Dangote Refinery:Genesis of End to Fuel Subsidy in Nigeria | By Olawale Ogunbusola
Fuel subsidies in Nigeria are enormous. At last estimate, the state subsidises petrol to the tune of 27.3 trillion naira — almost double the entire health budget.
Subsidies exist because the government fixes the price of petrol for consumers below the international price and uses government resources to pay for the difference. They were first introduced in Nigeria in the 1970s as a response to the oil price shock in 1973. However, despite numerous attempts at reform, Nigeria has never successfully removed petrol subsidies, in large part due to strong popular opposition to reform. Such subsidies come at great cost: spending on other development objectives is lower; the distribution of resources to the state governments is reduced; the vast majority of the subsidy goes to better off Nigerians; and cheaper gasoline encourages greater pollution, congestion and climate change.
In November 2021, the federal government announced its plan to remove the fuel subsidy and replace it with a monthly N5,000 transport grant for poor Nigerians.
The Nigerian government has, for decades, subsidised fuel and fixed retail prices of petroleum products. The payment has, however, threatened the nation’s fiscal position and impacted the government’s ability to fund developmental projects across the nation.
On April 23rd,2023, the Nigeria’s Minister of Finance, Budget and National Planning, Zainab Ahmed through the Special Adviser on Media and Communications, Yunusa Abdullahi, revealed that the government will not suspend plans to remove fuel subsidies, rather expanded the subsidy removal committee to include teams from the incoming administration and the state governors.
Fuel subsidies are a form of government intervention to reduce the cost of fuel by providing direct financial support to oil companies, and as such, subsidize the product to consumers. Nigeria is one of Africa’s largest producers of crude oil, and it relies heavily on this resource for its economic growth. In addition, oil makes up much of Nigeria’s GDP and provides employment opportunities for many Nigerians.
The history of fuel subsidy dates back to October 2000 due to supply inadequacies from the country’s four refineries. The Nigerian government set up a committee to review all aspects of petroleum product pricing and distribution. The committee recommended establishing a Petroleum Products Pricing Regulatory Committee (PPPCRC), which later metamorphosed into Petroleum Products Pricing Regulatory Agency (PPPRA). PPPRA uses a price modulation mechanism, which allows for adjusting petroleum product prices to reflect changes in global oil prices.
Under PPPRA, the Nigerian National Petroleum Corporation (now NNPC Ltd) and approved importers bring in petroleum products. These products are sold to independent petroleum marketers at government- regulated prices, usually lower than the landing cost. The independent marketers then sell the products to consumers at a price that includes their operating costs and a government-regulated margin. Although fuel subsidies have been beneficial in terms of making petroleum more accessible to citizens, they have also had some negative impacts on the economy.
For one, they have led to increased corruption and mismanagement due to weak oversight mechanisms, with some individuals and companies taking advantage of the system to make illegal profits. In addition, the government spends a significant amount of money on petroleum subsidies, leading to increased public debt.
It is noteworthy that Ghana, on Wednesday, March 15, 2023, announced the removal of fuel subsidies in the country. Removing the subsidy was part of the country’s implemented regulatory measures to ensure stability across its downstream sector. According to the chief executive officer of Ghana National Petroleum Authority (NPA), the removal became necessary because industries were shutting down as the government had subsidies funding challenges. Considering Ghana’s recent action, the International Monetary Fund (IMF) would seek Nigeria to do the same.
It has been a recurring factor that economists reveal as one of the maggots in the polity of the country, thus, must be dealt with with no withdrawal. Democratic outgoing administration of Buhari seems to be serious about withdrawal of the parasite’ Fuel subsidy’ premised on refinery licensing of the nation’s magnate businessman and richest in Africa,Aliko Dangote at Lekki, an area of Lagos State since 2021 with its formal inauguration on Monday 22nd May,2023 , precisely, 8 days to the fading-out of Buhari 8 year rein in Nigeria.
In a huge revelation recently by the Oyo state Trade Union Chairman and Member of Pengassan, Comrade, Olatunbosun Olabiyi noted the president could withdraw the subsidy if the nation’s refinery picks up functionality. However, Olabiyi explained that one of the nation’s refineries sited at Warri has reached 75% rehabilitation as inspected while the ready for inauguration private-owned refinery will provide 610,000 barrels of oil which could take care of nation’s daily needs.
On this note, every Nigerian will applaud Muhammad Buhari for finally concluding to formalize subsidy removal before the expiration of his tenure this May 29, while the incoming administration for steering by president-elect, Bola Ahmed Tinubu is enjoined to ensure a fuller support with the Dagote refinery and as well fuller rehabilitation if our the nation’s refineries and also fuller regulation of the oil sector as to attract more local investment in oil, provision of enabling agriculture and business thriving vis-a-vis resounding security.
Let me say, fuel subsidy ends. Bye! Bye! Fuel subsidy!