A case for electricity subsidy

 Subsidy is a worldwide phenomenon employed commonly to cause relief to some hardships experienced by humans and in some instances even animals, and so, any nation that answers its name, offers one form of subsidy or another to its deserving citizenry.   The World Trade Organisation defines subsidy as any financial benefit provided by a government […]

 Subsidy is a worldwide phenomenon employed commonly to cause relief to some hardships experienced by humans and in some instances even animals, and so, any nation that answers its name, offers one form of subsidy or another to its deserving citizenry.  

The World Trade Organisation defines subsidy as any financial benefit provided by a government which gives an unfair advantage to a specific industry, business, or even individual. Some economists, however, are opposed to government subsidies, believing they end up doing more harm than good in the long run. Nonetheless, nations continue to implement subsidies in various forms and at various levels.   

According to the International Monetary Fund (IMF), leading world economic powers, China, Russia, USA, EU, India are leading in aggregate global fossil fuel subsidy, and so, the claim for ills associated with subsidy applications in countries like Nigeria, is discountenanced.    

The United States has implemented many subsidies and in many forms, supporting everything from ethanol to used cars. It is on record that the U.S. government grants subsidies to many industries including oil, agriculture, housing, farm exports, automobiles, and healthcare. While subsidies in the European Union come mostly as funding to researchers, farmers and rural businesses, small and medium-sized businesses etc.   

The Nigerian government introduced an oil subsidy scheme to cushion the effect of rising global oil prices in the 1970s, and for several years, Nigerians enjoyed the benefits of the one and only subsidy they are aware of. Over the years, however, Nigeria’s refineries became barely functional and the country is forced to sell its unprocessed stock on the global market and import the refined fuel it needs for domestic consumption. This apparently paved the way for abuse and corruption in the fuel subsidy regime where subsidy payments are claimed, for fuel never imported, let alone distributed for use by Nigerians. To make matters worse, the imported fuel is often diverted to the black market or smuggled into neighbouring countries’ markets.   

So, activities of corrupt government officials who fraternise with their likes in corporate business organisations, and smugglers, have made subsidy applications in oil and gas and similarly in fertilizer in Nigeria, a mirage, or at least so the government portrays. These activities had persisted over the years, defying successive governments’ logics of containment, culminating into the present government calling off the subsidy regime in its entirety. It is difficult to conclude whether the respective governments lack the will or the wherewithal to tackle the fraud that is strangulating the subsidy applications and whether the option of stopping the subsidy regime is the best and only option left. Either way, it goes, Nigerians are the worst hit.     

Claims of fraud associated with importation, hoarding and or smuggling into neighbouring countries of any subsidised product (mostly true) seemed to be what frustrated the government into cancelling the subsidy regimes in Nigeria. To cushion the untoward effect of the final oil subsidy removal, the central government has announced palliatives of five trucks of rice to each state and has also approved the release of N5 billion to each state and the FCT to procure 100,000 bags of rice, 40,000 bags of maize and fertilisers.   

Unfortunately, the syndicate that frustrated the subsidy regime will equally, possibly with greater ease, sabotage these items reaching the targeted common man. Some few people (crooks if I may say), deftly plotting to get rich by hook or by crook, in short by all means, are making life difficult for the rest of us. Nonetheless, if the government is desirous of still causing some relief on the populace, it can subsidise electricity as it cannot be hoarded, smuggled and is not imported, thereby reducing to the barest minimum, the opportunities exploited by the subsidy saboteurs.   

Electricity is a form of energy that is used in all ramifications of life in Nigeria. Electricity is the most important source of energy employed to power both light domestic appliances and heavy industrial machinery.  

Typically, these days, and especially as electricity tariffs got high, fire logs or charcoal are seen traded all over the place and used in cooking foods. This practice is implicated in the menace of deforestation, as trees are indiscriminately hacked down, and burnt to make charcoal.   

The inability to settle tariffs from DisCos has made so many other institutions, industries, households and other facilities suffer various grades of power cuts that end up crippling their activities at various times. Ironically, Nigeria has all it takes to satisfactorily generate and ensure consistent supply of electricity to its citizenry, owing to the availability of what is required to generate electric power.  

Transportation the world over is experiencing a paradigm shift from use of vehicles or ships/vessels, hitherto powered by petroleum products to greener electric or solar-powered modes of transportation. Some developed economies have started threatening the withdrawal of vehicles that use petroleum-powered engines, to the greener alternatives. Electricity in Nigeria, unfortunately, is suffering the same fate as oil, at least as far as subsidy removal is concerned.    

The Punch newspaper in its 17th July 2023 edition carried a report where the NERC stated “Annual subsidy reduced from N528bn in 2019 to N144bn in 2022, while subsidy in 2023 year-to-date (January to April 2023) stood at N57bn. The financial burden of tariff subsidies between 2015 and 2022 stood at NGN2.8tn”. 

The yearly hikes in power tariffs by the federal government through the NERC have been targeted at ending subsidies on electricity. The report further says, “without the tariff reviews that commenced in 2019, subsidies payable by the government would have grown to about N1 trillion per annum by 2023. Service-Based Tariff was instrumental in the transition to cost-reflective levels. The government is bent on removing subsidy in a product that may be easier to produce and monitor locally devoid of importation bureaucracies and so, corruption is drastically reduced if not stopped.  

Juxtaposing the N1 trillion projected electricity subsidy payments per annum and the savings of over N1 trillion in just two months following oil subsidy removal, boastfully mentioned by the president, displays the ease with which the government can ease people’s lives through a more manageable electricity subsidy. Monies recovered from the wasteful fuel subsidy can be used to subsidise electricity many folds. 

Prof. Abdulsamad, Ahmadu Bello University, Zaria