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Can Nigeria Afford Petrol At N500?

Right now, we are subsidising consumption in Nigeria. We sell at N165 per litre when our neighbours are selling at N500 per litre.”

These were the words of Nigeria’s Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed while presenting the 2022 – 2024 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) a few weeks ago in Abuja. The Minister further said that at least N900 billion was being projected for fuel subsidy in 2022.

Over the years, subsidies have exerted huge costs on the country. In a particular month recently, Nigeria spent N150 billion subsidising petrol. Using data obtained from Tracka.ng, a community of active citizens tracking the implementation of government projects in Nigeria – the average cost spent on health care centers, skill acquisition centres and school blocks range from 50 million naira. At that price, the cost of that particular month subsidy could fund 3,000 of these types of projects.

It is undeniable, the amount of impact these projects would have on Nigeria. As oil prices rise, Nigeria’s subsidy costs rise and this positive correlation means that Nigeria does not enjoy the dividends of their oil fortunes. The truth is “when oil prices go low, it affects Nigeria and when they go high, it does not benefit Nigerians because of subsidies.

In a game of musical chairs, somebody will eventually lose a seat – Nigerians and Nigeria have lost their seat in this subsidy game.

But can Nigeria afford petrol at N500 (the alternative to subsidies)?

N500 is used in this context because of the Minister’s claims of what neighbouring countries pay for fuel. The “honest truth” as the tautology goes is N500 naira fuel would cripple a large section of Nigerians. The ripple effect of the high cost of fuel spreads to high transport costs and rising costs in businesses as goods and services will be more expensive.

Using affordability metrics provided by Bloomberg, with a daily income at an average of 2,000 naira, fuel price at N500 means it would take 25% of a day’s wages to afford a gallon of fuel. A country facing inflation at 18% – 20% would struggle serially in a N500 fuel-driven economy. Nigerians would have to manage these subsidies till the refineries become fully operational and there would be no need to import. Till then, Nigerians would have to forgo 3000 health centres, classrooms and skill acquisition centres monthly.

The amount of revenue spent on subsidies just enriches the pockets of the marketers. The Minister corroborated this in her address:

“It is only the marketers that are benefiting by taking this product from Nigeria and selling it across borders. The common man is not benefiting. The transition is not an easy one if we have to remove the subsidy. What are the alternatives? What can we provide for citizens? So we are projecting if we will be paying at least N900 billion subsidy for next year.”

The Minister, Zainab Ahmed regretted that “the huge amount being channelled into subsidy could have been available in the Federation Account and shared to provide education, infrastructure and lead to a reduction in government borrowing.”

The statements above confirm that the Minister knows the subsidies are unhealthy for the Nigerian economy and could be used for more meaningful projects.
In the past few years, consecutive hikes in domestic fuel, kerosene and diesel prices always precede protests (usually online) as Nigerians constantly reject high fuel prices. The blame is usually pinned to the costs of importing fuel and other petroleum products into the country.

According to the Group Managing Director, Nigerian National Petroleum Corporation, Mele Kyari, “The landing cost of Premium Motor Spirit being imported
into Nigeria surged by more than 60 per cent between December 2020 and mid-June this year, although the pump price of the product remained unchanged. From an average of N143.60 per litre in December, the landing cost of petrol rose to N231.98 per litre on June 16 this year on the back of the rally in global oil prices and the depreciation of the naira against the dollar.”

He further said the “Federal Government was subsidising petrol with about N100 billion to N120 billion monthly (N3.3 billion – N4 billion daily) as it was being sold for N162 per litre.”

These figures are deplorable on the government revenue but even worse is the fact that as oil prices increase, the cost of subsidising fuel increases and Nigeria’s coffers do not benefit.

The drag of fuel subsidies on the benefits that should have come from high oil prices shows that the country needs to end these subsidies sooner than later