Petrol subsidy has been the most dominant economic issue in Nigeria’s political discourse for years. Despite widespread consensus that the policy was corruption-ridden, there was no way to end it, without incurring the wrath of a populace already burdened by multiple issues; epileptic electricity, insecurity, failing infrastructure, soaring inflation.
During his inauguration on May 29, 2023, Nigeria’s new President Bola Tinubu said the long-running petrol subsidy regime could no longer justify its ever-increasing costs in the face of dwindling resources.
He would instead invest the collosal amounts in public infrastructure, education, health care and jobs.
In his inaugural address, Tinubu emphatically said that “subsidy is gone”, a declaration that wasn’t in his prepared speech, but was followed by a long pause for emphasis.
It immediately sparked a debate if it was the right call at the right time. Tinubu faced criticism in some quarters for “veering off” the prepared text which pushed the same idea in a measured tone.
But Tinubu had been vehement during hus campaign, that subsidised petrol would become a thing of the past if he won.
In a meeting with the Nigerian Economic Summit Group in January 2023, he said subsidy had “outlived its shelflife” as a public good.
“We will neither subsidise neighboring countries’ fuel consumption nor allow a select few to reap windfall profits and hoard products.
“And the subsidy money will not be ‘saved’ because that means elimination from the economy. Instead, we will redirect the funds into public infrastructure, transportation, affordable housing, education and health, and strengthen the social safety net for the poorest of the poor, thus averting increased security challenges.”
His resolve to remove the controversial policy which has been part of national life since the 1970s was already made clear a month before in December 2022, when he stated that no form of protest will stop him from removing subsidy if elected.
“How can we be subsidising fuel consumption of Cameroon, of Niger, of Benin Republic? No matter how long you protest, we are going to remove subsidy.”
BACK STORY
Attempts by past Nigerian presidents to remove the money-guzzling petrol subsidy policy were met by overwhelming opposition from large swathes of the Nigerian public, including but not limited to organised trade unions.
Perhaps, the most striking example of this was in January 2012, when President Goodluck Jonathan’s attempt to do away with subsidy led to nationwide protests and a 10-day strike by labour unions.
The Jonathan administration had argued that removing the subsidies, estimated at $8bn a year, would allow the government spend money on badly needed public projects across Nigeria.
This couldn’t be actualised as the protests tagged ‘Occupy Nigeria’ paralysed activities in Africa’s most populous country.
The Jonathan administration beat a quick retreat.
Interestingly, Tinubu – who at the time was cobbling together an opposition movement that eventually took power at the centre – was one of the prominent voices that opposed the removal of subsidy.
That decision was soon to reveal itself as politically expedient; Jonathan’s successor as president, Muhammadu Buhari, the flgbearer of Tinubu’s opposition movement, indicated he would do away with subsidy.
In fact, he declared during campaigns in 2014 that subsidy was a scam that did not exist.
After becoming President in 2015, Buhari on numerous occasions, said subsidy payments couldn’t continue.
For example, during the presentation of the proposed 2023 budget to parliament in October 2022, Buhari said subsidy was no longer sustainable.
“Critical steps we are taking include immediate implementation of additional measures towards reducing the cost of governance and the discontinuation of fuel subsidy in 2023 as announced earlier,” he said.
Too little, too late as this was in the seventh year of his government which ended up spending trillions of naira in subsidy, with figures up to $26bn (N11.7trn) reported.
As at 2022, 74 per cent of Nigeria’s expenditure went to subsidy payments.
The Petroleum Industrial Act
Back in 2021, Buhari was praised for finally passing the Petroleum Industrial Act into law, a landmark peice of legislation which brought to a close a 20-year effort to reform Nigeria’s oil and gas sector, and which previous administrations failed to accomplish.
The PIA overhauled the regulation and governance of the oil and gas industry, including the commercialisation of the perennially loss-making state-owned oil company, the Nigerian National Petroleum Corporation (NNPC).
The law provided for total deregulation of the downstream sector, which implied the removal of subsidy and the enthronement of a free market regime for the sector.
However, in a request to the National Assembly in Feburary 2022, Buhari pushed for the amendment of the Petroleum Industry Act, requesting that the subsidy regime be extended from June 2022 to June 2023.
He cited the pains the removal of subsidy would cause poor and vulnerable Nigerians, effectively kicking the can down the road and saddling whoever was going to succeed him with the responsibility.
The Buhari government wrote to parliament to approve a supplementary budget of N2.55trn to fund subsidy till the end of the year.
But Mele Kyari, the Group Chief Executive Officer of what is now the Nigerian National Petroleum Company, said while money was budgeted by Nigeria’s federal government to pay for petrol subsidy, at no time since February 2022 did it pay the NNPC.
The NNPC bore the burden of payments, to the tune of N2.8trn.
MARKET-DETERMINED PRICING
Tinubu’s immediate removal of subsidy elicited instantaneous reactions from an agitated populace.
First was artificial scarcity precipitated by panic buying from those who wanted the products at the old price, then hoarding of products by filling stations not sure of what price they should sell at.
The impression had been given by the previous government that subsidy was paid for till the end of June.
But an immediate hike in prices was given official backing by the NNPC which set prices starting from N488 – varying according to location – after a meeting with Tinubu.
Nigerians had been taken by surprise. An overnight increase of 170% and more had become the new reality.
Explaining to ARISE NEWS how the NNPC came about the new prices, Kyari pointed out that although there was a N3.7 trillion provision in the country’s budget for subsidy, it had not been funded, as the country simply did not have the capacity to pay.
Kyari further said that the new pricing will completely crash cross-border smuggling of the product.
He reiterated that going forward, the price of petrol won’t be fixed but subject to constant changes in reaction to market forces.
LABOUR’S RESPONSE
After the increase in petrol prices came threats of a nationwide strike action by organised labour.
It was 2012 all over again, with the prospects of a total shutdown of activities, from teachers, to health workers to electricity unions… Only that it wasn’t.
From the onset, labour was hampered by a division in its ranks.
The Nigerian Labour Congress gave an ultimatum for the reversal of petrol prices or a strike action.
The Trade Union Congress decided to negotiate with government.
Following a court ruling restraining strikes until June 19, both bodies met with Tinubu’s representatives.
The TUC aaked for an increase in minumun wage from the current N30,000 to N200, 000 – an increase of 566%.
They also demanded a tax holiday for low-income employees, asked for petrol allowance, and a review of the National Health Insurance Scheme.
It asked government to visit the refineries currently undergoing rehabilitation and subsidise food items.
It demanded a reduction in the cost of governance, the immediate maintenance and expansion of road and rail networks, a Rent-to-Own System of social housing, anm reappraisal of the electricity situation in the country among other demands in a 19-Point list.
Quite noticeable – and notable – was the conciliatory tone from all parties at the end of the meeting, as was the fact that many of the demands were long-term in nature, meaning no ultimatum, no pressure on Tinubu’s government.
In addition, it is impracticable that the Tinubu administration will meet the most important short-term demand; a 566% increase in workers’ salaries.
Without doubt, savvy negotiating and a court order have staved off a citizen revolt and bought the Tinubu government time (till June 19 at least), despite a significant hike in the price of arguably, the country’s most life-impacting commodity.
In the meantime, Nigerians will have to make monumental adjustments in their daily lives as the effects of subsidy removal set in.
Tinubu has shown political dexterity by succesfully navigating a potential landmine. He will need more than that to combat a spike in transportation costs (which have doubled), food inflation, and a projected increase in crime – all repercussions of his Inauguration Day pronouncement.
Glamour Adah, Chioma Kalu, Ozioma Samuel-Ugwuezi
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