subsidy argument. These institutions have been urging Nigeria governments to cut costly national subsidies and to provide them in a targeted fashion to poor communities. The World Bank says that subsidies impose a heavy fiscal burden and are likely not sustainable, adding that these subsidies disproportionately benefit high income households and a costly way to protect the poor.

From available indices, the government is in quandary on how best to exit the subsidy regime without rupturing the present peace in the sector. Experts have suggested that the government should wait for the conclusion of work on the PIB, to avoid running ahead of itself.

They also suggested steps to delineate the roles of policy formulation, regulation and enforcement as well as operation in the industry.

Another area is clarifying the role of the Petroleum Support Fund in the new no-subsidy regime. Clarity is required about how that fund is being managed, whether the over-recovery sums were deposited there and how they are expected to be spent.

There is also the argument of transitioning the PPPRA and PEF into new roles to ensure the sustainability of the proposed ‘non-subsidy policy’, repeal of the PPPRA and PEF(M)B Act and transitioning them into efficient and competent institutions to support the reforms encapsulated in the proposed PIB as possible options to consider.

The same school of thought wants the government to prepare for a post-price regulation era by prioritising consumer protection to ensure that when the downstream sector of the petroleum industry is liberalised, the interests of the people would not suffer exploitation in the hands of profiteering marketers.

The civil society groups in the downstream sector wants the government to consider providing varied options for Nigerians in terms of transportation systems in the country when inevitably, increases in price of crude oil increases result in the rise of the price of refined petroleum products.

They also suggested that the NNPC as the National Oil Company should not be given any advantage, whether comparative or competitive, over other petroleum products marketers in terms of access to foreign exchange to handle their importation of products activities to create a level playing field for all players, adding, “if the NNPC must remain a player in the market, it must strive to operate under the same conditions and rules as other players in the sector regulated only by the prevailing market forces and competition.”

These are options left for the government to consider. The back and forth movement is obviously a sign that the government is in quandary. The PIB provides a safety net. A lot of work has gone into it. Since the present legislature is considered a willing ally of the Executive, the safest way to push the subsidy agenda is to use the legislature while the executive plays safe. But how the entire thing will pan out at the end is knotty for conjecture. The government may still end up carrying the can.

Foster Obi is Deputy Editor of News Express Media Group. He can be reached via fosterobi2004@gmail.com

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