For the second time in 2022, the country has been thrown into another chaotic situation arising from the scarcity of premium motor spirit (PMS). This, happening about four months after Nigerians suffered a similar experience in February as a result of the importation of sub-standard petrol that caused severe damage to people’s vehicles, amid serious environmental hazards, has become a recurring decimal. Although the bad fuel had to be withdrawn from circulation, the result was prolonged scarcity and increase in the cost of transportation.
This time, the scarcity, which began to show the signs in June, spilled into July with long queues at the few petrol filling stations that had the product to sell. Some motorists queued for long hours while others spent one or more days at the filling stations waiting for the arrival of the product. Black market operators had a field day selling petrol between N350 and N400 per litre to anxious motorists in desperate need for petrol. In some cases, the petrol ‘dispensed’ by the roadside hawkers turned out to be adulterated. The price in the upcountry was equally high.
The recent petrol scarcity reportedly occurred as a result of the challenge of high cost of crude in the international market, which has implications on the importation of refined products by the Nigerian National Petroleum Company Limited – the sole importer of the commodity. With the Russia-Ukraine crisis creating supply hiccups and the naira slumping deeper in the foreign exchange market, it was obvious that the independent marketers could not afford to sell petrol at the official price of N165 per litre.
This brings to the fore the economic disadvantage of Nigeria continuing with the payment of subsidy on imported petrol. According to the NNPC, which is struggling to generate enough oil revenue to cover the soaring cost of subsidising the product, Nigeria has incurred an estimated petrol subsidy of N2.1 trillion in the first six months of this year. This is about 50 percent of the N4 trillion budgeted for subsidy in the national budget for 2022.
For five consecutive months, the Nigerian National Petroleum Corporation (NNPC) Limited, made zero remittance to the Federation Account Allocation Committee (FAAC) as at May 2022. This anomaly was caused by the huge sum of money spent in the payment of petrol subsidy, which eroded the gains that the firm earned. This suggests that Nigerians are in double jeopardy over the importation of petrol as they lose the social services which the FAAC proceeds accord them, while they pay higher for petrol either directly or through escalated transportation cost.
With the N4 trillion provision for fuel subsidy, the government is now projecting to spend N7.35 trillion more than it will earn this year as it makes room for a nine-fold jump in petrol subsidy costs than earlier budgeted. By this, the country will be recording the highest budget deficit in 23 years (since 1999), which amounts to about 5 percent of the GDP.
The implication of the increased budget deficit in 2022 is that the Federal Government will end up spending less on capital projects and human capital, which are critical in stimulating economic growth and creating jobs. The government will borrow more to accommodate the widening budget deficit which the oil subsidy has aggravated. This means that a higher portion of the revenue (presently over 80 percent) will be used to service the debts. This is another stark reminder of how the petrol subsidy bills continue to drain the earnings and worsen the cash-strapped governance.
We have argued in our previous editorials that the high cost of subsidising imported petrol is a huge waste of public funds. And it should be discontinued. Nigeria’s four refineries are idle, yet they consume enormous resources in terms of “maintenance” and payment of employee emoluments. No nation makes economic progress by indulging in this statutory waste, which is fuelled by systemic corruption, mismanagement and inefficiency.
The refineries should be sold outright and licences given to investors who genuinely want to establish refineries to meet local consumption and, perhaps, for export.
Government should liberalise the importation of petrol. Allowing the NNPC to be the sole importer and supplying to the independent marketers will not solve the problem. They must add sufficient margin to accommodate their running costs and multiple taxes, especially amid deteriorating infrastructure such as poor road networks. If this is done, the law of demand and supply will take its course, while competition extracts the needed efficiency in the sector to the benefit of the government and the citizens.
The improvement seen in the petrol scarcity occurred because oil marketers unilaterally raised the pump price of petrol from N165 per litre to N185 in disregard to the Federal Government approved pump price of N165 per litre. The hike came a day after the Major Oil Marketers Association of Nigeria (MOMAN) said the current price was no longer realistic. This is what liberalisation does.
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