PREMIUM MOTOR SPIRIT, SUBSIDY AND SCARCITY

Kanya Williams writes that petrol scarcity and subsidy are intertwined with the country’s economy

Petroleum scarcity and subsidy have been the major malfeasants plaguing the Nigeria PMS market since it began. However, in the past few years, the scorch of scarcity abated only to resurface somewhere in the dying days of December 2021 and has now entrenched itself to the pre-calm years. These and many other problems including endless queues, low capacity utilization of refining activities at the nation’s refineries, rampant fire accidents as a result of mishandling of products and products adulteration, pipelines vandalism and extensive smuggling due to unfavourable borders’ prices with the neighbouring countries and slapdash petroleum pricing define the kind of petroleum market Nigeria has.

By 1974, problems of haphazard pricing of petroleum products by marketers had reached unbearable level with constant and endless queues impairing the market. The problem was traced to inequality in transportation of the products from supply bases to consumption outlets nationwide. The concept of uniform petroleum products pricing throughout the nation was recognized as the key to solving the entire problem, hence the establishment of Petroleum Equalization Fund (PEF) in 1975 by Decree No. 9. The decree as amended by Decree No. 32 of 1989 charges PEF with the sole responsibility of reimbursing petroleum marketing companies for all losses incurred exclusively as a result of sale of lifted products at uniform prices.

To effectively achieve its mandate, the Fund divides the country into nine zones and receives N2.99 per litre inbuilt transportation cost from consumers, in this case, PMS consumers irrespective of the zone of lifting and discharging. PMS marketers serve as agents of PEF in collecting the inbuilt charge and transferring same to the Fund for the purpose of equalisation. These nine zones comprise depots, districts and further down to sub-districts.

PEF explains that the nine zones are depots divided into 50 km radius covering a total 450 km radius and use for the determination of petroleum products dispensing outlets. The Fund further clarifies that each outlet nationwide is attached to a depot.

A critical look at the PEF operational manual reveals that receipt of the inbuilt transport cost affects only operators in zones one, and two whose transportation cost is below the threshold known as National Transportation Average (NTA). Therefore, operators in these two zones remit the excess inbuilt charges to the Fund. Operators in areas exceeding 100km from depots are paid – according to the distance – the difference between the actual cost per zone and NTA called Zonal Transportation Differential. Aside the N2.99 per litre inbuilt transportation cost, the operational manual of the fund indicates that N6.00 per litre bridging allowance is incorporated into the pump price to contribute to the fund.

By the first year of this current democratic rule, the petroleum market in Nigeria had become a pain to everyone rather than a system of delivering the most critical energy commodity – petrol. This led to the establishment of the Petroleum Products Pricing Regulatory Agency (PPPRA) which took effect in May 2003 after accent to the Bill by the President Olusegun Obasanjo as a complete government institution with core mandate to determine the pricing policy of PMS and other petroleum products. The agency also has the mandate to regulate the supply and distribution of the same products while ensuring reasonable returns to market operators. A key objective in its mandate is the stabilization of petroleum products domestic prices against volatility in the international crudes and products prices. In a drive to meet the key objective of domestic prices of petroleum products, a Petroleum Support Fund (PSF) was created in 2006 under the purview of PPPRA. The PSF is a pool of fund with inflow streams from: one, federal government oil receipt with contributions from the three tiers of government and two, from the net balance of accruals from outflows paid to moderate international prices above benchmark of domestic prices in any accounting period.

Then came the complete madness in 2011driven by an explosive growth of subsidy payment. Government responded by an attempt to remove the subsidy. This was estimated to increase pump price by 117 per cent. Consequently, is was resisted by two weeks strike that resulted to a shutdown of the economy and loss of human lives in several quarters of the country. The government was forced to rescale the increase to N97 (US$0.60) that is 40% over its end-2011 level.

The fourth and contemporary regime is the 2015 to 2016. Even with the decrease in price of international crudes from a lofty US$160 per barrel in 2012 to just about US$65 per barrel in 2015, subsidy payments continued to exert pressure on the fiscal profile of Nigeria’s government. The pump price of N97 (U$0.49) per litre could not be sustained. Government had to stretch the price to N145 per litre but not without a fight from the public. To justify the increase, Osinbajo (2017) the Vice President of the country reported that the government then saved N15.4 billion (US$50.33 million) monthly. Dr. Kachikwu, the Minister of State for Petroleum then stated that prior to the removal, the government was paying N1.2 trillion (US$3.96 billion) on petroleum subsidy yearly. IMF (2013) case study states that by 2011, subsidy payments had exploded to a whopping N1.761 trillion (US$9.1billion).

In each of the regimes, various programmes have always been outlined to mitigate the effect of subsidy removal. The third regime had the most hyped programme for safety nets called Subsidy Reinvestment and Empowerment Programme (SURE-P). This SURE-P was all encompassing capturing health, transport, works and human capital development as its targeted deliverables. Monies accruable from the subsidy removal were to be channelled to create urban mass transit, maternal and child health services, public works and vocational training.  

In this review, can we say that the problems of petroleum scarcity, subsidy, queues at filling stations, haphazard product prices, low capacity utilization of refineries, product adulteration, smuggling that have infested the Nigerian economy for these 48 years have in any degree been solved? Can we also point to any results of the lofty programmes and schemes that followed every subsidy regime change? If for 48 years, and with deployment of institutions, schemes and programmes such as PPPRA, PEF, PSF, Sure-P, etc., these elements cling tenaciously to the Nigerian PMS market, is there any doubt that nothing short of declaration of state of emergency in the PMS market should be thought of as only available option? The overarching question on the tongue of discernible and conscientious Nigerians is that why are we were we are?