As Nigerians strive to adjust to the over 156 per cent hike in petrol price, stakeholders have outlined ways to maximise the savings from fuel subsidy removal to develop the economy, writes OKECHUKWU NNODIM

The May 29 declaration of President Bola Tinubu that “subsidy is gone” has eventually put paid to the decade-long tussle over the removal of subsidy on Premium Motor Spirit, popularly called petrol.

Petrol prices jumped from N195/litre to over N500/litre in all states and the Federal Capital Territory, two days after the President’s pronouncement during his inaugural speech as Nigeria’s 16th President.

Lagos was the only exception, where petrol was sold for N488/litre at retail outlets of the Nigerian National Petroleum Company Limited.

The commodity increased by over 156 per cent, a development that directly led to the hike in the prices of goods and services across the country.

Although oil & gas, economic and financial experts have repeatedly argued that the removal of subsidy on petrol would impact Nigeria’s cash flow positively, many citizens have yet to come to terms with what they would gain by the halt in fuel subsidies.

There is no doubt that the oil and gas industry is strategic to the country’s growth and development. This is because the sector constitutes about 90 per cent of Nigeria’s foreign exchange earnings.

Experts believed that for the sector to satisfy the yearnings of the citizenry, it should be fully deregulated, meaning that fuel subsidy must be removed.

Diesel and kerosene were deregulated some years ago; however, every administration that came on board made efforts to do away with the subsidy regime on petrol but was resisted for different reasons.

Firstly, Nigerians depended heavily on petrol to power their homes and businesses using generators, but above all, for transportation. Also, deregulating petrol has been quite difficult due to the comatose state of the country’s refineries, which could have alleviated the pressure of using the country’s scarce foreign exchange to import refined petrol.

Experts claimed that subsidising PMS even when the country could no longer afford had been detrimental to the Nigerian economy and the development of critical infrastructure.

They argued that this was why the signing of the Petroleum Industry Act in 2021, served as a welcome relief, as it was expected to revolutionise the oil and gas sector and allow the full deregulation of the downstream sector.

Subsidy consumes N13tn

The Executive Secretary of Nigeria Extractive Industries Transparency Initiative, Ogbonnaya Orji, said the full deregulation of the petroleum sector would permanently lay to rest the conversation around oil swaps, aside from saving trillion of naira for the country.

In 2010, the NNPCL introduced oil-for-product swaps as a solution to the problem of lack of refined white products (petrol, kerosene and diesel) in the country.

Oil-for-product swaps are complex barter transactions in which NNPCL and private traders swap crude oil for refined petroleum products, rather than for money, during the period of the transaction.

Orji pointed out that the crude swap deal had so many issues, stressing that with full deregulation, the transaction would end.

He added that a recent finding by his agency also showed that fuel subsidy gulped over N13tn.

This sum, according to the NEITI boss, could have been used to improve the country’s education, infrastructure, health and other sectors.

“NEITI’s latest policy brief, titled ‘The cost of fuel subsidy: A case for policy review,’ revealed that Nigeria expended over N13tn ($74bn) on fuel subsidies between 2005 and 2021.

“The figure in relative terms is equivalent to Nigeria’s entire budget for health, education, agriculture, and defence in the last five years, and almost the capital expenditure for 10 years between 2011‑2020.

“It is also important to note other economic opportunity costs of fuel subsidy, which include among others, slashing allocations for the health, education, and technology infrastructure sectors; deterioration of the downstream sector with the declining performance of Nigeria’s refineries and recording zero production in 2020,” he stated in document NEITI gave our correspondent.

Also speaking on the issue, the President of Petroleum Products Retail Outlets Owners Association of Nigeria, Billy Gillis-Harry, explained that deregulation meant that all elements of subsidy and equalisation, with respect to the cost of petrol, had been removed from the petrol pricing framework.

This, he said, implied that recent deregulation of the pump prices of petrol was evidence that full deregulation was no longer a pipe dream but one that could be achieved.

The removal of subsidies on petrol has been a subject of debate among many Nigerians.

The concerns primarily revolve around the potential impact on the affordability of fuel for the average citizen.

Additionally, concerns about potential job losses and increased transportation costs contribute to this negative sentiment.

But Gillis-Harry stressed that the negative attitude posed a significant challenge to the Nigerian economy, as he stated that the deregulation of the downstream sector would shift the pricing governance to market forces.

“In a market-driven economy, customers hold significant influence, and this transition will eventually result in reduced product prices due to healthy competition.

“Deregulation fosters market competition, leading to enhanced efficiency within the downstream sector. Moreover, deregulation allows for flexible pricing mechanisms driven by market forces.

“Prices will be determined by the interplay of supply and demand, rather than being fixed or heavily regulated. This will result in more accurate pricing that reflects the actual market conditions,” the PETROAN president stated.

The Nigerian Midstream and Downstream Petroleum Regulatory Authority is the government agency that would oversee the deregulation of the country’s oil industry in accordance with the Petroleum Industry Act, 2021.

Its task is to ensure that industry players in the downstream sector adhere to appropriate guidelines in collaboration with the Federal Competition and Consumer Protection Commission to safeguard the interests of consumers, among other responsibilities.

“The authority will continue its endeavours to encourage investment, transparency, and consumer protection. It will actively discourage collusion and other forms of trade practices that can harm the sector,” the Chief Executive, NMDPRA, Farouk Ahmed, stated recently in Abuja.

Also speaking on the gains of subsidy removal and how savings made could be used for the benefit of Nigerians, the President and Chairman of Council, Nigerian Institute of Management, Christiana Atako, said the halt in the subsidy regime was necessary for the country’s economic growth and stability.

Although she admitted that the move was painful, Atako said it would curb corruption and ensure that the benefits of government’s spending were beneficial to all Nigerians.

She disclosed this in her submission on subsidy removal, which was made available to our correspondent by the NIM.

“The institute concedes that while the decision to remove subsidy may come with some pains in the beginning, it is a necessary step towards the nation’s economic growth and stability as it will help to curb the mismanagement of resources, reduce corruption, and ensure that the benefits of government spending are felt by all Nigerians,” she stated.

She said since the removal of subsidies was a difficult decision that could have a significant impact on the masses, it was essential that the new administration implemented measures to mitigate the effects of the decision on the most vulnerable members of society.

Atako listed the measures to include providing a safety net for those who would be most affected by the subsidy removal.

According to her, this could include targeted cash transfers, subsidies for essential goods and services, and programmes to create new job opportunities.

The NIM president also advised the government to continue to work closely with civil society organisations, community leaders, and other stakeholders to ensure that the effects of the subsidy removal were effectively communicated to the masses.

Tackling profiteering

To address concerns about profiteering by oil marketers, following the removal of subsidy on petrol, the NMDPRA said it had already developed mechanisms to check this.

Ahmed said the Federal Competition and Consumer Protection Commission would monitor activities in the downstream sector to prevent profiteering by petroleum marketers.

The NMDPRA boss, however, pointed out that though no template spelt out the pricing components of petrol price, the market would henceforth be modulated to allow the fluidity of prices.

“This means that the price will no longer be static. It will depend on the international price of the gasoline market. But this does not imply that marketers can sell at any price.

“If we find that certain prices are way above the expected profit margin, we and the FCCPC can move in to curb such excesses because that will be profiteering. The market structure will dictate the price swings at every point in time,” he stated.

Ahmed also disclosed that oil marketers were now free to source foreign exchange anywhere around the world to import petroleum products and then recover their costs without impediments.

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