FUEL SUBSIDY OR NO FUEL SUBSIDY – IT’S ALL SEMANTICS.
THE DIFFICULT TRUTH AND EVEN MORE DIFFICULT OPTIONS FOR SOLUTIONS
Dr Uche Diala.
The recent submission by the NNPCL concerning petrol subsidy payment or non payment, landing costs of PMS, etc., explains and authenticates what some of us have been saying for some time.
There is no way petrol would be selling at the price it is currently, if there was no intervention in whatever name, shape, or manner.
Call it subsidy or whatever name you prefer. It is simply what it is. It is only a matter of semantics.
The revelation, or rather confirmation by the NNPCL, only exonerates NNPCL from making subsidy payments to any marketer in the “last 8 or 9 years”, which some of us already knew.
Rather, according to the NNPCL, it is the government (if we can realistically separate the government from the NNPCL in this matter) that has been paying subsidy, i.e., subsidising the product, i.e., paying the difference i.e., subsidy remains. That much is crystal clear today.
The difference, and a discomforting one at that, is that the amount/volume of subsidy/difference paid in the last one year or so outstrips what was paid in each of the years prior. This is after the government had said that subsidy is gone.
Two Critical Questions Arising Therefrom Are:
1) Why so?
2) What can be done about it?
Number one question is easy and simple to answer, and it doesn’t give any comfort.
The exchange rate or devaluation of the Naira ‘made a mess’ of whatever expected gains from the ‘subsidy removal’.
If the Naira was not so highly devalued, the price of petrol, even though it would have still been higher than what it previously was, would have been more tolerable by far.
The second question is more tricky and more difficult to answer.
So long as the exchange rate remains as it currently is, there is no realistic expection for a significant positive change. Is there any realistic hope for a drastic and consequential rise anytime soon in the value of the Naira? Only the CBN can answer that question.
Domestic production (when it starts) will have a marginal effect on price and equally a marginal reduction in the amount the government spends in subsidising the price (if it chooses to continue doing so).
The above fact makes it expedient for the government to do whatever it must to assist the Dangote Refinery to start production and supply of petrol to the domestic market. I said this much in my open letter to the President a few weeks ago.
In doing so, the government (having jettisoned the leverage of a 20% stake in the Refinery) must have a renewed will and resolve to go against the norms to find some intentional and ingenious ways of partnering with the Dangote Refinery, beyond the current grandstanding by the NMDPRA, to be able to secure a considerable reduction in price of petrol for Nigerians.
Even at that, the Dangote Refinery and by extension the domestic Refineries (if and when they come on stream) cannot sell petrol at anywhere near the current artificial (subsidised/discounted) prices it is being sold currently.
It (they) doesn’t (don’t) have too much room to manipulate the prices. Except government will sell crude oil to it (them) at a significantly discounted price, which also is subsidy in another form, but in this case, it is using our crude to do so and reducing money supposed to be earned from crude oil sale. I had actually written about this under the Buhari administration.
Can the government do that? Does it have the will to do so? Does it even have the wiggle room to do so, even if it has the will, considering our crude oil situation?
For prices to remain at the levels they are currently, the government has to continue paying the same subsidy (differencial) it is currently paying for imported products.
The government can equally decide to totally stop paying subsidy, discounting, or intervening in the price, whichever expression you choose.
This means that the price of PMS will immediately rise to at least above N1,117 per litre or whatever the real landing cost is today of imported PMS plus margin or whatever the actual cost of production would be plus margin (less cargo, insurance and freight costs) for domestically refined petrol.
Some, including me, had actually argued for this a long time ago. Unfortunately, the situation currently is far different than it was even 15 months ago. The current exchange rate and value of the Naira and the consequencial multi-faceted challenges and difficulties it has caused for Nigerians make it pretty much a very difficult proposition or step for the government to take right now.
It is made more difficult by the fact that the government appears to have lost much of the goodwill that it could have leveraged on to take such a drastic and unpopular step.
It is a classic ‘catch-22 situation’. It calls for sobre and serious minded conversations both by the government and the citizens, beyond the spins and the hypes.
Incidentally, some of us have highlighted some of these issues in the past and continue to do without getting much traction. I hope we can take advantage of the NNPCL’s opening up on some key issues (which is commendable) to have that urgent, much needed, and very important conversations towards finding real solutions.
It is neither going to be easy nor palatable. The road ahead is rough. We need to change style and approach to be able to navigate it successfully. I hope we can.
©️ Uche Diala