There is palpable tension in government and public circles, following the fall out of the fuel price increase announced by the Nigeria National Petroleum Company limited, NNPCL, at the behest of the Federal Government, a few hours after President Bola Ahmed Tinubu announced, off the cuff, on May 29 that “fuel subsidy is gone.”
A senior government source told THEWILL that the decision of the Nigeria Labour Congress, NLC, to embark on a nationwide strike on Wednesday was being carefully studied, given the yet- to wear-off post-election disputes and controversies, even as the government would stick to its decision on ‘subsidy removal’.
The anxiety in government circles is connected with the tough position adopted by the NLC at the last Wednesday meeting between its leaders and the Federal Government at the Presidential Villa, which ended in a deadlock, and a looming nationwide strike.
Details of the meeting obtained by THEWILL showed that apart from the fait accompli situation presented by the government’s pre-meeting decision on the price hike, the labour leaders’ unanswered arguments forced each party to take hard positions. The main thrust of the argument was that the government had always subsidised the rich and passed the bill to the poor.
A source at the meeting said that while labour leaders substantiated their arguments with facts, the government insisted that palliatives would be funded from the $800 million loan obtained from the World Bank by the immediate past administration less than a month ago.
Explaining further, the source mentioned some of the freebies for the rich, such as duty waivers worth N16 trillion that was given to businesses with nothing to show for it; the N13 trillion given to electricity companies that are supposed to be privately run and the N5.4 trillion loan owed by 380 debtors to banks that are being managed by the Asset Management Corporation of Nigeria, AMCON since 2015.
“It is this kind of subsidy for the rich and incompetence on the part of the government, which has made the refineries not to work, that is the source of the problem,” the source told THEWILL on condition of anonymity.
Sources say that many labour leaders felt let down by the President, who, being a democrat, was expected to prefer dialogue to the monologue instigated by his announcement of the removal of subsidy during his inauguration.
“We expected him to settle into office, study the books and even ask for a supplementary budget, if necessary, then consult widely with stakeholders before launching headlong into the subsidy removal in a country in which minimum wage is N30, 000,” one of the sources told our correspondent.
DIVIDED OPINION
Set apart, the new price increase in petrol sounds logical and makes a lot of economic sense as it would ensure that the prices of petroleum products reflect market realities.
But against the background of the prevailing harsh economic realities in the country, following high unemployment rate (33 million persons are without jobs) and galloping inflation at 21.91 per cent, according to global consulting firm, KPMG in April 2023, as well as rising food prices amid 153 multi-dimensionally poor people out of an estimated 200 million population and negative Gross Domestic Product at 8 per cent, the fuel price increase will have a multiplier effect on the economy with an increase in production costs for the real sector, that would eventually be passed to the consumers with very low purchasing power.
Even so, opinions are divided on the pros and cons of the new policy. A professor at the Nasarawa State University, Keffi, Uche Uwaleke, told THEWILL that due to its huge cost on the economy, the removal of the fuel subsidy was long overdue.
Prof Uwaleke said that fuel subsidies have proven to be unsustainable, but he urged the Federal Government to be cautious in implementing the new price regime on petrol.
“However, in order to minimise its negative impact on the livelihoods of Nigerians, the issue of fuel subsidy removal should be handled with care. This negative impact includes higher inflation and poverty rates in the short term, leading to demand for higher wages.
“If not well handled, it may also result in social unrest. So, stakeholder engagement is required and compensation measures put in place before implementing it, using a phased approach,” he said.
In the same vein, a former Director-General of the Lagos Chamber of Commerce and Industry and currently Director/CEO, Centre for the Promotion of Private Enterprises (CPPE), Dr Muda Yusuf, expressed support for the new price regime under a guided and well-managed supervision and regulation.
“Admittedly, the increase was quite high. And the shocks on citizens were enormous as well. But these are some of the inevitable costs of reforms. And we need reforms to prevent the collapse of the economy. Apparently things have to get worse before it gets better,” he told this newspaper.
Yusuf said things would be painful initially, but they would progressively get better. As the supply side response improves, he argued, the prices will moderate.
That said, he added, the government needs to urgently put immediate and short-term measures in place to mitigate the pains of the sharp increases in transportation costs on the citizens.
“Food and transportation account for over 50 per cent of the household budget of the poor. Something urgent needs to be done. Such measures should focus on reducing the cost of food, provision of cheaper public transportation options, improving power supply to reduce demand for fuel for electricity generators, incentives to promote the use of auto gas, reduction in import tariffs for intermediate products for food processing companies, eliminating taxes and levies on all agricultural inputs to boost food production and reduction in import tariffs on mass transit buses, among others,” he canvassed, adding, “NNPCL PMS pricing should be at least 15 per cent less than the prices of private fuel stations. This is necessary to signal social sensitivity by the government.”
However, an oil and gas expert, Bala Zaka, however, underscored the role of the government in upholding a form of pro-people subsidy regime in the country.
According to him, no government can operate from its people. Arguing that there is a subsidy in Public Education, Public Health and Public Transport, he warned that the impact of fuel subsidy removal could consume Nigerians because the economy would be incapable of absorbing the resultant shock.
Similarly, the Nigerian Employers’ Consultative Association (NECA) called on the Federal Government to approach the removal of petrol subsidy strategically in order to avoid the escalation of inflation and worsening of already bad socio-economic indicators, such as employment and poverty per capita income, among others.
But the Major Oil Marketers Association of Nigeria (MOMAN) advised Nigerians to adjust themselves to the new reality for the good of the country’s economy.
For the NNPCL, the N400 billion monthly subsidy, with which it had supported the government, has been a back breaking experience. Lamenting that the Federal Government still owed the company N2.8 trillion on petrol subsidy, the Group Chief Executive Officer of NNPC, Mele Kyari, disclosed that since 2022 when it provided the government with the sums of N6 trillion and N3.7 trillion in 2023, the company was yet to receive any payment whatsoever from the federation.
He said, “That means the Federal Government is unable to pay and we have continued to support this subsidy from the cash flow of the NNPC. That is, when we net off our fiscal obligations of taxes and royalties, there is still a balance that we are funding from our cash flow. And that has become very difficult and it is affecting our other operations.”
FRAUDULENT SCHEME
The House of Representatives in June 2022 alleged that more than $10 billion worth of the nation’s crude had been stolen via fraudulent fuel subsidy claims by the Nigerian National Petroleum Corporation (NNPC) and other industry stakeholders between 2017 and 2021.
The importers ship a huge portion of the product across the borders and sell it at exorbitant price at the expense of the people.
The crude-petrol swap denies Nigerians of the by-products of crude which the NNPC negotiates away for the benefits of the refined product supplier.
REACTIONS ACROSS THE COUNTRY
In Plateau State, sharp reactions, bitterness, disappointment and utter condemnation have continued to trail the President’s inauguration statement.
Many condemn the policy for its hasty implementation and devastating effect on the value of the national currency. To this group, President Tinubu failed to consider the macro negative consequences of the policy on a wide range of issues, especially the purchasing power of citizens before “making the erratic pronouncement”.
Austin Egili, Executive Secretary of the Manufacturers Association of Nigeria, MAN, decried the policy and pointed out that it has worsened the degenerate situation in the manufacturing sub-sector. According to him, before now, manufacturing was under bad weather, with a lot of industries shutting down completely or closing several production lines and only managing to stay afloat.
With the total removal of subsidy, he said, the sector will have to grapple with the worst in operational costs and maintenance of standards. He noted that personnel servicing and high cost of operations cannot help the sector to thrive and contribute meaningfully to the growth of the economy.
Barrister Adamu Madaiki, a lecturer in the Faculty of Law, University of Jos, shared Egili’s concern, as he pointed out that the enforcement of total removal of fuel subsidy has devalued the national currency by more than 200 per cent. According to Madaiki, savings in the banks have automatically crashed in value, as 500 naira, for instance, can no longer exchange for the same service or goods it could last week. Madaiki will rather the subsidy be withdrawn in phases, while a cushioning regime is being developed.
Yet, there are others who support the policy as President Tinubu unfolds it, saying it is now or never and citing the argument that subsidy was merely so called because it was beneficial to a few privileged people who usurped and misappropriated its purpose at the expense of the masses.
In Abakaliki, the Ebonyi State capital, many who spoke to our Correspondent said that Nigerians were already used to such unusual policies as the sudden fuel price increase and its consequences, adding that the only option they had was to adjust.
While Chukwuma Ejiofor, a civil servant, said he had since dumped his car and braced himself to trek the long distance to and from work because commercial motorcyclists and Keke Napep have jerked up their fares, Matthew Ebubedike, a businessman, said the fuel subsidy removal had been long expected, but the immediate past government in the country was playing politics with it.
“Let us face the consequences once and for all. Whatever it is, I know we must survive, because there is no situation that has not befallen this country.
“It is not a funny situation at all. The economy is biting harder. It was a bad start for the just inaugurated administration of President Bola Ahmed Tinubu. But we have no choice than to adjust”, he said.
In Akwa Ibom State, the independent and major oil marketers reacted differently to the detriment of consumers. Many of the petrol filling stations in the capital, Uyo, especially those belonging to independent marketers, shut down, with petrol selling for N600, N89 higher than the new price of N511.
Worse still, kerosine rose from N400 to between N800 and N900, just as interstate transport fares went up by 100 per cent and inter-city fares rose to 50 per cent.
It took the interventions of the Governor of Bayelsa State, Diri Duoye and his Cross River State counterpart, Bassey Otu, to calm the frayed nerves of restive citizens protesting the hoarding of fuel by marketers who were bent on cashing in on the situation to make brisk business through higher prices over the prevailing price of N250 per litre.
Governor Duoye threatened to shut down any filling station selling above the fixed price while residents groaned under the rising cost of business operations caused by marketers profiting from the situation.
To check the emerging trend in Cross River, Governor Otu had to set up a 12- Man Task Force to put the marketers in check.
The governor said the marketers ought not to have increased the price because the fuel in their stations and tank farms had been subsidised and full subsidy would commence later in the month. However, 24 hours after the Task Force was set up, its impact is yet to be felt as most filling stations within the metropolis still sell the product between the fixed price of N511 and N520 per litre.
In Edo State, where a protest against arbitrary increase in fuel price had been ongoing for some time, the price hike added fuel to the protest, leading to the disruption of traffic on the Benin-Lagos Road, blocked by protesters.
NLC MOBILISES AFFILIATE TRADE UNIONS
In the wake of these growing reactions from the states, the NLC’s Wednesday ultimatum to the Federal Government to reverse the increase in the pump price of fuel has a fertile ground to sprout the planned nationwide protest. Investigation by THEWILL shows that the NLC is bent on holding the strike through mass protest for these key reasons. First is to shore up its declining image among Nigerians who had come to see the body as capable of barking and not bite, following many instances when it called for strike action under similar situations in the past but caved in easily to the government afterwards.
Secondly, the NLC wants to strengthen its 48 affiliate members through mobilisation in order to give each of them significant roles to play in their various capacities, while using them to liaise with civil society organisations, the National Associations of Nigerian Students, NANS, grassroots support groups and finally to use protest marches to boost the strike.
FG DEEPENS ACTION BY SCRAPPING PETROLEUM EQUALISATION FUND
On Friday evening, the Federal Government took further steps to consolidate its position. It scrapped the Petroleum Equalisation Fund (PEF), as well as the national transport allowance for oil marketers.
Engr. Farouk Ahmed, the Authority Chief Executive (ACE) of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) confirmed the position.
The PEF was set up by Decree 9 of 1975 (as amended by Decree Number 32 of 1989 now chapter 352 of the Laws of the Federation). Its main function is to ensure price uniformity of petroleum products via the reimbursement of marketers for losses incurred while trucking products from depots to filling stations anywhere in Nigeria.
Explaining further, Ahmed said the NMDPRA would no longer fix prices or release templates for petrol prices. He explained that under the liberalised market, the forces of demand and supply would dictate prices.
He however disclosed that the NMDPRA and the Federal Competition and Consumer Protection Commission (FCCPC) would monitor activities in the downstream sector to prevent profiteering by petroleum marketers.
He said, “We put the regulation in place, we make sure quality control is complied with, we make sure the product is there and we give licence to a prospective importer.
“The market is now open for everybody that wants to import as long as they meet all the requirements. So, it is not about the NNPCL alone.
“For everybody in the sector, we make sure we guide their operations whether at the depot or wherever the product is, but we will not put a cap to say this is what the price must be.
“As far as we are concerned in the NMDPRA, this is not like the past when the PPPRA fixes the price. In a deregulated market, it is the market force that dictates the price.
“In the case of the NNPCL, the organisation is the sole importer at this point. We told the NNPCL to recover its costs because they know how much it cost them to import the product and sell it.
“Of course, we also know how much shipping, offshore, ex-depot and ex-pump are. But we cannot tell them to sell at a price because the market is deregulated”, he said.
Ahmed further disclosed that marketers are now free to source their foreign exchange anywhere around the world to import petroleum products and then recover their costs without impediments.
On where the importers will source their forex from, Farouk said: “No, the CBN will not give dollars to anyone because it is an open market. Anyone willing to import should get the dollars from anywhere to import.
“Anyone willing to open a letter of credit from any part of the world can do that to import. That marketers can source their forex from anywhere is the beauty of the liberalised market that the NMDPRA has introduced based on the provision of the law.”
Although no template spells out the pricing components of petrol price, Ahmed hinted that the market will 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 added.
On the role of the Dangote Refinery in all of these, he maintained that a private refinery will help the nation in two ways, adding, “The refinery will give Nigeria easy access to petroleum products on-land for security reasons because it is within Nigerian territory.
“Secondly, it will increase employment for our professionals.”
Amos Esele is the Acting Editor of THEWILL Newspaper. He has over two decades of experience on the job.
