According to the Global Subsidy Initiatives (GSI), it has been estimated that subsidies to fossil fuel may be in the order of US$600 billion per year, of which the GSI estimates about US$100 billion is provided to producers. Just as nobody knows the real global financial figure of fossil fuel subsidies because there is no international framework for regularly monitoring them, it is also very difficult but not impossible to account for the real untold trillions cost of fuel subsidy in Nigeria.
Hence, keeping the most contentious issue of what constitutes a subsidy in the Nigerian domestic petroleum products sector aside, I would say that the actual or real total cost of subsidy on fossil fuel domestically consumed in Nigeria has been grossly understated by all the federal authorities vested with the responsibility of computing the direct and indirect total costs of the fuels subsidy regime and its management in Nigeria.
For example, over the years, the total cost of fuel subsidy to Nigeria’s economy was always computed or calculated from financial standpoint and ignoring the very important associated economic, social and environmental costs of the policy. During and after the period of the last fuel subsidy removal revolt in January 2012, various figures ranging from N1.3trillion to N2trillion have been put forward by the various federal authorities (including the Central Bank of Nigeria – CBN) as the estimated total cost of fuel subsidy to the nation.
However, when economic, social and environmental costs of fuel subsidy regime are properly captured and internalized in the domestic petroleum products pricing regime, the current scenario regarding the real cost will drastically increase (e.g., no Customs duty is charged for importation fuel into Nigeria). When this is done properly, it would then give a clearer and much better perspective of the actual, real and true total cost to the national economy of the fuel subsidy policy. Put simply, very important cost elements have been left out in the determination of the total cost to the Nigerian economy of the existing fuel price subsidy regime.
Moreover, there is even more confusion in the determination of the actual or true total financial cost of Nigeria’s fuel subsidy regime. This has been attested to by the various investigative reports conducted by the World Bank, the International Monetary Fund (IMF), the legislative and executive arms of the Nigerian government since 1999 to date, and other interested parties over the years.
Also, my continuous research on the subject since 1990 to date further attests to this worrying situation in Nigeria. For example, in my detailed analysis of the Nigerian fuel subsidy institutional set up, I identified numerous areas where huge sums of money are daily spent by the federal government in the supply and distribution chain of petroleum products and management of the subsidy regime itself. For instance, more than a dozen federal agencies are involved in one way or another in the supply, distribution, marketing, monitoring, validation and payment of subsidy for a litre of fuel before it gets to the consumer at the pump-head of a fuel filling station in Nigeria.
The administrative cost involved in keeping all these federal agencies is staggering; this cost is additional to the fuel subsidy payouts as we understand it in Nigeria. And, when this cost is taken into consideration and internalized, we should be talking of something over N3trillion annually.
This administrative cost include funding (both recurrent and capital) of agencies such as the Department of Petroleum Resources (DPR), Petroleum Products Pricing and Regulatory Agency (PPPRA), Petroleum Equalization Fund Management Board (PEF), Pipelines and Petroleum Marketing Company (PPMC) and its 21 depots nationwide, amongst others.
Therefore, fuel (petrol and kerosene) subsidy reimbursements to the Nigerian National Petroleum Corporation (NNPC) and other private companies (estimated to be over 100 in number) involved in the business of importation of refined fossil fuels into the country constitute a huge lucrative hidden bazaar economy; larger even than the total outlay of the combined annual recurrent and capital budgets of the over 500 estimated federal government agencies and parastatals.
Lastly, corruption is the top-most issue in the mismanagement of Nigeria’s fuel subsidy regime. All past and ongoing reports of investigations into the management and or mismanagement of the regime point to this fact. Hence, without taking the aforementioned facts into account, it is likely that the federal government’s current plan to totally eliminate fossil fuel subsidy is doomed to fail.
Although the problems related to subsidized fuel supply, distribution and consumption are not new in Nigeria over the past four decades, it remains a key challenge in the implementation of the government’s policies. The relative success of latest price increase rests mainly on the ability of the federal government to coerce Nigerians into accepting the higher price for fossil-fuels.
In conclusion, therefore, what is needed is the total dismantling of the institutional structure of the fuel subsidy management regime. Let Nigerians decide a new institutional structure for management and governance of the downstream domestic supply and consumption of energy through their elected representatives in the National Assembly.
