Fuel subsidy removal: Experts, other players differ on benefits

With less than three months to the removal of fuel subsidy, many Nigerians are already bracing up for the effects, which they all agreed will be the increased in the pump price of fuel, and also a likely steady supply of the commodity in the market.

The removal of the subsidy, according to some experts, will drive up the price of premium motor spirit, resulting in higher transportation fares, increased inflation rate, reduced buying power and a surge in poverty.

Recall that the Minister of Finance, Budget and National Planning, Zainab Ahmed, had during the public presentation of the 2023 budget said the government would stop the payment of fuel subsidy by the end of June 2023.

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Mrs. Zainab disclosed that in the 2023 fiscal period, the government has made provisions of N3. 36trillion naira for fuel subsidy payment to cover the first six months of this year.

Nigeria currently runs two forms of subsidy. The first is the payment of the difference between the actual pump price of PMS, which is arrived at after calculating the landing cost and the extant margins. The other is the cost of transportation (about N30) paid on every litre to ensure that the price of PMS is similar across the country.

In Nigeria’s 2022 budget, capital expenditure stood at N5.4 trillion while subsidy payment was initially N4 trillion but rose to about N7 trillion before the end of the year. In the 2023 budget, the subsidy from January to June when government said it would stop the subsidy stands at N3.6 trillion.

While there have been calls for a holistic and well-phased approach towards subsidy removal, anxiety continues to prevail as to the possible effects of such a decision, despite being economically expedient if the nation’s fiscal position will not be further jeopardised.

The Centre for the Promotion of Private Enterprise believes that one of the gains of the planned subsidy removal is the improvement of Nigeria’s revenues by at least N6 trillion annually.

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According to its Director, Muda Yusuf, there would be an end to the several years of plundering of the nation’s resources through the subsidy regime.

Renowned energy economist, Prof. Wunmi Iledare, on his part, noted that the government has itself to blame for digging a hole and now finding it difficult to climb out of the hole.

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He said subsidy removal would make the economy better than it is, stressing that the development would create less crowding out of private investment in the sector.

“There would be less pressure on external reserves thereby improving Forex rates. The removal would create less borrowing for consumables and more money to do more important things,” he added.

But organized labour have argued that with less than three months to the June deadline, Nigerians are yet to feel the safety nets and palliatives government plans to put in place post-subsidy removal, lamenting that it has been months of sufferings brought about by petrol scarcity and the cash crunch that have affected households.

For them, subsidy remains the only gain for the masses after years of crude oil extraction. They challenged government to get the refinery working, halt smuggling of the products or increase wages due to possible inflationary impacts of subsidy removal on prices of goods and services.

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According to a petroleum expert Bala Zaka, those calling for subsidy removal at this time are disloyal citizens and do not understand what economic growth is all about, not to talk of economic development.

“We already know that diesel has been deregulated and we can see the consequences on all the sectors, whether in the strategic domestic sector, strategic commercial or strategic industrial sectors.

“The minimum wage in Nigeria today per month is about N30,000 and that is just about $50. Is that the economy where you want the price of PMS to approach the price of diesel, which is about N850/litre currently? Are they not seeing how Nigeria’s economic landscape is right now?

“If petrol price should hit N850/litre what do you think will be the consequence on the poor masses? They must first think of the repercussion before coming out to utter statements which if implemented could cause untold hardship to the already suffering masses in Nigeria.

Meanwhile, a former Statistician-General, Oyeyemi Kale said he will prefer a holistic approach to the issue.

Kale, who is the Chief Economist of KPMG Nigeria said there is the need to look at the entire system, and then determine what is best for the country.

Kale added that it is a cost-benefit analysis that ultimately determines what is best for the economy, adding that conversations must take place to determine how the government will provide palliatives for affected citizens to minimise the negative effects of the policy.

More so, President-elect, Bola Tinubu, during his campaign had insisted fuel subsidy regime must end if elected president.

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According to him, subsidy payments by successive governments were nothing but a waste of resources that ought to have been used to meet the needs of the people, noting that the oil sector has been caged by “subsidy” and therefore, must be “unbundled.