The ‘smart’ way to remove fuel subsidy

By By Jideofor Adibe . . .

The recent announcement by the Federal Government that effective from January 1, 2016, Premium Motor Spirit (PMS), otherwise known as petrol or fuel, would be sold at N86 per litre by the Nigerian National Petroleum Corporation’s (NNPC’s) retail stations while other oil marketers would sell at N86.50 per litre, was a smart move by the government.
The current official cost of fuel is N97 per litre – though the price is considerably more outside the major cities of Abuja and Lagos. The general belief is that the government has finally decided to remove fuel subsidy from January 2016 – despite its conflicting signals on the matter.

By hiding the bad news in good news – a perfectly legitimate strategy used by governments across the world – the government is probably hoping to tie the hands of those opposed to removing subsidies. By showing that the price of fuel should actually be lower despite the de-subsidization, the government probably hopes to remove the quivers from the arrows of the pro-subsidy lobby.

Though the Nigerian Labour Congress (NLC) said it would resist any subsidy removal, it is not certain that they will get the backing of most Nigerians on this. The fact is that several people who were opposed to removing subsidies have since shifted positions. In fact the ‘shut down Nigeria’ protests that followed the attempt by the Jonathan administration to substantially reduce the subsidy on fuel on January 1 2012 had led to the House of Representatives setting up the Farouk Lawan Ad Hoc Committee on Fuel subsidy which showed how the subsidy regime was turned into a haven for rent seeking and outright theft by a cabal of oil marketers.

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The government’s own Aig-Imoukhuede-led committee report and the Nuhu Ribadu’s oil subsidy report were no less damning of the oil marketers – who fought back ferociously in a manner that convinced many Nigerians that given how powerful they are, the only viable option to the scam was for the subsidy to go.

With long queues returning at petrol stations across the country, people were rather surprised that it took the Buhari government so long to act on the fuel subsidy matter. In this sense I do not share the sentiment that it would amount to hypocrisy for those who opposed the removal of fuel subsidy under former President Jonathan to now turn round to support it.
I have two concerns on this though: one, if the subsidy should go (as I believe it should), what then is the need for the government to impose price controls with threats against anyone who will sell above the recommended price? If the supply side is as it should be, then the price should be determined by demand and supply.

My other concern is that while we are doing away with one subsidy (fuel subsidy), we are introducing a couple of new ones – school feeding and N5, 000 per month to ‘vulnerable’ unemployed people. Just like the fuel subsidy, the possibility that a cabal of contractors would capture these new regimes is very high.

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