The Nigerian Labour Congress is getting set to stage a nationwide industrial strike action on September 28, that is if the federal government does not rescind its decision on hike of pump price of premium motor spirit, also known as petrol, at a time the COVID-19 pandemic is taking a toll on the nation’s economy.
The government insisted that subsidy on petrol had been removed, thus the cost of petroleum products will be determined by market forces.
But, the union, on its part, faulted the decision, lamenting it was “ill-timed and insensitive to the sufferings Nigerians are going through, especially in the wake of the socio-economic dislocations occasioned by the COVID-19 pandemic.”
The union also picked holes in the decision, accusing President Muhammadu Buhari of not fulfilling his promise of ensuring that at least 70 per cent of the nation consumption needs for refined petroleum products are met by local refineries through its Economic Recovery and Growth Plan. Again, it disagreed with the government that there no consultation made with NLC prior to the fuel price hike.
Following the decision, the nation’s pump price of petrol rose from about N145 per litre to about N160 per litre across the states, and could move up to N183 per litre when full deregulation takes effect, according to the Minister of State for Petroleum, Timipre Sylva.
All along, a major controversy has been who will shoulder the burden when fuel subsidy is removed and deregulation of the downstream oil sector takes full course?
In June, the Nigerian National Petroleum Corporation reported a N5.34bn “under recovery” cost – a term used to reference to money lost through fuel sales – months after it changed its pricing method in an effort to eliminate subsidies.
Far back in the 1980s, Nigeria had started subsidising petroleum products, after it had planned to unify the price of crude oil in accordance with the global market.
But, when the administration of ex-President Goodluck Jonathan announced the removal of fuel subsidy on January 1, 2012, it was greeted with massive opposition by labour unions, civil society groups among others as many Nigerians took to the streets in protest.
Afterward, the National Bureau of Statistics reported that the country’s economy lost an estimated N207.4bn as a result of an eight day-protest.
The International Monetary Fund and the World Bank have said subsidies, especially fossil fuel subsidies, are economically regressive, fiscally burdensome, and socially and environmentally harmful. In fact, the IMF had advised the Nigerian government to remove subsidies.
Few arguments for subsidy removal hold that it is an incentive to private refiners, it will lead to more players and competition in the oil industry, boost capacity utilisation, create more jobs in the sector, free up enormous resources into infrastructure development.
Of recent, Sylva said the country would save over N1tn yearly from subsidy removal. That money, if invested in the economy will boost the country’s well-being.
On the flip side, fuel subsidy ties down a large amount of government spending and places a fiscal burden on the economy, particularly when there is a huge difference between oil prices at the international market and subsidised domestic retail price of petrol.
As of June 30, 2020, Nigeria’s public debt stock, according to the country’s Debt Management Office, including that of the federal government, the 36 states, and the Federal Capital Territory, stood at N31tn, an increase of N2.38tn within a space of three months.
Following a 2015 New Climate Economy working paper on ‘Fossil Fuel Subsidy Reform: From Rhetoric to Reality,’ the paper identified reform principles for eliminating subsidies.
A government can ensure reforms take a ‘whole-of-government’ approach. Honduras and the Dominican Republic showed good examples here. A government can mobilise resources upfront, as demonstrated by Indonesia at a time. It can also endeavour to provide clear and transparent public information on the scale and impacts of reform. Iran and Ghana showed good examples in this regard.
A government can re-allocate the resources saved to those groups most affected by reform. In the Middle East and North Africa, 100 per cent of the reforms that provided targeted support to households were successful, but only 17 per cent of attempted reforms that did not provide support were successful.
The working paper, therefore, suggested a phase-out approach with a credible and pre-planned time frame. Angola, India, and Peru succeeded by starting first with reforming gasoline subsidies before extending that to diesel and kerosene.
What can Nigeria government learn?
Shelagh Whitely, lead author of the report and a research fellow at the Overseas Development Institute, added, “The G20 and APEC have committed to phasing out inefficient fossil fuel subsidies, but most haven’t yet delivered. They should follow the positive examples of change and scale reforms to eliminate fossil fuel subsidies by no later than 2025.
“In a time when low oil prices are expected to continue and many governments are looking to create fiscal space, there’s no excuse to delay phasing out fossil fuel subsidies any longer.”