The Burden of Petroleum Subsidies
Petrol is one of Nigeria’s most in-demand products. Its utility spans sectors such as transportation, household needs, Small and Medium Enterprises (SMEs), and religious gatherings. Yet, petrol consumption for the masses has come at a great cost for the federation’s treasury, thereby making total deregulation of petrol a perennial discourse in the Nigerian polity.
As a result, the government incurs huge expenses importing refined petrol into the country when it subsidizes the price of fuel. This means the masses purchase petrol at a cheaper rate instead of a price that reflects the global price of crude oil, because the government uses its resources to pay for the difference.
Legislative Milestone: The Petroleum Industry Act
Considering the controversy and legal tussle that accompany plans to deregulate petrol, various attempts were made by previous National Assemblies to legalize deregulation through the Petroleum Industry Bill. The 9th National Assembly succeeded in passing the bill where its predecessors left off, passing the legislation in 2021. Thankfully, President Muhammadu Buhari gave his assent for the passage of the Petroleum Industry Act (PIA) of 2021.
Although the Federal Government is yet to implement the sections of the Act that enable deregulation, one thing is certain: it will happen sooner rather than later, and Nigerians must brace up for it. The bitter truth is that Nigerians must understand that the fuel subsidy regime is no longer sustainable.
The Current Financial Crisis
The country is undergoing its worst financial crisis since the 1980s; as such, the government can no longer bear such financial burdens. Ideally, when the price of crude oil rises globally, it should reflect positively on the federation’s account. But the reverse has been the case because the Nigerian National Petroleum Corporation (NNPC) expends billions of naira on subsidy.
Nigeria’s revenues have been on a steady decline from internal challenges, such as increased oil theft in the Niger Delta, which has affected the country’s ability to meet its oil production quota. External challenges, such as the COVID-19 pandemic and the Russian-Ukraine war, have further strained the national purse.
Public Trust and Fiscal Prudence
It would be foolhardy to downplay concerns expressed by Nigerians with regard to the deregulation of the petroleum industry. No doubt, this will drive the price of goods and services higher, thereby reducing the purchasing power of the masses currently suffering the pressures of recurrent double-digit inflation figures.
Another concern is the apparent distrust of the government’s commitment to adhering to fiscal prudence. Many rightly worry that funds saved from the deregulation of the industry may be mismanaged by officials whose duties it is to manage the funds.
The Long-Term Path to Buoyancy
In the long term, it is in the best interest of the country that deregulation happens sooner rather than later. First, the government needs the money saved to fund infrastructural projects designed to improve the economy in the long run. Also, the money saved from deregulation can be used to provide palliative measures in sectors such as transportation, especially for agricultural products and the labour force.
Similarly, the PIA mandated the incorporation of the NNPC as a limited liability company. When full deregulation is attained, public concerns for the company’s activities would wane because the public would begin to see the advantages therein.
It is also important to recall that the company holds a 20% stake in the Dangote Refinery. The government is encouraging private sector players to invest in the establishment of more modular refineries through the issuance of licenses. Walter Smith and others have established modular refineries in different parts of the country but are yet to start producing PMS due to government pump price regulation. If petrol is fully deregulated, the country’s expenditure on importation of PMS will reduce, consequently stabilizing the price through local competition. It is safe to assert that the long-term gains of deregulation far outweigh the short-term pains.
