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The Positives Of Oil Subsidy Removal In Nigeria

November 28, 2011

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.

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.

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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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