Tinubu Strikes the Rock for Economic Recovery with Petrol Subsidy Removal
The removal of the wasteful petrol subsidy by President Bola Ahmed Tinubu during his inaugural address last Monday as the 16th president of Nigeria has positioned the country to recover from its ugly economic status and launch back to prosperity, writes Peter Uzoho.
Without prejudice to those holding contrary views, the removal of petrol subsidy by President Bola Ahmed Tinubu, after past presidents failed to do so, has signalled the beginning of the recovery of the Nigerian economy.
With this bold move which took most Nigerians by surprise, considering the usual way of the country’s presidents waiting to settle down first and appoint and inaugurate cabinet members, Nigeria has now been positioned to work towards boosting its productivity and achieving prosperity that long eluded it.
Last Monday, at the Eagle Square, Abuja, President Tinubu, who is now the 16th president of Nigeria having emerged winner of the 2023 presidential election from the platform of the ruling All Progressives Congress (APC), had announced the end of petrol subsidy, declaring that “Subsidy is Gone”.
Tinubu told Nigerians that the President Muhammadu Buhari government did not make any provision for subsidy in the budget he inherited.
He had said that there was no justification for spending Nigeria’s scarce resources on subsidy that only benefits the rich, adding that his goverment would rather channel the resources to fix critical sectors that would benefit the masses.
“The fuel subsidy is gone. Subsidy can no longer justify its ever-increasing costs in the wake of drying resources. We shall, instead, re-channel the funds into better investment in public infrastructure, education, health care and jobs that will materially improve the lives of millions”, Tinubu had said.
Although, the Petroleum Industry Act (PIA) passed in August 2021 had provided for the deregulation of the downstream petroleum sector and the removal of fuel subsidy, the Buhari government had in January 2022 postponed its implementation by 18 months.
The same government had made moves to remove subsidy before the expiration of its tenure but backed out at the last minute, shifting it to the current Tinubu government.
The pronouncement by Tinubu immediately changed the petroleum marketing dynamics in the country, with the Nigerian National Petroleum Company Limited (NNPC) and the private marketers adjusting to the current market realities, leading to the upward rise in the prices of petrol in the country.
INVESTORS’ POSITIVE REACTIONS
Following the news of the subsidy removal announcement by Tinubu,
investors in both the equities and money market responded positively with the stock market appreciating, as investors reportedly gained N1.51 trillion in response to the signalling of the president’s plans to unify foreign exchange rates.
Also, the naira was said to have appreciated on the parallel market as it gained N5 to close at N765/$1, a day after the president’s inaugural speech, up from the N770/ $1 it traded the previous day.
The sovereign dollar-denominated bonds also rallied on the news of the president’s stance on the two critical economic policies -subsidy removal and exchange rate unification.
THISDAY had reported that the market capitalisation had opened for trading the next day after the historic inaugural speech, at N28.845 trillion gaining N1.51trillion or 5.23 per cent to close at N30.350 trillion, while the NGX All-Share Index gained 5.23 per cent or 2,764.47 basis points to 55,738.35 basis points from 52,973.88 basis points it opened for trading.
According to the THISDAY’s report, the 5.23 per cent recorded was the biggest single-day gain since November 12, 2020.
Many industry experts and multilateral lenders like the International Monetary Fund (IMF) and the World Bank had advised severally that the harmonisation of the rates and removal of subsidy would improve the attraction of foreign capital and also help the government channel useful funds into more productive ventures like infrastructural investment, education and healthcare.
NNPC BACKS MOVE, ASSURES OF PRODUCT SUFFICIENCY
In a swift reaction to the public backlash against the subsidy removal, the Group Chief Executive Officer of NNPC, Mallam Mele Kyari had assured Nigerians that the policy action was in the best interest of the nation, saying the company welcomed the declaration by the new president.
According to Kyari, while the apprehension by petrol consumers was understandable, the potential changes to petrol prices were not enough reason for Nigerians to buy more than they require at a time.
Kyari stated that the NNPC would ensure continuous and sufficient supply of petroleum products, particularly Premium Motor Spirit (PMS), noting that the company was monitoring all its distribution networks to ensure compliance.
“We would like to assure Nigerians that we have sufficient supply of petroleum products, particularly PMS in our country and there is no reason to panic. We understand that people will be scared of potential changes to the price of petrol.
“But that is not enough for people to rush to fuel stations to buy more than what they need. We are watching all the distribution networks, and support facilities and we believe that normalcy will be restored very soon,” he noted.
The NNPC chief executive reiterated that the company had been using some of its cash flow to make subsidy payments which had constituted a huge burden on the company’s finances.
“We welcome the decision of Mr. President to announce that the subsidy on PMS is over and this has really been a major challenge for the NNPC’s continued operation. We have been funding the subsidy from the cash flow of the NNPC.
“We believe that this decision will free resources for the NNPC to continue to do the great works that this company will do for our country. It allows us to continue to function as a very commercial entity. We welcome this development,” he added.
Also speaking after his first meeting with President Tinubu, Kyari disclosed that NNPC lost about N2.8 trillion to fuel subsidy from February 2022 to date due to the inability of the federal government to pay for the subsidy bills.
According to him, it has become very clear that government cannot sustain the subsidy regime, adding that as a business entity, the company has no choice but to back out of the arrangement.
He had said: “There’s incremental value that will come from it. But it is not an issue of whether you can do it or not because today we can afford it and they are not able to pay our bill. That comes to how much is the federation owing NNPC now? Today, we are waiting for them to settle up to N2.8 trillion of NNPC cash flow from the subsidy regime. And we can’t continue to do this.”
INTERNATIONAL INVESTORS EXCITED
Sharing his feedbacks from their international investor-friends and associates, Executive Secretary, Major Oil Marketers Association of Nigeria (MOMAN), Mr. Clement Isong, told THISDAY that the subsidy removal has excited the foreign investors, who are keenly watching the development in Nigeria.
“You’ve seen that the Nigeria Euro-bond has strengthened. The investors’ sentiment is that finally, we now have a responsible and accountable government making the right decisions. They are saying that Nigeria has suddenly become a country that it makes sense to take risks.So they are watching”, he said.
He, however, warned that “If we make any step backward, then it just shows that things have not changed because that’s what we have been doing in the past -which shows the flip-flops in the country’s policies. It takes away trust and confidence. We wrote it in a law and then we chose not to apply it. So, it makes it possible for the international community to believe that Nigeria is not governed by the rule of law, that law does not guarantee that we will do the right thing.
“So, everybody internationally is watching this goverment. It’s a good step that they are obeying the law. It’s a good step that they are making the hard decisions. This is the only way to prosperity. There will be some pain, but we are heading in the right direction. We will have an increase in productivity.”
He noted that Nigeria was doing very badly and wallowing in abject poverty, partly attributed to the huge resources wasted in subsidising imported petrol.
Isong pointed out that for the first time, “it looks as if we were going to make the tough decisions but we are going to claw away back to prosperity, to productivity. Our consumption of fuel will come down. We will stop using the cheap fuel for unnecessary journeys and trips.
“So, international investors are so excited that the new goverment appears to have been bold enough to take the first step. Everybody is watching, everybody is paying attention to see whether he will take the next one week to unify the exchange rate. Once we do that, then Nigeria is opened for business.”
Isong had earlier urged Nigerians to embrace the new petrol marketing regime and reduce their fuel consumption, saying the government should put in place appropriate palliatives to cushion the effect on the most vulnerable citizens.
The executive secretary also called on Nigerians to be empathetic at this time and try to help one another. He acknowledged that the situation might not be easy, but that government’s action was necessary for the growth of the economy.
He further explained that other countries around Nigeria did not have petrol subsidy, despite the fact that they have crude oil like Nigeria, adding that those countries were not being “pampered” with subsidy.
Executive Secretary, Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), Mr. Olufemi Adewole, told THISDAY that Nigerians were in for better things with the subsidy now scrapped.
“Removing subsidy is for the good of the country. The essential thing is that we are not to profiteer, we are not out to exploit but we will ensure that people get the product at the best price possible.
“So Nigerians are in for a better time. Mark my word, as the day goes by, provided prices at the international market do not increase, that is, the price of crude oil or Platts, if those two do not increase, there will be competition and you will see drops in all these prices”, Adewole said.
OPERATORS’ JOINT SUPPORT
Earlier in a joint statement, MOMAN and DAPPMAN had endorsed the pronouncement by Tinubu, on the phase-out of the petrol subsidy regime.
They appreciated the clarity of policy from the Tinubu administration, describing it as a direction that signals a courageous and pragmatic shift in the nation’s economic trajectory.
In light of the assurances given by the NNPC and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), the marketers reiterated that there was no cause for alarm.
“We strongly urge Nigerians to avoid panic buying or stockpiling of petrol. This behaviour not only creates artificial scarcity but also poses a significant safety hazard.
“The NNPC has assured Nigerians of adequate fuel supply and the NMDPRA is working closely with stakeholders to ensure a seamless transition. They are ensuring distribution channels remain uninterrupted, thereby making fuel readily available at all filling stations across the country,” the organisations stressed.
They argued that the decision to phase out the fuel subsidy regime
was not merely a fiscal reform, but a significant stride toward social justice.
The marketers further said, “We are heartened that the administration plans to redirect these substantial funds towards essential public goods such as infrastructure, education, and healthcare. These investments symbolize our shared future, promising considerable, long-term benefits for all Nigerians.
“We understand the concerns regarding potential price increases. However, we expect marketers to maintain reasonable pricing, as NNPC remains the sole supplier of the product currently.
“We anticipate minimal changes regarding distribution costs, considering the cost of the product constitutes 80 per cent of the pump price. We pledge, in collaboration with the Nigerian Association of Road Transport Owners (NARTO) and other crucial stakeholders, to manage these distribution costs diligently to minimise their impact on the pump price.”
They also urged suppliers to continue supplying products to all legitimate marketers and called on all stations to remain open and avoid hoarding products.
IPMAN: SUBSIDY REMOVAL A WELCOME DEVT
On his part, the National Operations Controller of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Mr. Mike Osatuyi, said the removal of fuel subsidy by Tinubu was a welcome development geared towards revamping the downstream sector of the Nigerian oil and gas industry.
Osatuyi said Tinubu had promised to remove fuel subsidy right from the first day of his administration, noting that the pronouncement was part of his campaign promises. He said the money used on subsidy would be diverted to develop other sectors, saying, “That means Tinubu has begun to fulfil his campaign promises.”
The IPMAN official said the petrol subsidy removal would bring about competition among players and address the issue of monopoly in the petroleum marketing business in Nigeria.
Osatuyi maintained that the subsidy removal policy would lead to market liberalisation, availability of products, and check excesses of middlemen, warning, however, that there would be an increase in the price of petrol.
He noted that the money saved from subsidy removal would be used to boost the economy and the well-being of Nigerians.
A member of MOMAN and Managing Director of 11 Plc, Mr. Tunji Oyebanji, said that the pronouncement was a timely decision for the country.
