Independent Media and Policy Initiative, IMPI, has traced the genesis of the subsidy regime to the administrations of the former Military Heads of State, Gen Yakubu Gowon and Olusegun Obasanjo, alleging that they institutionalised petrol subsidy at a time Nigerian economy was very vibrant.
IMPI explained that the two former military heads of state introduced subsidies as a short-term measure to cushion the rising international oil price.
Speaking to journalists in Abuja, yesterday, the Chairman of IMPI, Chief Niyi Akinsiju stated that the subsidy was intended as a temporary fiscal response to an oil price spike instigated by the actions of the Organization of Petroleum Exporting Countries (OPEC).
He said ordinarily when the economy is experiencing a downturn, the tendency is to halt their implementation because of the distortion inherent in their continued application.
Akinsiju expressed dismay over the position of labour unions, who he accused of being too critical of the present government over the removal of subsidy, even though according to him, most Nigerians thought that it should be exited before 2023.
He said, “General Olusegun Obasanjo, then Military Head of State, formalised the petroleum subsidy regime into law when he numbered it among products for which the government would be responsible for fixing their prices and for which they should not be sold above the fixed prices.
“This was a short-term measure to cushion the rising international oil price. It was intended as a temporary fiscal response to an oil price spike instigated by the actions of the Organization of Petroleum Exporting Countries (OPEC).
“It is, however, instructive to note that under the two principal protagonists of subsidy, the price of petrol recorded increments in response to emerging economic realities. Under Gowon, the price increased by 40 per cent from six kobo a litre to nine kobo a litre, while under Obasanjo, it skyrocketed by 70 per cent from nine kobo a litre to 15.3 kobo a litre.
“We argue that subsidies were introduced into the Nigerian economic ecosystem as a consequence of the availability of fiscal resources. They were then a mechanism for a fairer redistribution of the country’s wealth among the populace in times of huge revenue earnings. When there is a downturn, the tendency is to halt their implementation because of the distortion inherent in their continued application.
“But, as it were, the subsidy and we as a people have become economic Siamese twins. Every move by the government to stop its application since 1988 has been received with uproar and outrage despite the material changes in the economic dynamics that informed the policy in the first place.
“This latest furore over fuel price increase is typical of other times. The Nigeria Labour Congress (NLC) has taken its traditional front role and, as always, pointing fingers at the federal government for being responsible for the price increase. However, as a body of analysts, we submit that all this trouble-mongering should stop.
“Despite the common knowledge that fuel subsidies were excluded from the second half of the 2023 budget, about 73 per cent of Nigerians interviewed in an opinion poll said they were dissatisfied with the removal.
“Nonetheless, this does not detract from the fact that fuel subsidies have become Nigeria’s equivalent of an economic weapon of mass destruction. The narration often shows how subsidies have strangulated the Nigerian nation’s potential and burned up $30 billion that can be funnelled into other uses, such as infrastructure, health and education.
“In 2022, $10 billion was spent on fuel subsidies, representing 40 per cent of the country’s revenue. The petrol supply scenario is exacerbated by the annual $28 billion taken from the critical foreign reserve to import fuel.
“This is in addition to the N1 trillion the country had to borrow to finance fuel subsidies in 2022.
“A further examination of the subsidy regime shows that households in the bottom 40 per cent of the income distribution account for less than three per cent of fuel purchases at the pump”.
The IMPI leadership cited a survey, which showed that private firms, public transportation services, government agencies, and other businesses consume three-quarters of all fuel sold in Nigeria.
The group posited that most vehicles used for carrying large numbers of people and goods are diesel-powered and already deregulated.
Akinsiju said, “Household Kerosene, which people with low incomes mainly use, is no longer subsidised, meaning that people with low incomes are already, to a large extent, paying market prices for their fuel. This means the government mainly subsidises those who can afford fuel at the market rate.
“So, whose interest is the NLC advancing? We are in a new era, aptly thematised as the Petroleum Industry Act (PIA) era. Regarding the subsidy regime, Section 5 (e) of the PIA 2021 empowers the NNPCL with the sole mandate to “Provide pricing and tariff frameworks for natural gas in midstream and downstream gas operations and petroleum products based on the fair market value of the applicable products.”
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