Fuel subsidy

Two views clash on the fuel subsidy regime.  One is the doctrinaire cost, which the World Bank with their local economists push and flash.  The other is the social cost, which the Muhammadu Buhari Presidency appears acutely aware of. However, the Petroleum Industry Act (PIA), a structural intervention, not unlike the old divine in Greek […] The post Fuel subsidy appeared first on The Nation Newspaper.

Fuel subsidy

Two views clash on the fuel subsidy regime.  One is the doctrinaire cost, which the World Bank with their local economists push and flash.  The other is the social cost, which the Muhammadu Buhari Presidency appears acutely aware of.

However, the Petroleum Industry Act (PIA), a structural intervention, not unlike the old divine in Greek classical tragedy, seems to have come to resolve the issue for both sides.

Technically under PIA, fuel subsidy would be illegal, at least according to Doyin Salami, chair of the Presidential Economic Advisory Council.  PIA will fully take off in July 2022.  Zainab Ahmed, Finance, Budget and National Planning Minister, clearly shares this view as she just announced fuel subsidy would exit by June ending, 2020 – ahead of the July 2022 full take-off date of PIA.

“In our 2022 budget, we only factored in subsidy for the first half of the year,” she told a panel session at the 27th National Economic Summit (NES) in Abuja.  ”The second half of the year, we are looking at complete deregulation of the sector, saving foreign exchange and potentially earning more from the oil and gas industry.”

But to the World Bank and allied lobbies, June 2022 is a bridge too far.  ”This year,” grumbled Shubham Chaudhuri, the Bank’s country director for Nigeria, “Nigeria is on track to spend N2.9 trillion on PMS (premium motor spirit) subsidy, which is more than it spends on health.”

True.  But in its doctrinaire fervour, the World Bank blissfully forgets other crushing social costs, which come with a sudden jack-up in fuel costs, for a country already plagued by inflation, mass poverty and sundry economic hardships.  When the explosive fall-outs come, the sitting government, not the neoliberal World Bank, would take the flak.

Dr. Salami allies himself with the World Bank thinking, wishing the Federal Government would implement PIA faster, saying under PIA, fuel subsidy would be illegal: “My view will be if we could get it done sooner than that, it will be excellent … My sense is we will obey the law and subsidy will be gone.”  Still, on what basis might that “excellence” be?

Truth is PIA is no magic wand.  It is meant to correct flawed oil downstream policies, chiefly deregulation via products importation put in place since the Olusegun Obasanjo Presidency. The violent contradiction of that policy to a country that should locally refine its abundant crude birthed the subsidy regime.

Read Also: Okowa to FG: re-direct fuel subsidy funds to healthcare, education

Local refining, therefore, would appear the logical way to exit from subsidy.  So, rather than the legalistic “open sesame” that the Salami comment seems to suggest, PIA is only the structural tool to restart, enhance and deepen local refining.

On the practical level, Dangote and two or more modular refineries are primed to produce refined products and other derivatives ahead of the June 30, 2022 subsidy exit date.  Though Dangote Refineries and Petrochemicals is technically sited “abroad” (since it is in the Lekki — Lagos — export trade zone), the decision to sell crude to local refiners in Naira would have a great impact on pricing, aside from cutting off freight and other costs, were the products to be shipped from overseas.

So, with these policy fundamentals, the Federal Government should stick to its subsidy wind-down timetable and ignore the World Bank and its local affiliate economists.  Besides, it’s the socially responsible thing to do — and that’s one aspect those who analyze and comment on petroleum subsidy hardly factor in.

If a government embarks on a failed policy — and liberalization by fuel importation is one — it’s ignoble to push the cost of that failure to the people.  That’s what the “remove-petrol-subsidy-right-now” lobby amounts to.

That the cost is more than what Nigeria spends on health may be true.  But in this context, it’s just scare tactics to strip the people of their little relief from a failed policy.  That’s why the government should partly bear the cost of petrol subsidy until it starts local refining.

Still, the June 2022 exit might be a political land mine, if not outright quagmire.  By that time, it would be less than eight months to the presidential election, projected to hold on February 18, 2023.  That full blast election season comes with own peril.

Still, if the Federal Government hankers down on PIA and makes local refining a reality, and banish the age-long criminality of importing what we can refine here,  it should have the will to exit subsidy, despite the explosive politics of the moment.

The post Fuel subsidy appeared first on The Nation Newspaper.