Fuel subsidy removal on the wings of COVID-19

Buhari sacks Baru, appoints Kyari as new NNPC GMD
New NNPC GMD, Mele Kolo Kyari. PHOTO: NNPC/Twitter


Finally the Federal Government has removed the controversial subsidy on petroleum products. For many years, removal of the subsidy and full deregulation of the downstream oil sector has been a subject of bickering between the government and petroleum products marketers, with the rest of us drawn to whatever side we please.

For the present Federal Government in particular, removal of petroleum subsidy had been an anathema. When it came to power in 2015, it said subsidy on petrol will not be removed but will be run in such a way as to eliminate the corruption and fraud in the process. It raised alarm about the enormous amount of money the previous administration spent on petroleum subsidy. This led to probes and probes that eventually led nowhere.

In its populist and “pro-people” disposition, the government remained adamant to calls by experts and oil marketers to deregulate the oil sector. In order to give the subsidy regime a new colour, the administration rechristened it “under- recovery”.

Ironically, while refusing to deregulate the sector, and after all the noise about sanitizing the system, the government found itself spending even more on the subsidy. The government got stuck with subsidy, and could not summon the courage to remove it, let alone declaring a total deregulation of the oil sector as majority of Nigerians had been demanding.

Then, came COVID-19. The coronavirus, which has devastated the world and its economy, single-handedly deregulated the Nigerian oil sector, providing the Nigerian authorities the leeway to remove the subsidy without any sense of shame or fear of being jeered by political opponents. COVID-19 crashed oil price in the world market, and induced an all-time low demand, putting the economies of nations, including Nigeria’s in disarray.

Thus, the Federal Government had no option than to bow to the long-standing pressure to restructure the downstream segment of the Nigerian oil industry through the removal of fuel subsidy. With COVID providing the cover, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Malam Mele Kyari, said Nigeria would no longer be paying for under-recovery or subsidy on petrol, referring to the current development in the global oil sector, stressing that subsidy had gone forever.

Kyari said that government would divert the N457billion petrol subsidy budgeted for this year to other sectors. The money will just vanish from the Appropriation Act and dissolve into other sectors, he said. He re-echoed some of the arguments against petrol subsidy to which the government had been paying deaf ears all these years, and which have made removal of the subsidy imperative at this time.

As part of the deregulation, the drain pipes called Nigerian–owned four refineries will now be handed over to the private sector. Recall that Aso Rock had been resisting calls to hand over the refineries to private investors, preferring to listen to, and pander to the wishes of entrenched interests. The NNPC Group Managing Director was emphatic that NNPC would not be involved in running the refineries after their rehabilitation.

He said upon completion of the ongoing rehabilitation exercise, the services of a company would be procured to manage the refineries on an operations and maintenance basis.

“We are going to get an O&M contract, the NNPC won’t run it. We are going to get a firm that will guarantee that this plant would run for some time. We want to try a different model of getting this refinery to run. And we are going to apply this process for the running of the other two refineries,” he stated.

Kyari explained that the plan, ultimately, was to get private partners to invest in the refineries and get them to run on the NLNG model where the shareholders would be free to decide the fate of the refineries going forward. Of course, all these had been suggested in the past to no avail.

To leave no one in doubt that the sector has been fully deregulated, the NNPC boss said, “What we are putting in place today is a situation where market forces will take control of the market instead of subsidizing products mainly for the elites across the country.” He insisted that there would be no conversation about coming back to the fuel subsidy regime anymore, stressing that the PPPRA would modulate prices and provide a band going forward. This, he said, would ensure that the people were not exploited by the market, as it would provide a band of prices within which marketers would sell.

Because of the heavy din of battle with coronavirus, the deregulation or removal of subsidy could not attract the deserved attention. Only few individuals and associations gave as much as a whimper. Even oil workers, NUPENG and PENGASSAN could not threaten fire and brimstone if the sector is deregulated or if government handed over the refineries to the private sector. This time, the unions only advised government to fix the refineries first, saying that deregulation of the petroleum sector that is still dependent on importation of refined products would have negative effect on the economy.

“The position of the union has always been that deregulation should be on local production. By this we are saying that the refineries should be working before government can deregulate,” said the union’s General Secretary, Afolabi Olawale was reported as saying.

“Any deregulation that is based on importation of oil, as we have at the moment, will have negative impact on the economy. Global oil crash will always affect our economy under this circumstance.”

The Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) on its part described the removal of the subsidy on petroleum products as a right step in a right direction, but added that it was not sustainable if the country continues to import refined products. According to the National PRO of the union, Fortune Obi, the removal of the subsidy can only be sustainable if the country’s refineries are working, since one cannot control what one does not produce. None of them raised any dust about the full deregulation that had taken place or the proposed handover of the refineries to the private sector.

Remarkably, these reactions were different from the usual militant disposition of the oil workers on these issues. Thanks to the all-powerful COVID-19 that has emasculated both government and labour, and anyone who thinks he can fight in Nigeria. Everyone is in hiding, talking from the safety of his home or a depleted office.

Meanwhile, it is a warm welcome for deregulation of Nigeria’s downstream oil sector. Whether the people will laugh or cry in the long run is only a matter of time. At the same time, all hail COVID-19 which has made possible the things that the government had found “impossible” to do all these years.