As the price of Brent crude surges above $83.00, and Nigeria’s Bonny Light above $80.00 per barrel, daily subsidy on premium motor spirit has risen to N8.2 billion. The lack of political will to stop subsidizing the consumption of fuel to the tune of N8.2 billion and electricity of N1 billion daily is strangulating the economy to asphyxiation.
Although the Minister of State for Petroleum Resources, Timipre Sylva, had recently said there wouldn’t be an option to full deregulation of the downstream sector, which would increase the price of PMS from the current N162 per litre pump price to about N350, which has already been canvassed by the 36 state governors, it appears unlikely the federal government would remove subsidies in fear of social revolt and the 2023 political interests, according to an analyst who spoke with NATIONAL ECONOMY in plea of anonymity.
The status quo is impeding Nigeria’s growth and development, as more than 80 percent of the country’s budget is devoted to recurrent expenditure, including a hefty percentage on energy subsidies.
Energy aficionado, Prof. Wunmi Iledare said Nigeria’s energy crisis was coming from the failure to price energy appropriately. He said, “If you delay making choices and at the end of the delay you made bad choices, you live with the consequences. I hate to say we told you so. The solution is to adjust to the new reality and follow energy economics principles. No short cut.”
Iledare said keeping energy subsidies is delaying the evil days. He added that the worst is yet to come if Nigeria continues “the Esau’s mindset in the governance of the energy sector institutions.”
According to an energy expert, Henry Adigun, “there is never a right time to remove energy subsidies. The right time is always yesterday.”
According to him, while the removal may be a difficult decision, the country is already in a dilemma as the government continues to borrow while losing money on petrol subsidies it could have channelled to other productive sectors.
Adigun said companies are already feeling the pinch as inflation remains very high. He revealed that while any price increase would create chaos and spike prices, leading to inflation, it is necessary to take the bitter pill of removing subsidy now if Nigeria will survive tomorrow.
The Nigerian National Petroleum Corporation (NNPC) had last week disclosed that it spent a total of N905.27 billion on petrol subsidy in eight months amid rising global oil prices.
At about $83 dollars per barrel, the landing cost of petrol in Nigeria hovers around N290 per litre. Additional charges, including margins for retailers and wholesalers, transporters and equalisation standing at around N60 per litre would push the current pump price to about N350 should subsidy be removed.
The federal government is also devoting N30 billion monthly to subsidise electricity, an equivalent of N1 billion per day.
While the federal government had last year increased electricity bills, there was a further slight adjustment to the tariff in September in the face of poor supply.
Unknown to most Nigerians, they are now paying higher for electricity after the authorities quietly raised the tariff without notifying consumers of the product. The two per cent tariff adjustment confirms plans by the government to withdraw its subsidy payment in the sector, which is well over N30 billion monthly.
With the international oil benchmark, Brent crude more than $83.00 per barrel yesterday, according to NATIONAL ECONOMY’s commodities tracker on page 2, the landing cost of imported petrol is expected to increase, jacking up pump price of petrol.
While President Muhammadu Buhari presented a borrow-dependent budget of N16.39 trillion to the joint session of the National Assembly last week, the current global energy crisis would have been a bumper harvest for oil and gas dependent countries like Nigeria, as current price increase already created a windfall of over $1 trillion revenue for international oil companies, but the lack of local refining capacity meant that import of products (aviation fuel, PMS, diesel, LPG and others) would erode projected gains.
While over N1.2 trillion has reportedly been expended on petrol subsidy alone since the Federal Government brought back the scheme through the back door despite no budgetary allocation in the 2021 budget, the current move to remove the opaque scheme may provide more money for budget implementation, but may worsen consumers’ plight.