Experts call for review of fuel subsidy removal, NNPCL review and more

Energy and economic experts have called on President Bola Tinubu’s administration to reconsider its policy of removing fuel subsidies, adapting it to the current realities brought about by the reform.

They also stressed that change must start from the Nigerian National Petroleum Company (NNPCL) and other institutions so that the reforms being introduced by the current administration benefit the people, especially the downtrodden who suffer the most from these policies.

The experts also called for special attention to be paid to refining infrastructure to end Nigeria’s dependence on fuel imports and privatize other refineries while blocking revenue losses, thereby achieving financial liquidity and better management of the country’s resources.

They made the suggestions during the third quarter of the Policy and Governance Roundtable, themed “Nigeria and the Fuel Price Conundrum: Mitigating Risks to Macroeconomic Stability,” which took place over the weekend via Zoom.

In his speech, economist and development consultant, Prof. Muhammad Sagagi, lamented that the country had plunged into an even deeper economic crisis, an unprecedented cost of living crisis, while low-income earners and micro and small enterprises were disproportionately affected by the removal of fuel subsidies.

He admitted that when President Tinubu took power last year, Nigeria was already grappling with unprecedented and overwhelming problems, including very low economic growth, limited employment sector, widespread and intense poverty, price distortions caused by the exchange rate system and investor flight from the country.

Sagagi, however, stated that despite the conditions in which the president found himself, he was up to the task and started the reforms from the “Eagle Square” and justified his actions by saying that the subsidies were expensive and other arguments, but 16 months after the “implementation” of the policies and reforms in the economy, the country still has problems.

“Nigeria is one of the top 25 economies with high subsidy spending. It was estimated that in 2020 we paid about $18 billion in subsidies – for PMS, electricity and gas. Subsidy payout in Nigeria has ranged from N2 trillion in 2015 to a peak of about N4 trillion in 2022. Once subsidies are removed, it is the poor who are proportionally affected.

“The president has said that we will benefit greatly from the removal of fuel subsidies. There is also an argument that there will be a significant inflow of resources to the downstream sector of the oil industry, but what is even more devastating is that there are no or minimal risks because the poor do not benefit from subsidies.

“If you remove subsidies, the worst case scenario, there will be some increase in transport costs, but everything will be fine, especially if you invest. It will address the vulnerability of the poor, build infrastructure and education. So, those are the arguments and justifications. Of course, you cannot isolate one from other issues – other reforms like exchange rate harmonization. You cannot isolate the impact of removing subsidies from other reforms,” ​​he said.

According to the economics professor, Tinubu made serious mistakes in implementing his agenda because every reform has protocols and rules, the violation of which can lead to failure.

“I questioned the readiness of the agency that is implementing this reform, the NNPCL. You can see that in all the difficulties that Dangote has had to deal with – I said this at the beginning, the subsidy system is not a technical problem, it is a political one. Those who benefit from the status quo will do everything to make it fail. I doubt the commitment of this agency.”

Former head of the Federal Inland Revenue Service, Dr. Ifueko Okauru also stated that while it is important to change the way the NNPCL operates, the same dynamics must take place at the senior levels of management to address the country’s challenges beyond the oil sector.

“The issue of the NNPCL or where the change should start is not the NNPCL. Professor Sagagi implied that when he said the president should lead by example. Where we are now – the level of rot and disbelief – whatever we do has to start from the top, driving change,” she said.

Energy economist Dr Kelvin Emmanuel also blamed the oil crisis on NNPCL’s insincerity, calling for the company’s reform and implementation of other comprehensive measures to address the fuel pricing conundrum in the context of mitigating risks to macroeconomic stability.

In his intervention, the Special Adviser on Economic Affairs in the Office of the Vice President, Dr. Tope Fasua, said the involvement of the private sector in oil refining had created the foundation for the revamping of the sector, stressing that the benefits of the removal of fuel subsidies were already being felt in the country.

Fasua stressed the need for interventions to mitigate the effects of the removal of fuel subsidies, but warned that measures such as direct cash transfers should be replaced by investments in sectors such as agriculture and other production chains that will increase value addition.

The Chairman of the Roundtable, Prof. Babafemi Badejo noted that the Nigerian economy is heavily dependent on oil and to some extent gas and the removal of subsidies on these products is a long-standing issue that has affected all aspects of the economy, from inflation and the cost of living to government revenues, foreign reserves and fiscal policy-making.

“Of course, we should not forget the impact of all these factors on our exchange rates. The root of this problem lies in the delicate balance between how we as a nation cope with the volatility of global oil prices while mitigating the negative impact on our economy.

“We cannot exhaust this discussion without looking at the leadership deficit in this country, the corruption pandemic in our country and the management fraud in our oil sector. Generally, leaders in academia and politicians are misusing the word subsidy, giving the dog a bad name to hang it.

“Subsidies are used as a policy tool to protect citizens from volatile crises in specific sectors. The decision about which sector gets a subsidy and what depends on interests juggling in the game of power in society.

“While the Nigerian oil subsidy system offers short-term relief, it also comes with several challenges, the main ones being corruption, recklessness and callousness that has led to the most irresponsible management of resources at the expense of fellow Nigerians.

“In Nigeria, subsidies are primarily for the rich, by the rich and for the rich. The supplementary budget that President Bola Tinubu allocated for his plane should have been used for subsidies,” he added.