Petrol subsidy is emotive, financing for development is rational

By Salisu Na’inna Dambatta

That the sum of USD 800 million (about N386 billion) borrowed by the Federal Government through the World Bank would be used to cushion the initial potential negative effects of the forthcoming removal of subsidy on the price of premium motor spirit, or petrol, is a welcome decision.

The discourse on subsidy in Nigeria is often emotive. Most participants do not discuss it in its true economic sense and cost in the form of the dislocation and distortions it causes in our national development. Some say that instead of spending money on subsidies that do not have much positive impact on the wellbeing of the citizenry, it is more economically rational to use the money in financing education, healthcare, potable water supply, security services and activities that will minimise the impact of climate change on Nigerians.

The subsidy data from multiple sources including the Nigerian National Petroleum Company (NNPC) Limited and the Budget and National Planning arm of the Federal Government, show huge figures of money spent on subsidy monthly.

The Chief Executive Officer of the NNPCL, Mele Kyari recently said N400 billion is spent monthly on subsidy. It is spent on subsidising the pump price of Premium Motor Spirit (petrol). NNPC Limited is the sole importer of petrol, which it sold to retailers at rates below the landing cost of each imported litre. The Company also pays a substantial part of the cost of transporting the commodity in trailers to outlets all over the country.

Provisions in the 2023 budget for five months show that Nigeria is spending USD $7.3 billion, that is, N3.4 trillion in petrol subsidies. This cushion will be removed at the end of May, 2023. The Buhari administration has made it clear that it did not provide money for subsidies in this year’s budget beyond May 31, 2023. His term in office will lapse on May 29, 2023.

The N3.4 trillion earmarked for subsidy for 2023 in the Federal Government’s budget of N21.83 trillion signed by President Muhammadu Buhari on January 3, 2023, leaves a paltry N18.43 trillion for all other public sector financing for the year. And a substantial part of it will be raised through foreign and domestic loans.

Those supporting zero subsidy argued that the Nigerian people hardly benefit from it due to alleged diversion of the subsidised commodity to unofficial markets. The marketers often hoard subsidised petrol to create scarcity; and in defiance of the government, arbitrarily change and charge pump price per litre by far above the rate approved by the NNPC Limited.

The proponents believe that N400 billion in subsidy monthly is unsustainable. It represents N13.33 billion daily, which boils down to N555 million every hour. The suppoters of subsidy removal state further that, the equivalent of one month’s subsidy at N400 billion is more than the N360 billion reported cost of the second Niger Bridge.

The monthly subsidy outlay is also more than the record N320.3 billion recently approved for all Nigeria’s public tertiary institutions for the development of essential infrastructure. If that N400 billion can be given to the tertiary education segment for six months consecutively, which totalled N2.4 trillion, the sector would be transformed beyond recognition.

Those who want the subsidy to remain despite being a huge drain on the economy and a drag on development in other sectors, say increased pump price of petrol will worsen inflation, eliminate jobs, aggravate suffering among the citizens and could lead to labour strikes. It can also have a negative impact on agriculture and manufacturing.

Such fears cannot not be dismissed. It is for the purpose of cushioning and mitigating the possible painful effects of removing the subsidy that the Federal Governemnt introduced several measures to minimise such effects.

The measures include increasing the salary of civil servants. Radio Nigeria on March 30, 2023, quoted the Minister for Labour and Employment, Dr Chris Ngige, saying, “the Federal Government has approved a pay rise for civil servants in the country.” He said it will enable government workers cope with inflation, rising cost of living, hike in transportation fare, housing and electricity tariffs.”

For many pensioners, “the National Pension Commission (PenCom) has approved the third increase of monthly pension for retirees on programmed withdrawal under the Contributory Pension Scheme,” media reports indicate.

The Minister for Finance, Hajiya Zainab Ahmed Shamsuna said the $800 million for palliatives was “the first tranche of palliatives that will enable us give cash transfers to the most vulnerable registered in a national social register. Today that register has a list of 10 million households. 10 million households are equivalent to about 50 million Nigerians.”

She explained further, “But we also have to raise more resources to enable us do more than just the cash transfers. Labour, for example, might be looking for mass transit for its members. So, there are several things that we are still planning and working on.”