Petroleum subsidies: Tinubu, N7trn savings and zero pump price increase

BY MADAKI O. AMEH

Madaki O. Ameh, a former legal adviser and managing counsel, legislative development with Shell Nigeria and senior consultant with Arthur Andersen, is an oil & gas consultant and managing partner, BBH Consulting

As the nation awaits the inauguration of Asiwaju Bola Ahmed Tinubu as President of Nigeria on May 29th, 2023, one major apprehension of the citizens is the looming removal of petrol subsidies, which is now a given, considering that the provisions made in the 2023 budget for PMS subsidies will run out on 30th June 2023. As inefficient as the subsidy regime has been over the years, successive governments have always kicked the can down the road, expecting that any decision to remove the subsidy will lead to a massive uproar on the part of the citizenry and make the government totally unpopular from day one. No government, especially a new one with issues around its legitimacy and public appeal would like to start governance on such a tumultuous note. 

In fact, if we go down memory lane around this time in 2015 at the inception of the Buhari administration, expectations were high on the removal of fuel subsidies, as it was made a major campaign issue by the APC, with the current president dubbing it a fraud which was benefitting a few corrupt officials and would be removed immediately. Eight years down the road and in the twilight of this administration, the government realised that the issue was a much harder nut to crack, and instead of removing the subsidy as promised during their campaigns, the figures actually grew exponentially year on year, with the current provision in the 2023 budget for the full year at N7 Trillion. If this government would be bowing out of office with its head literally bowed in shame on any issue, it would be the inexplicable sustenance of the PMS subsidy regime which it had dubbed a fraud during electioneering campaigns, but which became a total mess throughout the tenure of this administration. 

One of the very first decisions President-elect Bola Ahmed Tinubu will be forced to take on assumption of office would be the removal of subsidy on PMS, with all the attendant consequences for the economy. It is expected that with this decision comes spiralling inflation, cost of living and hardships for an already impoverished citizenry. But this is not necessarily so, if the right principles are applied to the pricing of petroleum products. 

One of the highest selling points of Asiwaju Bola Ahmed Tinubu during his campaigns for the office of president in the 2023 elections is his penchant for innovation and engaging the best hands available to him to deliver outcomes not immediately within the contemplation of his admirers and critics, as demonstrated during his tenure as Governor of Lagos State between 1999 and 2007, when he was able to keep Lagos State afloat even when the state was receiving zero allocation from the Federation Account. This arose from a disagreement between himself and then President Olusegun Obasanjo over the creation of new Local Government Areas in Lagos State. That adversity eventually turned out to be a blessing in disguise, as it offered Lagos State, under his leadership, a rare opportunity to innovate and translate the adverse situation into a huge advantage, such that the ability of Lagos State to generate revenue from its own resources was brought to the fore, with tremendous positive impacts which successive governments have latched unto to date. No wonder he has sustained his influence in the State even after having left office sixteen years ago, and has used that to propel himself to the highest office in the land. 

On the issue of subsidies, which has been a self-inflicted injury all these years, there is yet again another opportunity for President-elect Bola Ahmed Tinubu to show his much touted genius by taking the bold step of halting further wastage of scarce resources on the payment of subsides, while at the same time saving the hapless citizenry the much anticipated hardships associated with that decision which everyone has been bracing for. This is not rocket science, as the knowledge exists which will result in the following outcomes immediately:

1. Total stoppage of any form of subsidies on petroleum products thereby saving the budgeted N7 trillion or the proportion of it left after June 30th;

2. Zero increase in the prices of petroleum products as a result thereof;

3. Harmonisation of the prices of all petroleum products dispensed at the pump – PMS, AGO and DPK at the same price, which will be the price currently paid for PMS or less;

4. Full deregulation of the Petroleum Sector for maximum profitably, employment creation and value addition to the Nigerian economy, probably for the very first time in our chequered history. 

The above outcomes can be achieved, whether we refine Nigeria’s crude oil locally or not, and irrespective of the prevailing exchange rates. Indeed, its implementation will immediately shore up the value of the Naira against all other currencies. 

The big question is how can these outcomes be achieved? These will require executive decisions which only the President can take, but once taken, it will transform the Nigerian economy in ways better imagined. The details will form part of further engagements and knowledge sharing as the days go by.

business a.m. commits to publishing a diversity of views, opinions and comments. It, therefore, welcomes your reaction to this and any of our articles via email: comment@businessamlive.com