Still On Fuel Subsidy In Nigeria
By Rahma Oladosu

The general issue of perennial scarcity of petrol in the country appeared to have been permanently resolved on May 11, 2016, when the federal government introduced a new pricing regime that increased the pump price of petrol from N86 per litre to N145 per litre.
Fast forwarding to December 2017 till February 2018, the issue of scarcity and fuel subsidy seems to take worse turn with long queues at filing stations and increased fares on public transportation due to scarcity.

Fuel subsidy is the Nigerian Government’s financial aid to Nigerians to enable the consumption of fuel at a cheaper rate, end unpredictable supply, and ensure stability in domestic fuel price.

The fuel subsidy payment was initially introduced as a policy into Nigeria during the IBB administration when our refineries failed due to non-maintenance. It was introduced to temporarily stabilize the price of petroleum product while the refineries underwent rehabilitation. The policy that was meant to last only six (6) months has now lasted for almost thirty (24) years!

However, during Goodluck Jonathan’s administration, it was openly declared that fuel subsidy payment will be removed partially; leading to a nationwide protest by Nigerians which was popularly called ‘Occupy Nigeria’, but in truth fuel subsidy payment was in fact sustained. Following the fuel subsidy removal, the development was said to have a few advantages which is said to be beneficial to the Nigerian economy as a whole.

Amongst the few advantages of the subsidy removal are its ability to help reduce hoarding, smuggling and diversion of petroleum products and help ensure product price, and free market stability through private sector participation, stabilizing the labour market, enabling employment creation through new investments in private refineries, oil retailing, and loss of excess crude via gas flaring, ensured competition in the industry and market forces which will drive down the price of petrol in the long run as witnessed in the telecoms sector. The subsidy removal will give government access to more funds for development of other sectors such as education, health, employment, transportation.

But of course, there are disadvantages, especially on the other sectors of the economy. A few unfavorable effects that should be expected from this development will be the obvious increased cost of living: with the price of premium motor spirit (PMS) increased; the economy will face a sudden surge of inflation. Inflation is defined as a general and progressive increase in prices for goods and services, increase in transport cost: transportation cost has gone up as much as 300 per cent since the N145/litre increase. This increase has caused a ripple effect on other sectors of the economy which revolve around transportation; increase in the cost of small scale business services especially those businesses that depends on subsidized fuel to render services, as public electricity supply is not reliable and relatively expensive.

In the current administration, the decision of the Muhammadu Buhari administration to remove the subsidies on petroleum products has not been received well by Nigerians. Expectedly, there is outrage among the citizens given the economic hardship the masses are facing now. Many Nigerians are still not aware of the benefits of the policy because of lack of awareness and education by government and its agencies.

The Nigerian economy seems to be synonymous with fuel scarcity. It does not seem to matter which regime is in charge, every couple of years, or in some cases months, the problem of fuel scarcity rears its ugly head.

Every regime follows the typical playbook in dealing with the scarcity: sympathize with Nigerians and talk about how they shouldn’t be wasting useful hours queuing for fuel; talk about how marketers, smugglers, and various middlemen are sabotaging the economy for their own selfish interests; promise to revamp the refineries; pay off marketers so they can settle their debts, import new products and flood the market with fuel, with the hopes that it makes the scarcity go away. In all this we often forget to ask ourselves a simple question: Is fuel scarcity the problem or is it just a symptom of the problem?

First, we should clarify exactly why we have fuel scarcity. Ironically, it can be explained by simple elementary economics. Assume you start from a scenario where everything is fine. Fuel is being supplied at a certain price, and people are buying at that price, and as the economists say, the markets clear. That is, everyone who wants to buy fuel can buy fuel at that price, and suppliers are selling fuel at that price with no problems and everyone is happy.

But then time passes, and things change. Maybe the price of crude oil doubles. Or the domestic currency depreciates by 50 percent making the cost of importing fuel go up. Or people decide that they all want to travel for the holidays and suddenly all want to buy more fuel. In a properly functioning economy, the price of fuel would simply go up, incentivizing marketers, or suppliers, to keep supplying fuel and forcing buyers to cut back and reorganize their plans and use less fuel. In a properly functioning economy, when the fundamentals change, the prices change as well. Everyone adjusts, and life goes on.

The result of that desire to keep prices fixed in the face of changing fundamentals is that they have been forced to pay a subsidy; the government says it doesn’t officially pay a subsidy but its cash cow, the NNPC, pays on its behalf.

The long-term solution is for the government to simply stop fixing prices. Let markets work and let prices be set by buyers and sellers like every other commodity. Prices will go up and down like everything else. People rarely bother about small increases in prices even if it happens frequently.

It’s the large overnight increases that gets the blood boiling. Functioning markets will ensure that we get rid of the scarcity once and for all and that we stop the reckless subsidy spending. It’s also time that we, as a country, stop repeating the lie that the fuel price fixing is about helping the poor. We all know it’s about politics. It’s always about politics.

Rahma Oladosu
[email protected]
Gidado Idris Road, Wuye District Abuja