INTRODUCTION
Although
it certainly cannot be seen nor be described as the best New Year gift to
citizens, on January 1, 2012, Nigerians ceased to enjoy all forms of subsidies
on Premium Motor Spirit (popularly called Petrol) courtesy of the new policy
announced by the Petroleum Products Pricing Regulatory Agency (PPPRA). The
question of removing or sustaining the subsidy regime had featured as a
dominant topic – of public debate – in the last three months, but any keen
observer would have noticed the government had already made up its mind to do
away with the policy (i.e. Fuel Subsidy) which it said costs about N1.3
trillion – N1.5 trillion at the end of 2011 to keep afloat. The PPPRA regulates
he downstream Oil and Gas Industry on behalf of the Federal Government and in a
statement mid-Sunday (January 1, 2012) said, “By the removal of subsidy on
Premium Motor Spirit (Petrol), the downstream sub-sector of the Petroleum
Industry is deregulated for Petrol”. Deregulation leaves market forces as the
sole determinant of product prices. While over the years, many Nigerians have
opposed the implementation of the policy in the Oil and Gas Industry,
international finance and donor agencies like the World Bank and IMF have been
very harsh in their criticisms of the successive governments that have
sustained the policy for a single inherent flaw they condemned as harmful to
the growth of the Nigerian economy – Subsidy (Iba, 2012).
Furthermore,
the issue of fuel subsidy removal has torn this nation into two factions. The
government and economic experts such as the Central Bank governor, Sanusi
Lamido Sanusi; the Federal Minister of Finance, Dr. Mrs. Ngozi Okonji – Iweala;
Federal Minister of Petroleum Resources, Mrs. Deziani Allison-Madueke (among
others) on one hand, and the masses led by the NLC, TUCN and CLO on the other
hand. Being a new issue in Nigeria, it is therefore necessary that research
works with holistic views such as this can be carried out to enlighten and
educate both factions so that the rift can be closed. It is therefore the
objective of this study to analyze the impacts of Fuel subsidy removal on the
economy and as well make recommendations as to how the government can manage
the revenue from fuel subsidy.
WHAT IS FUEL SUBSIDY?
A
subsidy is an assistance paid to a business or economic sector mainly by the
government to prevent the decline of that industry (Todaro et al, 2009). On the
other hand, the Oxford Advanced Learners Dictionary (2001) defined a subsidy as
money that is paid by a government or an organization to reduce the cost of
services or of producing goods so that their prices can be kept low. In
addition, Bakare (2012) points out that to subsidize is to sell a product below
the cost of production. Within the Nigerian context, fuel subsidy means to sell
petrol below the cost of importation.
HISTORY
OF FUEL SUBSIDY IN NIGERIA
The
history of issues on fuel subsidy in Nigeria dates back to April 1992 when
Ibrahim Babangida’s government raised the price of a liter of fuel from
15.3kobo to 20kobo. He did it again on March 31, 1986, from 20k to 39.5k; on
April 10, 1988, from 39.5k to 42k. On January 1, 1989, he increased the price
from 42k to 60k (although the regime said it was for private vehicles only, but
the price remained 42k for commercial vehicles). On December 19, 1989, it moved
to a uniform price of 60k. On March 6, 1991, the price of a liter of fuel was
increased from 60k to 70k and that was the price when he stepped aside in August
1993. Chief Ernest Shonekan increased the price of a liter of fuel from 70k to
N5 on November 8, 1993 but a hectic mass protest, saw Abacha take over power.
The incoming Abacha regime reduced the increment to N3.25 on November 22, 1993.
On October 2nd 1994, the Abacha junta increased the price of fuel to
N15, from N3.25 but after massive street protests, the regime reduced the
increment to N11 on October 4, 1994. That was the price till Abacha passed on,
and the Abdulsalami Abubakar caretaker regime raised the price from N11 to N25
on December 20, 1998 and after days of sustained protests, it was forced to
reduce the increment to N20 on January 6, 1999. The Obasanjo’s presidency
adopted fuel subsidy as the bedrock of its economic policy, for no sooner than
it was sworn in that it effected an increment to N30 on June 1, 2000 but
protests and mass rejection forced it to reduce the increment to N25 on June 8,
2000 and further down to N22 on June 13, 2000. The regime was again to increase
the price to N26 on January 1, 2002 and again to N40 on June 23, 2003. He was
to raise it up to N70 by the time he left in May 2009 but the incoming Yar’Adua
regime reduced it to N65, after general protest against the new price regime.
Although the Yar’Adua government made efforts to increase the price of
petroleum products it could not scale through following increased mass
disapproval for such act (retrieved from http://www.themaceonline.com/hous-of-reps-news/241-fuel-subsidy-removal-the-challenge-befor-house-committee-on-petroleum-downstream).
Presently,
the Goodluck Jonathan administration has removed fuel subsidy which the
administration claims will save it N1.3trillion to N1.5trillion annually which
it will channel into infrastructural development (Lawson, 2012).
MANAGEMENT OF FUEL SUBSIDY BEFORE ITS
REMOVAL (01/01/12)
The
idea of fuel subsidy was a good one as it was intended to give the average
Nigerians access to cheap petroleum products, reduced transport and production
costs. The Petroleum Products Pricing Regulatory Agency (PPPRA) headed by the
Executive Secretary Mr. Reginand Stanley and the Ministry of Petroleum
Resources headed by the Minister Mrs. Deziani Allison-Madueke are responsible
for the regulation, enforcement and management of fuel subsidy (http://www.vanguardngr.com/2012/01/oil-subsidy-removal-and-a-way-forward/). However
it should be noted that there were obvious flaws in the policy at inception and
up to January 1, 2012 when it was removed (Iyobhebhe, 2012): -
1) There
were more private retailers of petroleum products than the state owned NNPC
stations.
2) The
regulatory framework (PPPRA) used to enforce the subsidy was weak, under
resourced and suffered from the Nigerian disease. The secrecy and lack of
transparency by the administrator of the subsidy (the NNPC) did not help
matters either.
3) Nigeria
still could not make her refineries efficient. This means that Nigeria could
not produce enough refined products for local consumption.
Finally,
due to the weak regulation by the PPPRA, some economic saboteurs/cabal were
able to misappropriate the fuel subsidy money and channel it to their own
personal pockets instead of using it for what it was intended for. Those who
benefitted from the fuel subsidy largesse included: -
1) Folawiyo
Oil, N113.3billion
2) Oando
Nigeria Plc., N228.506billion
3) IPMAN
Investment Limited, N10.9 billion
4) MRS,
N224.818 billion
5) ACON,
N24.1 billion
6) Atio
Oil, N64.4 billion
