Only Market-determined Petrol Pricing Can Unlock Nigeria’s Potential

Niyi Akinsiju

In a re-enactment of public reaction every time the pump price of Premium Motor Spirit (PMS) increases, the Nigerian public space has been thrown into turmoil over the latest hike in price. The new prices range from N850 a litre at Nigeria National Petroleum Company Limited (NNPCL)—owned filling stations to N1,200 a litre at stations owned by independent marketers. This public reaction to a new petrol price regime has been the trend since 1988.

As always, the government is the culprit of the new price regime. The price interventionist policy was first conceived and implemented in 1973 to offer cheap petrol to the public due to an oil crisis in the aftermath of the Yom Kippur War.

That was when the Organisation of Arab Oil Exporting Countries, the precursor of the Oil Producing and Exporting Countries (OPEC), collectively embargoed the supply of crude oil to the United States of America and began a series of production cuts.

These cuts nearly quadrupled the oil price from $2.90 a barrel before the embargo to $11.65 in January 1974. The ensuing rise in oil prices sent shock waves worldwide, and the cost of petroleum products, especially the famous petrol brand, skyrocketed.

To lessen the impact of the petrol price increase on Nigerians, the government, under the leadership of Gen. Yakubu Gowon, announced the policy of subsidising petrol.  The subsidy is occasioned by fixing the product price, usually below the market price, and paying the difference between the market and the fixed price. Since that 1973 intervention, we have been stuck with the vagaries of subsidies.

Of course, many countries across the world initiated different subsidy mechanisms to the high petroleum products price increase. At that time, the Nigerian government’s subsidy intervention was rationalised by the enormous earnings from the crude oil price increase of more than 400 percent, which left the country more or less flush with petrol dollars. It was a convenient policy of simply giving a small proportion of the revenue to cushion the impact of the price increase.

General Olusegun Obasanjo, then Military Head of State, formalised the petroleum subsidy regime into law when he numbered it among products for which the government would be responsible for fixing their prices and for which they should not be sold above the fixed prices.

Again, this was a short-term measure to cushion the rising international oil price. It was intended as a temporary fiscal response to an oil price spike instigated by the actions of the Organization of the Petroleum Exporting Countries (OPEC).

It is, however, instructive to note that under the two principal protagonists of subsidy, the price of petrol recorded increments in response to emerging economic realities. Under Gowon, the price increased by 40 per cent from six kobo a litre to nine kobo a litre, while under Obasanjo, it skyrocketed by 70 per cent from nine kobo a litre to 15.3 kobo a litre.

Our argument is that subsidies were introduced into the Nigerian economic ecosystem as a consequence of the availability of fiscal resources. They were then a mechanism for a fairer redistribution of the country’s wealth among the populace in times of huge revenue earnings. When there is a downturn, the tendency is to halt their implementation because of the distortion inherent in their continued application.

But, as it were, the subsidy and we as a people have become economic Siamese twins. Every move by the government to stop its application since 1988 has been received with uproar and outrage despite the material changes in the economic dynamics that informed the policy in the first place. This latest furore over fuel price increase is typical of other times. The Nigeria Labour Congress (NLC) has taken its traditional front role and, as always, pointing fingers at the federal government for being responsible for the price increase.  However, as a body of analysts, we submit that all this trouble-mongering should stop.

Despite the common knowledge that fuel subsidies were excluded from the second half of the 2023 budget, about 73 percent of Nigerians interviewed in an opinion poll said they were dissatisfied with the removal.

Nonetheless, this does not detract from the fact that fuel subsidies have become Nigeria’s equivalent of an economic weapon of mass destruction. The narration often shows how subsidies have strangulated the Nigerian nation’s potential and burned up $30 billion that can be funnelled into other uses, such as infrastructure, health, and education.

In 2022, $10 billion was spent on fuel subsidies, representing 40 percent of the country’s revenue. The petrol supply scenario is exacerbated by the annual $28 billion taken from the critical foreign reserve to import fuel. This is in addition to the N1 trillion the country had to borrow to finance fuel subsidies in 2022.

A further examination of the subsidy regime shows that households in the bottom 40 percent of the income distribution account for less than three percent of fuel purchases at the pump. According to a survey, private firms, public transportation services, government agencies, and other businesses consume three-quarters of all fuel sold in Nigeria. Most vehicles used for carrying large numbers of people and goods are diesel-powered and already deregulated. Also, Household Kerosene, which people with low incomes mainly use, is no longer subsidised, meaning that people with low incomes are already, to a large extent, paying market prices for their fuel. This means the government mainly subsidises those who can afford fuel at the market rate.

So, whose interest is the NLC advancing? We are in a new era, aptly thematised as the Petroleum Industry Act (PIA) era. Regarding the subsidy regime, Section 5 (e) of the PIA 2021 empowers the NNPCL with the sole mandate to “Provide pricing and tariff frameworks for natural gas in midstream and downstream gas operations and petroleum products based on the fair market value of the applicable products.” Similarly, section 215 of the PIA also emphatically stated that the dynamics of market forces should determine the price of petroleum products for the NNPCL. These are the letters of the PIA, the law regulating the petroleum industry, not President Tinubu’s oft-referenced summary dismissal of the subsidy regime in his 29 May 2023 inauguration address. We find it surprising that the same people who want full adherence to the provisions of the PIA and clamour for it are the same individuals who want the president to subvert the law.

To avoid doubt, it will amount to a breach of the law for the president, government, or even any of its agencies to attempt to determine the price of locally processed fuel even when the Port Harcourt Refinery begins to roll out fuel whenever the first phase of the ongoing rehabilitation is concluded. It would still have to sell the product at a market-determined rate as a commercial entity. Anything other than that will amount to interference from the authorities and a return to subsidy, especially if the price has to be lower than the market rate.

We dare to submit that we subscribe to the doctrine and practice of a liberal free-market economy in which private capital and investments compete favourably to drive socio-economic development, as championed by President Tinubu. Surprisingly, the NLC is exhibiting a doomsday disposition in this matter. We therefore call on the NLC and, indeed, all Nigerians to eschew this traditional resistance to market-determined prices.

We assert that this pricing principle is the route to truly developing the country’s midstream and downstream sectors and, thereby, enabling Nigeria’s long-forgotten petrochemical industry, which is a major employer of labour and a veritable source of raw materials, to flourish. This is the larger extension of Nigeria’s growing potential to become the petroleum refining hub of the West African region.

If the NLC must protest, it should be concerned with driving this vision of making Nigeria the dominant refining hub in Africa, driven by the private sector.

The Labour movement should also be focused on compelling the Federal Government to speedily roll out the adoption of Compressed Natural Gas (CNG), an energy source that has been confirmed to be cleaner, vehicle-friendly, and way cheaper than petrol.

Meanwhile, without the NLC agitation, we are witnessing what the government is doing in the health sector with the National Health Workforce Policy to transform Nigeria’s healthcare and reintegrate diaspora professionals into the healthcare sector. We consider this a social revolution by its standing.

In connection with this and to the applause of the Nigeria Medical Association (NMA), the federal government has already started implementing the Medical Residency Training Fund, which is in full swing. This is enabled by savings made from scrapping fuel subsidies.

Our appeal to Labour and all Nigerians of good conscience is to actively engage the government in channelling resources that would have been funnelled into the ruinous subsidy to developing the health and educational sectors and providing functional infrastructure that makes businesses grow.

Difficult as it appears at this moment, only market-determined petrol pricing can unlock the true but latent potential, capacity, and capabilities of the Nigerian nation and its people.

 Akinsiju is the Chairman, Independent Media and Policy Initiatives