The Positives Of Oil Subsidy Removal In Nigeria

By Tijani Oluwamayowa

Since the days of one of Nigeria’s foremost President, Chief Olusegun Obasanjo, everything in me has always been against removal of oil subsidy. Obasanjo increased price of petroleum products seven perfect times during his about 12 years reign, with the last being 24hours before his exit of the Aso Villa after a failed third term bill.

This story therefore began to change, when I saw that the only ones I trusted in the upper strata of our government were in support of this removal.

In the year 1986, General Ibrahim Badamosi Babangida proposed to increase fuel price which saliently meant removal of oil subsidy. The students of University of Jos rose in their might against the IBB administration’s proposal. This group of students was led by Mr. Labaran Maku who is presently the minister of information and National Orientation. Same Labaran, came forward recently to say this removal is long overdue.

Some replied to Labaran’s case as that of the dynamics of human nature, how easy it is for us to change. But from my own end, I decided to give Labaran a benefit of doubt hoping he has now seen the things he did not see then. This made the pathway for me into this pertinent issue. Come with me as we see if removal of oil subsidy is really long overdue.

Nigeria’s first refinery was built in the 1960s outskirt of Port Harcourt. By 1965, the refinery started functioning, producing 38,000 barrels of oil per day. In subsequent years, 3 other refineries were built to meet the domestic needs of Nigeria. Just like the “Prophet of Doom”, Thomas Malthus said, the population of Nigeria was increasing geometrically and the oil sector became unable to meet our pressing petroleum needs. Then importation began.

Nigerian National Petroleum Corporation (NNPC) started to import fuel at a price most time higher than the Nigerian market price and sometime lower. In order not to operate a fluctuating economy, subsidy was applied to stabilize the economy. Sooner than later, NNPC could not keep up with the high price of petroleum product in the international market, then she began to borrow to pay subsidy. Before any one could say Babangida, Nigeria already found herself in massive debt.

This went on to haunt our oil dependent economy from then till now and will keep haunting it if we fail to hunt it. Now it had become almost impossible to remove it as the Labour union will be quick to remind the government and those in support about how oil is our birthright and compare us to oil producing countries like Libya and Venezuela.

A military government in Nigeria rose to the challenge with a sword in her hand. This government, decided that petrol will be subsidized for commercial vehicles and be unsubsidized for private owned vehicle. This semi-subsidy idea also failed, in fact woefully.

Briefly, I would like to tell a non-fictional story of three countries enjoying fuel subsidy. The first country being Libya, In Libya, the pump price of petrol is about N16 per litre, with the global price being N156 per litre. This is an amazing N140 subsidy if the fuel was imported, yet Libya, under a Dictator was the country with the highest human development index in Africa, still Libya had no external debt. The second country is Egypt, a non-oil producing state. Pump price in Egypt is about N47 per litre, with great social economic packages. The most amazing of all of these countries is the third, which is Venezuela. Venezuela has the lowest pump price in the world; this is about N5 per litre (N151 variance from global price). Yet, she enjoys fantastic social economic programs which include; free education to university level, free medical services for all. Recently, 17 new Universities were established and absolutely free. In Venezuela, people rarely go to Hospitals; rather Doctors come to their houses to treat them absolutely free.

If these countries claim to be enjoying fuel subsidy, can we claim likewise? In a country where price of petrol is N65, N18 more than a non-oil producing state like Egypt. In a country where Medical services and education are far from free. In a country where “epileptic”, is the watchword of electricity.
Since the presence of subsidy has done us little or no good, should we not consider its removal and enjoy the benefits thereof?

Have you ever wondered why Nigerian Moneybags like Aliko Dangote, Femi Oteddola and Jim Ovia have decided not to invest in the importation of black gold, despite its influence on our economy? The answer is simple; all of them are profit oriented businessmen. All they do is sell to the populace what the government (NNPC) imported.
Have you ever wondered why we have not had more than 4 refineries for donkey years, despite license to individuals? The answer is simple, no one wants to lose.
 
The logic is simple, if any private company comes into this sector and produces at international market price of N156 and sells in an economy were government fuel is N65, the company will have infinitesimal or no buyer at all, no matter the quality of the fuel produced. Subsequent to all this, the only choice we are left with is the removal of oil subsidy. This removal will pave the way for the following good.

If oil subsidy is removed, Natural monopoly (by the NNPC) will automatically be destroyed, giving room for private companies and thus competition. Just as it was in the days of NITEL (Nigerian Telecommunications), before the telecommunication sector was deregulated and the door was opened to private investors and thus a revolutionary good to the Nigerian economy. Just as it was then, when new companies flood in there will be an increase in price, SIM cards then were as high as N50, 000. In the face of competition, this dropped as low as N100. Same will be the case for oil, when the subsidy is removed, petrol may sell as high as N160 per litre, but when competition comes in it will drop to the barest minimum, possibly lower than N65 per litre.
The amount the Government pay on subsidy can be channeled to meeting social needs like free and quality health care and education for all. This is therefore a right step in the right direction, and is capable of helping Nigeria achieve her vision 202020.

It’s no news that the Nigerian oil sector loses 40% of her oil produce annually to the mis-managing hands of flaring. Flaring causes pollution and subsequently the depletion of the ozone layer. If the sector is deregulated and subsidy is removed, flaring will drop drastically as no company will want to lose that much.
When the price of petroleum product sky rockets within the first 6-12months after the removal of subsidy, Nigerians will look elsewhere for generation of Fuel. This will lead to the development of alternate power supply. This can help the solar energy sector thrive better. Also, it can help the coal industry find her foot in the Nigerian Market.

Retrenchment is inevitable in cases of deregulation on the short run, but on the long run employment opportunities will be nearly unlimited. A good example is that of telecommunications, when the sector was deregulated, the staff of NITEL lost their jobs in hundreds. But in no time, jobs were all over in MTN, GLO, ZAIN, ETISALAT, VISAFONE and about 16 other companies in thousands. The case will be identical for the downstream oil sector.

The recently launched GLO 1 cable had made indigenous telecommunication company, Globacom, capable of selling bandwidth to international companies. The same would be the case in the Petroleum industry if deregulated.

Removal of Fuel subsidy is a hard one to sell; this is due to the fact that we, the masses are not ready to look the other way on this issue. The removal of oil subsidy, if properly done has inexhaustible benefits.Removal of subsidy from black gold in Nigeria is an awful tasting medicine, but the Nigerian patient is in dire need of it.

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Hmmmm,Nigerians where are we going?

We know that fuel subsidy removal is good on the long run,but what about the short and everlasting effect on the poor masses?is fuel subsidy surposed to be the next thing?when which both the poor and the rich people are enjoying.Now tell me what will be the hope of the poor people or the masses?instead of doing that,why cann't federal government revive even if it is one refinery in nigeria?mr president should know that he is responsible to the masses and be very thougthful before doing anything that will affect the masses.

what you said is right,but i

what you said is right,but i just want you to consider something that sucessiveness begins with roughness.so therefore we the masses have to accept that fact and live everything to GOD to handle.

OIL SUBSIDY

NIGERIANS SHOULD BE PATIENT AND SHOULD PLEASE RESPECT THE VIEWS OF THE GOVT,OIL SUBSIDY REMOVAL IS SO BENEFICIAL TO THE ECONOMY OF NIGERIA

yes,i believe that the

yes,i believe that the removal of oil subsidy is an awful tasting drug in tongue of nigerians but a sweet one in the belly,what the govt need is patience from the masses

Can you please explain how

Can you please explain how this deregulation of the oil sector would have a positive and negative effect on the educational sector in Nigeria

NOT YET TIME FOR THE REMOVAL OF SUBSIDY.

Yes,removal of oil subsidy might help in so many ways but what we are all saying is that,its not yet time for it,cause at this time there are lot of things going on in the country mainly like the issue of insecurity,everything that has to be done should be in steps and stages,even though subsidy removal would lessen the rate of corruption but not at this time when there is no security in the country,the removal at this time is not okay,this issue of subsidy removal has not been agreed to by the national house of assembly and this removal was announced just like that,what right does the president have to do such a thing?, part of undisciplined attitude of a leader i think,let's forget about the past.
All this people who call themselves presidents,is oil subsidy the only problem Nigeria is facing?,I guess NO. Let them do other better things that would help the growth of the country and Mr. Mayowa has Jonathan been asked,what are his plans for the country after this subsidy removal?

Fuel subsidy removal

Enlightening article Mr. Tijani...but you failed to tell us why stakeholders where left out of the decision making process...i thought we were in a democratic govt...?

Fuel subsidy removal

Enlightening Mr. Tijani...

i support the removal of oil

i support the removal of oil subsidy. but the government has to use the money for what it has promised.

No to subsidy removal

My question is are u supporting d government or Nigerian's the way u are talk or what?

My question is are u

My question is are u supporting d government or Nigerian's the way u are talk or what?

simple!

simple!

Nigeria only have one way out

This oil subsidy of a thing can never be removed simply because it is not worth removing.If oil subsidy was to be removed it would have been in the time of the military reign because they will not take it easy at all and nobody will question them for this or will dare it to tell someone in power that this is the right thing to do. My fellow Nigerians please do not let us argue about this oil subsidy of a thing only if you know another way out thank you.

neutrality

You can't compare the downstream sector with the telecom sector for a lot of reason. Firstly it involves a very huge amount of capital base far more than the telecom sector. Secondly it involves a lot of spill over effect than any sector in nigeria. Thirdly the issue of BOKO HARAM,MEND etc are to be considered in the deregulation process. Fourthly as we know the aim of every capitalist is profit maximization,so all there will do is to make abnormal profit. Also we know that the power sector is down and its the product of the downstream sector that power the whole nation deregulating the downstream sector is like we are deregulating the whole nation and putting it in the hands of private individual who will control the nigeria economy. To mention but a few are the point above. Also I will like to know whether nigeria is a capitalist or socialist nation. We should know where we stand

removal of subsidy

removal of subsidy a plan by government to inflict pain to the her tax paying citizens .
this same sermon was preached to us when they introduced Structural Adjustment Programme(SAP) can we today trace any thing the country denefited from SAP.
This people can not be trusted
for me it is time we look towards the the 100 years of our almalgametion and call for a refredum that will bring the end of the amalgamation agreement.

Comt

You have done well, but nigeria leaders are not trust worthy@all. The are destiny killers. Agreed with u, do they mention the names of people who are eating subsidy, they are rougs but the word of the Lord says in the book of zech; that curse of the Lord is in house of thieves. Thanx

i second ur opinion.

i second ur opinion.

Well done

Your reply was a good one.

The way forward

Most nigerian knows that removal of oil subsidy will pave way to some development but the government are not trusted, corruption has really eat deep into our system and i think is only the almighty God who reverse the menace. Well i pray all should be well. Tanx

I really wish,the movers and

I really wish,the movers and shakers of this countries will see this article,this is wonderful.

SUBSIDIES

cont,...subsidies are just generally inefficient. Subsidies are in essence payments by the government to keep an ineffective firm in business, or, in other words, payments for no goods produced or services provided (such as subsidies for farmers). Moreover, these payments cannot be even taken into account when calculating the total GDP (=total "welfare") of Nigeria
WISHING THE GOVT AND EVERY NIGERIAN BEST OF LUCK IN THIS LIFE CHANGING PUBLIC POLICY.......

subsidies

CONT,........check the Cost of Oil Subsidies that the Govt spent they are expensive, sucking in public money that might be better used on, say, health care or education saying that again.
Ending subsidies will save tens of billions of NAIRA.
I believe that Unsubsidized oil giants need not raise prices but can lower their profits. Some supporters of subsidies argue that oil prices would increase if subsidies are eliminated. But, they needn't. Instead, oil companies could easily absorb the lack of subsidies by decreasing their obscene profit margins.

SUBSIDIES

Mr. Tijani has a point so do everyone of us: (This issue of subsidy removal is not about what is emmotionaly feels right but what is rationally correct. not thinking with your mouth or stomach but you brain)
Subsidies don't decrease oil prices; it don't help poor. Giving subsidies to oil companies do not lower global oil prices. any governments that say they must shield the poor from high energy prices and worry that eliminating subsidies might lead to inflation at a time when prices are rising broadly. These subsidies are misguided and mainly benefit the well-off, who own big cars and fly in jets, as well as energy-intensive industries, which are not usually those that create most jobs so why give it? is these subsidies not better spent on education, health care, etc.

TAKE HEART OTILE!

NO DOUBT OUR NORTHERN BROTHERS HAVE DONE A LOT OF DAMAGE TO NIGERIA, BUT NOT ALL OF THEM ARE GUILTY OF MISMANAGEMENT. FOR EXAMPLE BEFORE WE "built a first class refinery in arid Niger Republic" OUR PATRIOTIC LEADER, BUHARI BUILT THREE OUT OF THE FOUR GROUNDED REFINERIES THAT EXIST TODAY. THE FIRST TWO HE BUILT AS A MINISTER, THE THIRD ONE WAS COMPLETED BY YOUR BROTHER TAMUNO ANOTHER ESTUTE GENTLEMAN. SINCE THE LAST REFINERY IN THE 80'S WE ARE STILL WAITING FOR ANOTHER BRAVE AND VISIONARY LEADER THAT WILL BUILD ANOTHER ONE. I AM VERY HOPEFUL THAT JONATHAN WILL BE THE ONE TO BUILD A NEW REFINERY. HE IS SELFLESS AND PATRIOTIC, HE WILL PREFER WE REFINE OUR CRUDE AND GIVE OUR YOUTH EMPLOYMENT RATHER THAN THE PRESENT EXPENSIVE, UNJUSTIFIABLE, INHUMAN IMPORTATION. SO TAKE HEART OTILE THE SOLUTION IS NIGH.

Great !

Good talk. Nigerians are afraid of short-term effects the impending change oil subsidy removal will bring. You must not be afraid of dark cloud if you expect rain to water your farm land for great harvest.I stand for removal of oil subsidy 100%.

Bravo

Who is crucifying him!
Whichever terms he uses to express himself as touching subsidy removal, is none of ur bizness. D most important tin is that he has said his mind. Say ur own rather than condemn such a betiful outline. My man carry go, i'm in full support of the fuel subsidy removal, if GEJ can achieve this 4 me b4 Boko paralyzes his transformation agenda finally, i will be grateful to God.
Nigerians, pls, support this move, for u will be glad u did.
God bless Nigeria

This is the most useless

This is the most useless article I have read in a long while, full of contradictions. When Obasanjo increased pump price of fuel, the reason they gave then was the same reason the current administration is using to sell the subsidy removal nonsense. Obasanjo Promised Palliatives to Cushion the effect which we did not see before his tenure ended. Now GEJ is promising us of safety net to help the poor and use the saved money to build infrastructure. What happened to the money Obasanjo saved? why didn't they use it to improve infrastructure? How are we sure the safety-net will not turn out to be another empty promise. If they could not use the Billions of Dollars Obasanjo left to develop Nigeria, I doubt they will be able to do that with the Subsidy removal. It will end the way of others. There is no need to add more to the suffering of the masses of this country with this fuel subsidy removal nonsense.

What???

Hey Tijani,
You need to quit whatever you are smoking... Au revoir!

OMG, brain-dead!

The funny thing about this write-up is that this Tijani guy thinks he knows economics and knows how to draw parallels of events and policies. Analyzing his article shows clearly that his knowledge depth is very shallow. How can he be comparing the telecom sector with the oil sector?

Tijani, let me advise you. You need to write another article that addresses why the 3 refineries and 1 petrochemical plants we have in Nigeria are practically not functioning? You also need to write another article that asks the question why the "our imported most brilliant" madam economist and her oga GEJ are not proposing to us Nigerians to build new refineries? Or does someone need to educate you that the reason for subsidy in the first place is due to the fact that the refineries can not meet up to the local demand of refined petroleum products?

IBRAHIM SAAD, Ibrahim don’t

IBRAHIM SAAD,
Ibrahim don’t do this to us. Don’t show us that ad again. It hurts. It is renewing our old wounds. It reminds us that for almost 50 years Lukman and Ciroma embezzled our money. They could have built a few working refineries, and by now we would not be in this mess. By telling us that your people have built a first class refinery in arid Niger Republic you are not doing us any favor at all. You are rubbing it in. What you are doing to us is like sleeping with a man’s wife and immediately showing him your wet dick.