Petroleum subsidy woes as Nigeria’s economic tsunami

By Sunny Chuba  Nwachukwu, PhD

This issue with the pump price of petrol has become a nightmare to millions of citizens of this nation (to which I count myself to be one)! It is on record that in September 2008, in a leading financial weekly, yours sincerely declared Petroleum Subsidy ‘a thorn in the flesh’, and called for it to be scrapped. Recall also that, the federal government had in March 2020 removed petroleum subsidy after reducing the pump price of the product to N125 per litre from N145 following the sharp drop in crude oil prices. This suddenly resurfaced in the public domain in January, which the Nigerian National Petroleum Corporation (NNPC) prefers to call ‘value shortfall’ or ‘under-recovery’, as the government left the pump price of petrol unchanged at N162-N165 per litre.

The Nigerian National Petroleum Corporation (now the old NNPC as described in the PIA), incurred N756.99 billion as petroleum subsidy cost from January to July this year, being the latest data obtained from the corporation, and making headlines. If this singular government expenditure is extrapolated to cover the entire 2021, it runs beyond a trillion naira. Analyse its percentage relationship with the nation’s current annual budget of about 13.8 trillion naira, and see the significant impact and leakage! Already, the Q1 2021 petroleum imports had gulped a whopping N687.7 billion!

We seem not to be perturbed about this heavy spendings on fuel imports that could be reduced through an arrangement of the Department of Petroleum Resources (DPR) supporting the smaller units (our SMEs) petroleum operators and marketers to effectively take up the process and operation of refining crude oil in country, to reduce imported refined products. Instead of relying solely upon establishment of big refineries that cost billions of dollars to build, the DPR could institute a Research and Development Centre where these smaller units are properly trained to operate on processing to primary stages and utilising simple homegrown techniques and modules; for the quality standards needed of the products.

Thereafter, give them approval and permits to operate at their scale, with local-content driven technology, that doesn’t involve heavy expenditure on pipelines, valves, catalytic converters, turnaround maintenance, etc. Along the crude oil value chain, their byproducts could be utilised as feedstocks by the bigger refineries that have the capability and capacity to crack, reshape, combine the intermediate materials by converting them to finished petroleum products. This suggestion is doable but, subject to the DPR consideration; as I hereby urge them in all humility, just for our economy to pick up in productive efficiency and GDP growth.

Now, you would find that the data from the NNPC show incurred petroleum subsidy of N25.37 billion in January; N60.40 billion in February; N111.97 billion in March; N126.30 billion in April; N114.34 billion in May; and the cost rose from N143.29 billion in June, to N175.32 billion in July (amounting to a total figure of N756.99 billion). These figures could be internally conserved through our operational SMEs in the oil industry, and at the same time, improve the generated national income or economic efficiency, fight inflation by improving the local currency exchange rate, through improved productivity, and see to the fact that the poverty profile coefficient is weakened through GDP growth and reduced imports.

Analysts at Financial Derivatives Company Limited, led by Bismarck Rewane, have said in their most recent monthly economic Report that, “Nigeria’s continued subsidy on imported petrol (estimated at 5.5 billion naira daily), over a year after it attempted to fully deregulate the downstream oil sector, is perhaps its biggest revenue leakage.” Noting that the International Monetary Fund (IMF), at its June 1-8, 2021 meetings with Nigerian authorities, underlined the importance of doing away with subsidies completely, particularly in the context of low revenue mobilisation.

A recent newspaper article revealed that NNPC’s petrol import under recovery claims grew by over 600% between November 2017 and June 2018, which experts say cannot be traced to any logical increase in consumption of petrol and raises questions about good governance risks posed by the corporation’s sole right to withhold the claims it calls under recoveries. I must remark that the so much argued about price differential due to ‘under recoveries’ fuel petrol smuggling, is not true; because the PPMC/NNPC ought to know specific volumes of products they bring in and where they channel them to.

From childhood in the 1970s, one started hearing about sharing the ‘national cake’. Now it is clearer how the national cake is shared against the interest of the sovereign state, Nigeria (not the FAAC allocations please). Why can’t our leaders pause for a moment, and fix this ailing economy, for the common good of all Nigerian citizens? Must the benefits of the commonwealth continually be diverted by an insignificant proportion of the entire populace; at the expense of the national economic growth and development?

Rwandan’s President Paul Kagame has shown that it is doable, to migrate from a state of dungeon to affluence, with prudent financial management and good governance that is responsible and accountable to the people. Why can’t Nigeria, with all her richly endowed natural and human resources, work (beyond this abject poverty while swimming in the midst of abundance)? Could Nigerian leaders, along with all politically exposed persons (PEPs) please rethink, and get this Economy fixed, once and for all.

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Sunny Nwachukwu, PhD, a pure and applied chemist with an MBA  in management, is an Onitsha based industrialist, a fellow of ICCON, and vice president, finance, Onitsha Chamber of Commerce. He can be reached on +234 803 318 2105 (text only) or schubltd@yahoo.com