Experts in business and energy sectors have said that despite initial challenges faced by Nigerians over removal of subsidy on Premium Motor Spirit (PMS), there are long-term benefits of the policy.
The experts spoke during an advocacy dialogue by Chartered Institute of Bankers of Nigeria (CIBN) on the theme, ‘Fuel Subsidy Removal: Opportunities for Individual Businesses and the Way Forward.’ They said there is nothing wrong with subsidy, the problem in our clime is its administration and application that leaves considerable room for fraud and all manner of sharp practices.
They also noted that Nigeria has come a point where it can no longer sustain subsidy and as the country is not benefiting from it, keeping it might be disastrous.
Now that subsidy has been removed legally, it is said that there will be factor affecting Premium Motor Spirit such as market-determined prices for refined petroleum products, licensing to import refined petroleum products under specified technical and other requirements, an immediate rise in prices, as already witnessed, as efficiency and force of competition come to play, pump-head prices should start to drop, market stability as supply aligns better with supply, except for occasional global supply chain disruptions, incentivized domestic production of refined petroleum products, more effective allocation of fiscal resources and more efficient utilization of the resources, increase in transport fares, increased cost of living, increased cost of doing business, agitation for wage and pension increase, priority and strategy reset.
Addressing subsidy removal issue should be handled with intelligence, during the virtual advocacy dialogue by The Chartered Intitute of Bankers of Nigeria (CIBN), the panelists disclosed better ways to addressing the PMS crisis.
Speaking on the crises, the chief consultant B.Adedipe Associations Ltd, Dr. Biodun Adedipe FCIB said that one of the best ways in which the federal government can deal with the fuel subsidy issue which is to engage the citizens of the country, citizen engagement should be an ongoing thing, detailed explanation should be given by the government as feedback from the public being accepted and evaluated as well.
Biodun mentioned other ways to address the fuel subsidy crises which include, Intensify food security, mass transportation, social protection, fuel diversification, especially deepened utilization of gas, active promotion of competition, negotiating price discounts with systemic producers and importers, among others..
Speaking of the masses enlightenment, Partner and Chief Economist KPMG Professional Services, Dr Yemi Kale noted that If the federal government can make communications clear, give reasons why subsidy is removed, the pros and cons of the removal, not just the benefits, what to expect, process of implementation, opportunity cost, policies and strategies to minimize cost, explaining all details in a very transparent mode, then the masses will understand better and as well work for the progress of the nation.
Also, Co-founder, Falcon corporation Ltd, Mrs Audrey Joe-Ezigbo, disclosed that there is nothing wrong with subsidy, it is just the way the government applied it.
She advised that all resources from subsidy should be channelled appropriately to other sectors thereby making Nigeria better, adding that Nigerian will have to embrace the change as really transformation takes time.
The President/Chairman of council, CIBN, Ken Opara, Ph.D, FCIB, in his opening remarks, said “it is pertinent to state that the removal of fuel subsidy in Nigeria is projected to have far-reaching consequences on individuals and businesses alike. While the immediate impact may involve adjustments in prices and costs, there are also opportunities for innovation, efficiency, and growth across different sectors of our economy. It is, therefore, crucial for us to understand these dynamics, assess the risks and opportunities, and strategize accordingly.”
The challenges faced by the citizens due to PMS subsidy removal include, operational cost management, hours of business operations Employee commitment;Vulnerability to fraud (as unscrupulous staff look for means of bridging the fund gap in their personal budget), the reality of being able to continue business.
The solution should include business head reducing operating days, interrogating processes to eliminate leakages, providing employee support (one-off allowance or hybrid working), sourcing for alternative energy sources (seek affordable options), sharing services, involving in less energy-intensive operations, employees as well changing lifestyle.
Explaining the hope of the refineries, the Professional of Energy and Electrical Law ,Unilag, Professor Yemi Oke, further stated that the Nigeria refinery will start operation soon as NNPCL is undertaking repairs, stating that once the production starts, it should bring down the current price of PMS .
Subsidy is a direct or indirect payment to individuals or firms, and it can be in the form of cash or a tax cut/waiver. This aligns with the perspective of the World Trade Organization (WTO) that argues that subsidy is supposed to improve welfare by correcting market failure, thus aligning private and social costs and benefits.
According to Oil & Gas Sub-Committee, Policy Advisory Council, 2023, $10.70 billion is lost annually to PMS subsidy and inefficiencies associated with the purchase, distribution, and sale of PMS. The National Bureau of Statistics, 2023 also revealed that during 2014-2022, N11.5 trillion was spent funding subsidy, compared to N7.0tr for Defense, N6.2tr for Education and N4.2tr for Health. The cost of refining averages $3 to $5/bbl, at N462/$ comes to N379.42b per annum, If crude is swapped for refined products, the only other element is logistics.
Surprisingly, fuel subsidy or price control removal has been an issue in discourse in Nigeria for several decades, since it was institutionalized in 1977 with the Price Control Act and every occasion of price alignment was termed subsidy removal by government after government up until August 2020.
The journey began with the regime of Gen. (Rtd.) Yakubu Gowon who took office in 1966, pushing different reasons over time for the adjustments, including:Smuggling, price comparing with basic consumer items, opportunity cost, fraud and abuse, extenuate inequality, black market and fuel adulteration, financial losses, shortages, protection for refinery inefficiencies, among others.
The PMS subsidy removal petroleum has revealed so many truths, some of which are: the petroleum sector had been overregulated and inefficiently regulated, most activities were fraught with fraud and corruption, inefficiency and unsafe business practices were rife, legitimate subsidy benefits due to Nigerian taxpayers were inadvertently transferred to citizens of neighbouring West African countries, most of the new investments in the downstream sector were not by responsible investors, but those that wanted to take advantage of the strange opportunities, the target beneficiaries of fuel subsidy did not receive it.
