The return of subsidy

In May, 2016, the Nigerian government claimed to have removed subsidy on petrol when it increased the price of petrol from N87 to N145 per litre. It claimed marketers were free to bring in cargoes and sell subject, of course, to meeting standard quality control. But not a few Nigerians were puzzled that the same government that announced the deregulation of the industry still fixed the price of petrol at N145 instead of allowing market forces to determine the actual price. But the government said the N135 – N145 benchmarked price per litre was only a recommended price at which any trader, irrespective of the source of foreign exchange used to import cargo is guaranteed adequate profit. The Petroleum Products Pricing Regulatory Agency, PPPRA, gave the breakdown as follows: Landing cost – N119.74; total distribution margins – N18.37, which gives a total cost of N138.11 per litre. Very importantly, the new price band, according to the Minister of state for petroleum, Ibe Kachukwu, was predicated on a projected exchange rate of about N280 to $1.
Not only did marketers disagree with the NNPC, arguing that “if all pricing components are adequately captured, the actual or real cost of petrol was N151.87”, but even nine former GMDs of the NNPC voiced their fears to the petroleum minister that the N145/litre was “not congruent with the downstream liberalisation policy, especially when foreign exchange and other price determining components, such as crude oil cost and NPA charges remain uncapped.”
Interestingly, barely a month after, the naira/dollar rate rose above N300 to the dollar and crude oil price that was hovering around $35/barrel climbed and stabilised around $40/barrel. So, even before its so-called new price regime took root, the foundation under which it was laid had given way. But the government will neither allow marketers import and sell petrol at the prevailing market price nor will it agree to pay subsidy to the marketers. So, naturally, independent marketers stopped importing fuel and the NNPC became the sole importer of petrol into the country. This much was confirmed by Mele Kyari, Group General Manager, Crude Oil Marketing Division of the NNPC at an Expo in Lagos on October 24th 2016. According to Kyari, “it is impossible today to import and sell the product at the current fixed exchange rate.” Much more importantly, Kyari warned that “the burden would become too heavy if NNPC remains the sole importer of petrol.”
Regardless of the glaring evidence that there was a subsisting subsidy on petrol, the NNPC disingenuously continued to insist that it was not subsidising petrol. To make it even more convincing that government was no longer subsidising petrol, there was no budgetary provision for subsidy on petrol for the 2017 budget. That lie will however fall off when the most recent fuel scarcity began to bite in December 2017.
Following the scarcity and repeated scrutiny, the NNPC announced that the current landing cost of petrol was in the region of N171/litre even if others believe it has soared to N212.7/litre on the back of rising crude oil prices. But the government still continued to deny subsidising fuel. The Vice President, while performing the job of a fuel attendant at some petrol stations in Lagos on Christmas day tried to rationalise the lie thus:
“NNPC is trading in fuel; the Federal Government is not, at the moment, paying for any subsidy. NNPC is trading. If you are buying and selling fuel, you would have to be able to pay for it. So, it’s not a question of government provision for subsidy, the Federal Government, at the moment, isn’t paying any subsidy. And don’t forget that the way that the NNPC trades is that, in many cases, NNPC is actually giving fuel; there is 445, 000 barrels of fuel. So really what you are seeing, in many cases, is more or less an exchange for PMS. So at the moment NNPC is paying the cost”.
However, some days later, the GMD of NNPC, Maikanti Baru confessed that the president authorised the payment of subsidy by NNPC to ease the pains of Nigerians. Asked to clarify his position, he shot back: “Do you want me to remove subsidy?” What I am saying is that the landing cost as should be sold in the pump without under-recovery should be N171.40… However; Mr. President has directed that we should maintain all the parameters to ensure that it is sold at N145 per litre. And that is why we are selling at depot at N133.28”.
Although the GMD of NNPC refused to answer the question of who foots the bill of the N26-N27 differential especially since it wasn’t provided for in the budgets, the vice president’s answer gives a clue. The federal government gives allocation of 445, 000 barrels of crude oil per day to the NNPC for domestic consumption, but since the refineries are not functioning or functioning at minimal capacity, the NNPC swap most these for refined petrol under the Offshore Processing Arrangement (OPA).
But according to the Nigeria Extractive Industries Transparency Initiative (NEITI) 2015 Oil and Gas Industry Audit Report released on Tuesday January 2, 2018, the President Muhammadu Buhari administration cancelled the Offshore Processing Arrangement (OPA) in November 2015 for being uneconomical and has replaced it with the Direct Sale Direct Purchase (DSDP) arrangement. How then is it possible that subsidy is not being paid on imported petrol?
From the look of things, there was never a subsidy removal. There was just a change of beneficiaries from the independent marketers to the NNPC. One can only imagine the opacity and corruption surrounding the current subsidy regime.
For Nigeria, things never really change; they just continue under different guises.

Christopher Akor