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Saturday, April 20, 2024

Why Nigeria Continues to Lurk in the Murky Waters of Subsidy – By Akintayo Balogun Esq. 



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The International Monetary Fund (IMF), had on or about the 12th day of February 2023, confirmed that the Federal Government of Nigeria had quietly resumed the payment of subsidies on the Premium Motor Spirit (PMS). The IMF issued a statement expressing its concerns that the government had capped the prices of fuel at retail stations. There are unconfirmed reports that the Federal Government paid N169.4 Billion as subsidy to keep the pump price at N620 per litre. This is due to the continuous variation in the prices of the Premium Motor Spirit (PMS) in the international market.

This position unfortunately brings the country back to where it was before the emergence of the current administration. The current administration upon being sworn into power on the 29th day of May 2023, made it their first point of call in office to immediately and totally withdraw the privileges of the subsidization of Premium Motor Spirit (PMS). This action saw the astronomical rise in the pump price from an average of N185 per litre to N400 per litre and then to N568 per litre and currently N617. This current price is only applicable at NNPC fueling outlets as other retail outlets are selling at higher prices. This removal brought and is still bringing untold hardship on Nigeria and Nigerians as the action triggered a hike in the prices of goods and services in the country. Prices are still on the rise by the week. Nigerians have so far groaned through the hardship without any succor in sight. We are compelled to ask; for how long will Nigeria continue to lurk in the murky waters of subsidy when we have all it takes within our power and resources to delete ‘subsidy’ from our economy and still sell the product at an affordable rate?

From the foregoing, I make bold to say that the enormous demon called subsidy might NEVER disappear from the Nigerian space until the right thing is done by those in power. If Nigeria wants to sell PMS for as low as N50 naira per litre, it is not an impossibility, it is just willpower to do it. This will only work out if the leadership of the country is ready to shelve its selfish ambition and ideas and accept the concepts that will make Nigeria work.

Ordinarily and in my personal opinion, the price of PMS in the international market should only affect countries that do not have crude oil. But in countries like Nigeria that have this crude oil, the prices of Premium Motor Spirit (PMS) should not be controlled or be determined by the ups and downs of the international market. Nigeria as an oil-producing country, as a matter of fact, the 11th largest oil-producing country in the world and the 1st in Africa should not be tossed to and fro, nor be determined by the whims and caprices of the international market. All these issues still boil down to the failure of successive governments to put our refineries in order. We had an administration that promised to build one refinery per year in office. They stayed 8 years in office without revamping just one of the four moribund refineries, not to talk of building new ones.

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This has been my simple line of thought as a pathway for the downstream sector.

  1. Refine Nigeria’s crude oil in Nigeria for consumption first

When Nigeria explores its crude oil, it can determine the price by itself after paying the necessary royalties to the communities. Royalties are also determined by a new price regime the government intends to put in place. Secondly, the crude oil is refined here in Nigeria. We have four government-owned refineries, one private refinery and a private refinery nearing completion as well as a series of illegal refineries that are being bombarded by raiding government officers. All these refineries at full capacity can refine the entire PMS, diesel, gas, and kerosene as well as other by-products that come from crude oil. As a matter of fact, the private refinery built by business mogul, Alhaji Dangote is believed to have the capacity to take care of the entire PMS needs of Nigeria and still have so much left over for exportation. Nearly one year since the inauguration of the refinery, Nigerians are yet to feel the positive impact of the refinery. The government can determine what the price of the refined product can be at this stage without running into loss. Let our refined product satisfy the country while the remaining is left for exportation. The ones left for exportation can now be determined or be subjected to the forces of the international market, but the product that is released into the Nigerian market is simply determined by the prevailing economic situation in Nigeria and as determined by the government ‘cap’. No external force or forces will change prices at will in this circumstance. With this arrangement, Nigeria can sell PMS to the Nigerian market for as low as N100, while the product that is exported goes for as high as N1000, depending on the value at the international market. Furthermore, I must state emphatically that if Nigeria becomes a major refined product exporter, our currency which has been tossed back and forth by the malevolent wind of the market forces will find its bearing and value within a few months.

  1. The legalization of illegal refineries

Illegal refineries have been an issue in Nigeria even before the discovery of crude oil in commercial quantity. It was reported that during the civil war that lasted between 1967 and 1970, the erstwhile Republic of Biafra was already exploring oil and refining it through makeshift procedures. This position is confirmed in several books written about the prosecution of the civil war from the Biafran side. Products from these refineries were reportedly used to move most of the machines and equipment used by the Biafran soldiers during the war. These makeshift refineries still exist in several locations but without the recognition and authorization of the government and have been declared illegal. It has always been on the news for several decades that government forces raided illegal refineries operating in the Niger Delta region. This to my mind is a situation that will forever remain. Illegal refining of these products will remain until the crude oil dries up completely. My opinion for several years has been that the government can recognize these crude refineries but with very close monitoring. The government can set up a body that operates like NAFDAC, to monitor the standard of every product emanating from these makeshift refineries. Until a product gets the satisfactory pass mark of an inspector that is attached to it as well as a pass mark for all environmental factors connected to the product, it must not be allowed into the market. This license given to small-scale crude oil refiners will go a long way to fight the menace posed by the international market. We have watched several documentaries where operators of these dubbed illegal refineries have spoken to reporters and said they wish to be recognized by the government and be allowed to operate formally.

  1. Setting a timeline to stop the outright exportation of crude oil and banning the importation of PMS
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I am also of the view that the government may also set a timeline within which it will stop exporting crude oil as well as ban the importation of refined oil products. This might sound illogical but I must say emphatically that when all refineries in Nigeria are working adequately and in full capacity, Nigeria can begin to export strictly refined products of all kinds. The exportation of strictly refined products can further strengthen the Nigerian currency and make it favorably compete with foreign currencies. Nigeria exporting refined products can on its own determine what the international market should be. But as long as just push out crude oil, we will be at the mercy of the international market.

Everything stated herein is not new to the people in power, but the willingness and the desire to carry out this project has been the biggest thorn in the flesh of succeeding governments in Nigeria and still remains. For the sake of emphasis, one of the biggest things that can make Nigeria’s currency find its bearing is when Nigeria becomes a big exporting country and this can happen through the exportation of refined products.

Until this is done, retention or removal of subsidies will remain a popular character in Nigeria. Until we put our own house in order, we will continually be controlled by what the international markets say. The Nigerian economy has all it takes to be independent of the international market, particularly as it relates to the price of PMS, but as long as the house is in disarray, we might find it difficult to make progress as a nation.

We can only hope Nigeria gets it right and in good time. The suffering of the ordinary citizens is becoming unbearable and is telling hard. The increasing rate of kidnapping and demand for ransom cannot be unconnected to the fact that the economic situation is not sustainable. The earlier the government takes proactive steps to curb the continuous rise in prices and services of daily commodities and needs of the ordinary citizen, the better it will be for all. At the current rate of administration and governance, we can only hope that the revolution bubble will not burst under the groans of suffering. There is a limit to which you can push people.

Akintayo Balogun Esq., LL.B (Hons), BL, LL.M, is a legal practitioner in private practice based in Abuja, FCT. A prolific writer, public affairs analyst, and commentator on national issues. 



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