THE DEVIL AND THE DEEP BLUE SEA

Tinubu’s administration navigates a rock and a hard place over rising petrol prices, writes Bolaji Adebiyi

It looks like the calm before the storm. Last Tuesday, the Nigerian National Petroleum Corporation Limited announced an increase in the pump price of petrol from N568 to N855 per litre in all its outlets in Lagos. It will cost N897 from N617 in Abuja and more in other places. The major and independent marketers have since adjusted their pump prices to around N1000 and above depending on the distance from Lagos, the product’s central loading bay.  

Expectedly, reactions to the upward movement of the essential product’s price have been angry, but mercifully, they have remained at the level of grumbling. The usual agitators against price hikes, the organised labour and organised private sector, have ventilated their views, rejecting the upward adjustment. They said it would worsen the inflationary trend in the country and make nonsense of the N70,000 new minimum wage scheduled to take effect from May 2024. “A steep price hike would likely trigger widespread price increases, potentially reversing the recent easing in inflation as seen in July and leading to another surge in inflation rates,” said Chinyere Almona, director-general of the Lagos Chamber of Commerce and Industry.

The opposition Peoples Democratic Party also joined the fray, describing the increase as an anti-people act that would only increase the citizens’ mystery.  “The secretive and corrupt administration of the petroleum sector and persistent increase in fuel price under the Tinubu administration, without due regard to the wellbeing of the people, is akin to pushing Nigerians to the wall and daring them to do their worst,” its publicity secretary, Debo Ologunagba, said in a statement on Wednesday in which he added that skilful and transparent management of the petroleum sector would have kept the product’s price at N250 per litre.

It is easy to see how opportunistic and unrealistic the PDP’s claim is as it plays on the general sentiments against the price hike. Yet, during the 2023 electioneering, all the leading presidential candidates indicated their intention to remove the petrol subsidy, recognising its debilitating impact on the country’s economy. Without a doubt, the upward adjustment of fuel prices occasioned by the implementation of the subsidy removal policy in May 2023 had combined with the floating of the local currency to institute rising inflation, which stood at 34.2 per cent in June 2024.

However, inflation was not the only consequence of the twin macroeconomic reform policies. They also brought massive increases in government revenues, which rose to N9.1 trillion in the first half of 2024. The challenge is that this would not have translated to a concrete positive impact on the people’s living standards, as the rising cost of living, particularly food, forced many citizens to the streets last month. That being the case, why did the administration allow a further hike in the product’s price?

The fact of the matter was that shortly after President Bola Tinubu’s May 2023 announcement, forcing petrol prices to move from N197 to N480/N570/N617 per litre, the subsidy gradually returned with the floating of the naira in June of that year. With the landing cost inching towards N720 as the forex rate approached N638/$, the government could not toy with the idea of a further rise in the product’s price, hence its decision to ask the NNPCL to absorb the shortfall.

A few insiders cautioned that this interventionist policy was bound to fail, except the local currency’s value increased. With the naira/dollar rate hovering around N1600/$ and the price of crude hitting $84 per barrel, it was a matter of time before the landing cost of petrol would climb to N1200. Dispensing the product at N568/N617 meant a shortfall of N633/N583, which the national oil company had to bear. The policy’s unsustainability would soon become apparent.

Burdened by the rising shortfall, the national oil company asked the president for permission to increase its product’s price, meaning Nigerians would pay about N1300 – N1500 per litre. A hesitant president would not bulge until it became apparent that unless he did, the NNPCL would not only go down but also imperil the national economy. Faced with a $6 billion debt owed vendors, further product importation had become impossible, forcing nationwide scarcity and kilometre-long queues at filling stations.

At that point, the president met the NNPCL halfway, approving a phased bridging of the shortfall. This would enable the company to cut its losses by increasing its price to N855/N897 in the first instance, pending the coming onstream of alleviative measures such as the sale of crude in naira to the 650,000 barrels per day Dangote Refinery and others, who are expected to begin production in the last quarter of the year.  

The hope is that Dangote Refinery, which started producing petrol this week, will be able to improve product availability through its estimated 25,000 litres per day. There are other hopes. The proposed naira-denominated crude sale to locals will help preserve foreign reserves by 30-40 per cent, as a large portion of the $600 million spent monthly on fuel imports would be saved. It is estimated that this would translate to savings of $7.3 billion annually. The refinery will also help to reduce the army of unemployed persons with its estimated recruitment of 57,000 workers.

The promise of this initiative will be handy in the government’s efforts to convince an angry citizenry to bear with it in the coming weeks as the overall implications of the upward adjustment of petrol prices begin to manifest. It could not have been an easy choice for the president, who had to make a hard choice despite his concern for ordinary citizens. The petrol subsidy had drained national resources, increasing astronomically annually. It took N2 trillion in 2022, rising to N3.6 trillion in 2023. Despite its withdrawal from last year, it is estimated to gulp N5.4 trillion by the end of the year.

Meanwhile, many Nigerians know that most of the funds are lost to corruption, official inefficiencies, and massive smuggling across the border. Yet, these resources need to be freed to provide the critical infrastructure required to develop and grow the economy for the betterment of the country and its people. The challenge, as Chinyere Almona, director-general of the Lagos Chamber of Commerce and Industry, puts it, is that “Balancing the need for fiscal responsibility with the economic impact on citizens is a complex task for the government.”

So, it’s for President Tinubu, the choice between the devil and the deep blue sea. Which one has he chosen now?

Adebiyi is the media assistant to the Minister of Budget and Economic Planning, Senator Abubakar Bagudu