Petrol subsidy: A bitter truth shielded by poor governance

The two chambers of the National Assembly approved the revised 2022 budget last week increasing the planned expenditure by N193 billion to N17.32 trillion. Interestingly, a major change in the budget was the oil price benchmark, which was increased to $73 per barrel. While many of the estimates remain relatively stable, one interesting part of […]

The two chambers of the National Assembly approved the revised 2022 budget last week increasing the planned expenditure by N193 billion to N17.32 trillion. Interestingly, a major change in the budget was the oil price benchmark, which was increased to $73 per barrel. While many of the estimates remain relatively stable, one interesting part of the changes in the estimate of petroleum subsidy. The House of Representatives approved the N4trillion appropriation presented by the Executive while the Senators approved a lower amount of N3.56 trillion.

The president had in February written to the National Assembly to appropriate an additional N2.56trilion for petrol subsidy, in addition to earlier budget of N0.44trillion mainly on the reality of higher crude oil price and the attendant rise in the landing cost of petrol. While this new request and approval by the Green Chamber represents some 33 per cent increase in the subsidy budget from the total N3 trillion budget made just two months, it is not surprising, given the escalated price of crude oil and the fact that Nigeria imports all of its fuel, even so, it pays salaries and incurs a cost on moribund refineries.

It is sad that the Nigerian government would be spending more on petrol subsidies than what it plans to spend on education, healthcare, road infrastructure and housing, all put together. The N4 trillion is about three-quarters of the total amount of capital expenditure that the government plans to execute this year, even though we know the government always struggles to implement half of the capital expenditure.

In reality, what gets done well is the recurrent expenditure.; after all salaries of workers would be paid and political elites and senior public servants would get their budgeted allowances in full in addition to their estacodes for oversea trips and other luxuries. Infrastructure development, which is what the poor Nigerian man and woman can benefit from, is what gets to suffer all the time, especially when revenue becomes a recurring challenge to full budget implementation.

President Buhari’s officials, of course, have a justification to increase the cost of the subsidy, given the crude oil price of $104 per barrel. After all, the price of diesel, which is fully deregulated, has almost tripled from barely N240 per litre last year to about N700 per litre now. With the trend in diesel price and estimates of the landing cost of petrol, the reality is that if the petrol subsidy is removed, Nigerians may have to buy a litre of petrol for around N400, as against the current regulated price of N167.50 per litre.

So, for every litre of petrol consumed by you and me, directly or indirectly, the government pays some N280 per litre on our behalf. However justified the estimate of the subsidy may be it is shrouded in secrecy. It’s an opaque structure that gives a lot of doubt about the efficiency of the practice and whether or not Nigerians are not better off telling the government to remove the subsidy to block the leakage that this costs.

We know of the crude-oil-petrol swap arrangement and we know of the allocated crude oil to the moribund refineries, which is often a part of the swap arrangement, but each one of us struggles to understand how the subsidy estimate is done because it’s a puzzle that only the actors can resolve if ever they would. The revelations of the past are too much evidence that the subsidy regime is a rip off.  While one would have expected some changes in the practice, today’s structure of petrol import arrangement is perhaps more opaque than ever, with NNPC being the monopoly player and regulator, end to end.

All the same, Nigeria cannot afford to continue to fund subsidies with the same arrangement and expect a different result. The rich, many of whom get subsidised in other ways and benefit from the opaque system in Nigeria, are also the biggest beneficiaries of petrol subsidy, both in the open and behind the doors. How can Nigeria subsidise petrol for the rich man who moves in a convoy of luxury cars at the expense of providing primary healthcare for the poor? How can we neglect the education sector just to finance a fuel subsidy, which benefits the rich more than the poor?

Whilst every Nigerian directly or indirectly benefits from the subsidised fuel price, the most benefits go to the rich. This is why the petrol consumption is highest in Lagos, Abuja, Port Harcourt, Kano and other big cities. If fuel must be subsidised perhaps it should have been diesel, which directly affects production. 

Surprisingly, Nigeria has one of the lowest prices for petrol, surprisingly lower than even countries like Saudi Arabia and Russia, which have more oil reserves and produce more crude oil than we do and refine their crude locally for their domestic market. For instance, while we buy a litre of petrol at a regulated price of N167.50 in Nigeria, the same litre of petrol is sold at the equivalent of N296, N360, N490, N858, N1,560 in Iraq, Saudi, United Arab Emirate, Canada and Norway, respectively. These are oil-rich countries and most of which produce more than Nigeria’s current crude oil production of 1.5million barrels per day,  and indeed refine their crude. Indeed, Europe, which exports most of Nigeria’s refined petroleum products, sells petrol at a higher price, an average of N990 per litre. Except for Russia, which also subsidises its refined petrol for citizens at around N215 equivalent, Europeans buy fuel at a relatively higher price than the global average of N700 per litre.  

All said, how can we trust the Nigerian government to genuinely spend the subsidy on healthcare, education, housing, road infrastructure, ports and so on if we are to agree to subsidy removal. We are probably suffering from the justified lack of trust in the political elites.

Indeed, if Nigerian leaders can be trusted to do the right thing by investing the subsidy in infrastructure development that can generate jobs and improve the standards of living of every Nigerian, it is better to take out the subsidy before it consumes us as a country. The similitude of financing petrol subsidy at the expense of infrastructure development is that of a man who lives a lavish life today, even when he can see that the cloud is set for a heavy downpour.

We just cannot afford to ignore the reality and continue to borrow to fund subsidies, with worsening infrastructure. We just cannot continue on this trajectory of denying our reality. We have to fix the poor governance in the public service to get things right before it’s too late.