Subsidy on petrol isn’t working

The Nigeria Bureau of Statistic’s Premium Motor Spirit (petrol) price watch for January 2018 showed that on the average, Nigerians paid N190.9 per litre for the product as against the N145 government-regulated price and for which the government and the country as a whole is sustaining huge losses in subsidy payments. While some consumers in states like Osun, Abia and Benue paid as high as N228.89, N227.5 and N223.33 per litre respectively for the product in January, others such as Zamfara, Gombe and Kogi states were lucky to pay far lower prices of N159.12, N157.73 and N152.83 respectively for the product.
The reality therefore is that while the federal government claims to peg the price of fuel at N145, aside some parts of Lagos and Abuja, fuel sells far above the approved price in virtually all parts of the country making nonsense of the supposed subsidy.
Meanwhile, the federal government has been struggling to explain the current subsidy regime without actually calling it subsidy. In December 2017 when the fresh round of fuel scarcity began, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) admitted that the landing cost of petrol at N171 per litre is now above the pump price of petrol at N145 per litre, which simply means that government is effectively having to pick up the difference in cost of importation of N26 per litre.
First, it was Vice President Yemi Osinbajo, who in December tried to explain away the new “subsidy” regime by claiming that it was a cost borne by the NNPC and not the Federal Government. This left Nigerians wondering if the NNPC is now owned by a foreign government or the government had already sold its stakes in the corporation. Current records show NNPC is 100 percent owned by the Nigerian Government which also means that if it runs into a loss, it is the government that bears the brunt.
The Minister of Finance, Kemi Adeosun is the latest government official that has attempted to dodge the word ‘subsidy.’ Speaking to the media, after the federal executive council meeting on 31 January, she told the media that ‘technically’ speaking, the federal government was not paying subsidies. However, like the Vice President, she also admitted that the price differential or ‘subsidy’ is appearing on NNPC books as ‘under-recovery.’
However, she was kind enough to explain that this ‘under-recovery’ represents money that should have come to the federation account and shared among the federal government and states. So non-technically speaking, Adeosun was saying that subsidy is now a first line charge on NNPC revenues. It is being spent but not appropriated. It would not be found in the government’s budget at the state and federal level but on NNPC books. Interestingly, the NNPC books are not audited by any external audit firm, so basically it is what the NNPC gives as subsidy figures that the country will accept as subsidy figures.
Already, a peep into NNPC’s books gives some idea of how much this new subsidy is costing the country. The November 2017 monthly report of the NNPC shows the three refineries incurred a loss of N11.14 billion in November 2017. Since July 2017, when crude oil prices started rising steeply, the cumulative losses incurred by the three refineries stand at N36 billion. This is expected to get higher as crude oil prices have even risen higher since then. The losses from the refineries make up about half of NNPC’s N76 billion cumulative operating loss incurred as at November 2017. The NNPC is bleeding primarily because of under recoveries from selling petrol below the landing cost.
But besides losses made from refineries operations due to subsidy, the country is also engaged in a form of dollar subsidy. Crude for domestic consumption is given to NNPC at the official exchange rate of N304 to the US$, which is lower than the investors and exporters window average exchange rate of N360 to the US$ used for commercial transactions in the country.
Using this I&E market determined rate, the naira equivalent of the dollar subsidy incurred in October 2017 alone stands at N30 billion. Basically, the country is incurring both a naira and dollar subsidy on petroleum products running into several billions of naira monthly which is not being appropriated because it is being absorbed by the NNPC and the Central Bank of Nigeria in terms of naira and dollar subsidies. Yet, Nigerians across board are not enjoying the subsidy as they can’t buy fuel at the approved price.
A normal and rational government will just cut its losses, end the subsidy and allow market forces dictate price, but not so in Nigeria, and especially, not a year preceding elections. Perhaps, that is why we keep going round in circles without making much progress in the country.