The Truth About Fuel Subsidy: Government Simply Fails Nigerians

 By Olu Fasan

Subsidy is gone. Subsidy is back. Oh no, it isn’t. Oh yes, it is. Such is the confusion that now dogs the fuel subsidy. On May 29, Bola Tinubu veered from his inauguration speech and blurted out: “Subsidy is gone”. With that diktat, market forces would dictate petrol price. Soon after, the price tripled from N197/litre to N620/litre, fuelling a surge in food and transport costs. However, surreptitiously, some subsidy seems to have returned to stop the soaring price of fuel. But the Tinubu administration denies any intervention.

Yet, market operators are adamant. In a recent interview, Festus Osifo, National President of the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, said “the government is still paying subsidies on petroleum”. Mele Kyari, Group Chief Executive Officer of the Nigerian National Petroleum company limited, NNPCL, issued a rebuttal: “There’s no subsidy whatsoever.” But John Kekeocha, National Secretary of the Independent Petroleum Marketers Association of Nigeria, IPMAN, said the government “is still spending billions to subsidise fuel,” adding: “I don’t know why they keep peddling lies.”

But why would Tinubu’s administration “peddle lies” about the fuel subsidy? Well, it’s one of his signature policies, and he won’t admit its failure. Tinubu said he was “possessed with courage” to scrap the fuel subsidy on his first day in office and basked in premature international and domestic praises for doing so. For a leader who is concerned about image, who sees policy as performance art, he’s unwilling to concede that the policy has caused more harm than good. Thomas Jefferson said that “the care of human life and happiness is the only legitimate object of good government”. But Tinubu scrapped the fuel subsidy without considering the consequences. He played to the gallery!

Let’s be clear, subsidy is not necessarily a bad thing. Its aim, according to Oxford Dictionary, is to “keep the price of a commodity low.” For instance, when a government sells fertilisers to farmers cheaply, it’s subsidy because they’re not paying the real price. When students pay tuition fees that don’t reflect the actual costs a university incurs to train them, the differential is a subsidy. There are different forms of social subsidy worldwide. To varying degrees, every civilised country has a social security system that offers a minimum safety net to citizens. For instance, the UK has housing benefits, unemployment benefits and income support for low-income earners. Social protection is a badge of the healthy society.  

But Nigeria offers virtually nothing to its citizens. The 133m multidimensionally poor get nothing from the state nor do the nearly two-thirds of the population living in extreme poverty. Most Nigerians have no guarantee of the basics: food, clothing, electricity and clean water. That’s why the fuel subsidy is totemic. For as the Financial Times said in a recent editorial, most Nigerians saw it as “the only thing the state had ever done for them” or, as Dr Ngozi Okonjo-Iweala once put it, “the only direct benefits they enjoyed from their country’s oil resources”. 

According to a well-cited international report, between $400 billion to $500 billion of Nigeria’s oil wealth has been squandered and embezzled over the last 50 years. Past and present politicians and officials have enriched themselves and their allies from decades of Nigeria’s oil wealth. Too few Nigerians have befitted from the country’s oil wealth. So, can anyone conscionably argue against subsidising the price of petrol to make it cheaper for Nigerians?  

But here’s a more fundamental point. Why is there a need for fuel subsidy in the first place? Well, because Nigeria can’t turn its crude oil into refined/consumable petroleum products. Although Nigeria has four refineries, they are moribund due to years of mismanagement and corruption. As such, Nigeria exports crude oil but imports refined petroleum products, which had to be sold to the public at below-market prices.

Here’s why. The higher the oil price and the weaker the exchange rate, the more expensive are imported refined petroleum products. So, if government doesn’t subsidise the pump price of petrol, the price would simply skyrocket and push up the costs of other things like food and transport. Surely, as the National Bureau of Statistics, NBS, points out, the removal of fuel subsidy is a major reason inflation is surging, alarmingly now at 26.7 per cent! 

In her book Fighting Corruption Is Dangerous, Dr. Okonjo-Iweala said that the Obasanjo administration scrapped the fuel subsidy in 2004 but restored it in 2006 due to high oil prices. The point PENGASSAN and IPMAN are making is that, given rising oil price and naira’s weak exchange rate, now over N1000/$1, it’s impossible for the pump price of petrol to stay at the current N617/litre if truly determined by market forces. Therefore, government is somehow still subsidising fuel. Why is the Tinubu administration denying that? Is Tinubu willing to see the price of petrol rise above N1000/litre? He says he’s ready to be unpopular, but his electoral mandate is too tenuous to withstand popular uprising!

To be sure, there’s a valid argument for scrapping the fuel subsidy. It’s expensive; it cost $10bn in 2022. But why should Nigerians suffer for their government’s failure to make the country’s refineries work? Why is Nigeria the world’s six-largest oil-producing country and yet one of the largest importers of refined petroleum products? And why is the government refusing to privatise the moribund refineries? Anyone criticising the fuel subsidy must first answer those questions. Put simply, why can’t Nigeria refine its crude oil?

But there’s another point. The fuel subsidy is costly because of massive corruption. Dr. Okonjo-Iweala addresses this subject extensively in her book Fighting Corruption Is Dangerous. Also, in 2012, a House of Representatives committee found that the actual petrol consumed didn’t correspond to the subsidies paid because of overcharging, false claims, etc. Surely, Tinubu should have tackled the unbridled corruption around the fuel subsidy instead of scrapping the scheme. Perversely, the oil fraudsters are enjoying their ill-gotten wealth while Nigerians suffer the consequences of his fuel subsidy withdrawal.

Nigerians are entitled to cheap petrol through the fuel subsidy. But if it must go, the savings must be used to improve their lives beyond demeaning palliatives. Sadly, Tinubu’s fuel subsidy policy lacks transparency, accountability and thoughtfulness. He must act with care or else he risks a monumental backlash!

*Dr. Fasan is a commentator on public issues