Fuel scarcity and return of subsidy

by | January 15, 2018 12:25 am

Nigerians are yet again facing the misery of fuel scarcity for the umpteenth time. It is unfortunate that NNPC’s Group Managing Director, Dr Baru, continues to blame so called saboteurs and hoarders for the fuel crises instead of taking responsibility for the corporation’s failures. This false narrative was sadly repeated by the president in his new year address to the nation. Since private operators stopped importing refined petroleum products into the country, the NNPC has struggled to close the supply gap due to capacity and logistical challenges. This is the real reason for the fuel scarcity in the country. The hoarding of petrol was just incidental and a consequence of the shortage of supply. Nigerians must now brace themselves for a long period of sporadic fuel scarcity until we address the thorny issue of price regulation of petroleum products in Nigeria. This is at the root of the problem of fuel scarcity that has plagued Nigeria for decades.

In a free market, government may be able to control price but they cannot control the supply of the commodity for the simple reason that you cannot force anyone to supply a product at a loss to themselves. Remove price regulation and petrol shortages would end at a stroke. In the short term, prices are likely to rise but will fall inevitably with competition as private operators begin to invest in building refineries in Nigeria. The government itself will save billions of naira on bureaucracy and the huge cost of enforcing price control regulations across the 36 states of the federation.
Nigerians often ponder why we don’t have our own refineries here in Nigeria, instead of relying on expensive imports. The simple reason is that no investor will put in billions of dollars building you refineries if there is a risk they may not be able to recover their costs due to price control policies. Until as a people we address the issue of price regulation of petroleum products, there will continue to be incessant fuel scarcity in Nigeria.
Since Autumn 2017, the landing charges of refined products have continued to rise with increases in crude oil prices, currently trading at $65 a barrel. With landing charges well over the pump price of N145 a litre, the NNPC has begun effectively to subsidise petrol prices, be it through the backdoor. Given the resurgence of crude oil prices, it is estimated that the cost to the country of subsidising petrol in 2018 could be in excess of N1.5trillion, more than the combined budgets for Works, Power and Housing, Education, Health, and Agriculture and Rural Development put together!
We cannot continue to bury our heads in the sand on this issue of subsidy, as if it does not exist. The government and legislators must address this issue honestly, without sentiment and in the best interest of Nigeria. It will be irresponsible not to. Even Saudi Arabia with all her wealth has begun to address this issue, in order to release funds for infrastructure development.
The reason often advanced by supporters of fuel subsidy is that ‘Nigerians have suffered enough’. On the contrary, Nigerians are suffering precisely because of a policy that allowed over a quarter of the entire federal budget on average, to be spent on one line of expenditure, to the detriment of other critical sectors of the economy.
At the height of the oil boom in 2011 Nigeria was believed to have squandered as much as $14 billion in hard currency on petrol subsidies, over halfthe entire federal budget for that year was spent on one line of expenditure. Insanity of the highest order! Truckloads of Nigerian petrol were smuggled abroad and sold at market price while Nigerians suffered from fuel scarcity. In the eight years preceding the present administration, it is estimated that Nigeria would have spent over N10 trillion subsidising petroleum products to the detriment of the entire economy. The policy that was supposed to help the people became a huge albatross on Nigeria’s economic development, depriving the nation of much needed funds for job creation and infrastructure development. N10 trillion naira would have resurrected the entire railway industry without the need to borrow from China Exim Bank, creating millions of direct and indirect jobs. It would have built and equipped thousands of hospitals with the latest technology, saving millions of lives. The money would have built millions of social housing units and constructed thousands of kilometres of roads, creating millions of direct and indirect jobs. Instead we chose to give it all as recurrent expenditure to 130 or oil marketers to the detriment of more critical sectors of the economy. Madness!
The truth is that the subsidisation of petrol distorts the market and has resulted in inefficiencies and substantial loss of revenue to the government through corruption. The policy has contributed to the collapse of our local refineries by making them unprofitable for private investors to invest. Fuel subsidies have been responsible for sporadic fuel shortages at fuel stations as corrupt marketers, after receiving subsidies, have then proceeded to sell the subsidised fuel to neighbouring countries at higher prices.
Price control of any product always inevitably leads to scarcity. In Venezuela today, citizens are queuing up for hours every day to buy bread, milk, meat and other basic necessities, because of the government’s attempt to control prices. For decades, expensive and unsustainable subsidies on fuel have curtailed growth in developing countries. Most countries that once had this policy have since abandoned it so that resources can be invested in vital job creating infrastructure.
If you have cancer or any serious medical condition in Nigeria today, the prognosis for you, humanly speaking, is dire. This is the reality for over 90% of Nigerians who cannot travel to India or the West for treatment. If you have a heart attack in Nigeria today the chances of survival are extremely slim, even when you are lucky to get to a hospital. Sadly, thousands of our fellow citizens are dying every single day in hospitals across the land from treatable illnesses because of the lack of drugs and basic medical equipment. The poor are bearing the brunt of past fuel subsidy policies that have impacted on investment in critical sectors of the economy. Like most successful economies, the government should be subsiding the cost of travel (mass transit), and not petrol at the pump. The poor would benefit more through this targeted measure.
It is time to put sentiments to one side and bury the lie that subsidy helps the poor. The poor will be better served if the trillions of naira spent on fuel subsidy were invested in schools, health centres, hospitals and poverty alleviation. The trillions of naira we expend making dollar millionaires of oil marketers, PPPRA staff, NNPC officials and customs and immigration officials would be better spent equipping our schools and hospitals, building our transport infrastructure and investing in power.


Emmanuel Nwachukwu

Nwachukwu is an International Business Consultant. He wrote via Emmanuel@pssolutions-ltd.com