Fuel Subsidy Removal: Posers About $800M Palliative, Labour’s Next Move as Nigerians Brace for Higher Inflation  

Thu Jun 1st, 2023 -

• FG, Labour talks deadlocked
• Alake: Consultations adjourned to later date
• APC governors back Tinubu
• Logistics, palliative framework missing • NMDPRA silent on grey areas
• NECA cautions govt, says approach could trigger fresh economic crisis
• Your aides speaking in discordant tunes, be transparent with Nigerians, Farounbi tells Tinubu

Less than 24 hours after President Bola Tinubu insisted that subsidy removal was not immediate, the Nigerian National Petroleum Company Limited (NNPCL), yesterday, hiked the pump price of Premium Motor Spirit (PMS) over N500 per litre.

However, price-fixing seems to have taken the backdrop of the subsidy removal, reflecting the monopolistic state of the market.

While NNPC has been the sole importer and administrator of the government subsidy, most marketers, especially the Independent Petroleum Marketers Association of Nigeria (IPMAN) as of press time had no knowledge of the exact ex-depot price of the product.

Expectedly, the Nigeria Labour Congress (NLC) has called on the Federal Government to immediately instruct NNPC to withdraw what it called a vexatious fuel-pricing template to allow the free flow of discussions by the parties.

In a swift reaction, NLC President, Joe Ajaero, described NNPC’s latest move as unfortunate. He accused the company of ignoring ongoing meetings on the issues. He said the release of the template might not allow Congress to continue consultations with stakeholders if nothing was done to withdraw it.

According to him, it was clear that the government is trying to scuttle the process. He said the move was an ambush and runs against the spirit and principles of social dialogue, which remained the best platform available for the resolution of all issues arising from the downstream sector.

He said the government could not in one breath be talking about deregulation and at the same time fixing the prices of petroleum products.
Indeed, the meeting last night between labour leaders and Permanent Secretaries of key ministries appeared to have ended in a deadlock. The Bola Tinubu administration, which was sworn in on Monday is yet to form its cabinet.

The meeting to prevent negative reaction to the upward review of petrol price last night ended in a stalemate. The Labour leaders asked the government to return to the status quo.

Leadership of the NLC and the Trade Union Congress of Nigeria (TUC) met representatives of the Federal Government at the Conference Hall of the office of the Chief of Staff, Presidential Villa, Abuja. The organised labour was led by the NLC President, Joe Ajaero and his TUC counterpart, Festus Osifo.

Former NLC President and immediate past governor of Edo State, Adams Oshiomhole; the Permanent Secretary, State House, Tijjani Umar; the Head of Service of the Federation, Dr Folasade Yemi-Esan and the Group Chief Executive Officer of the NNPCL, Mele Kyari were present.

The meeting, which is to find ways of a soft landing on the issue did not arrive at any resolutions, as it was adjourned to a later date.
Dele Alake, who briefed newsmen on behalf of the government, said: “We have been deliberating on finding very amicable solutions to the issue at hand, to the queue and all of that and the increase in pump price.

“We had a very robust engagement. We cross-fertilised ideas, ideas flew from all sides and there is one thing that is remarkable even from the Labour side, and that is Nigeria. We are all looking at the peace, progress and stability of Nigeria. That is what is paramount.

“Of course the NNPCL CEO is here, we cannot go into details now because the talks are still ongoing. We cannot finish everything at one setting, so we have adjourned now, we are continuing the talks at a later date very shortly.”

Group Managing Director, Nigerian National Petroleum Company Limited, Mele Kyari (left); Chief Executive, NMS/DSPR Authority, Farouk Ahmed; Mr. Dele Alake; former NLC President, Adams Oshiomhole and Governor, Central Bank of Nigeria, Godwin Emefiele during a press briefing shortly after a meeting of NLC/TUC and Federal Government over subsidy removal at the Presidential Villa, Abuja. PHOTOS: PHILIP OJISUA

However, members of the Progressives Governors’ Forum (PGF) last night rose from a meeting to throw their weight behind the decision by President Tinubu to remove fuel subsidy.

PGF chairman and governor of Imo State, Hope Uzodinma, who spoke to reporters at the end of a closed-door parley with the Abdullahi Adamu-led National Working Committee (NWC) in Abuja, remarked that the decision was in tandem with Tinubu’s campaign promises.

He expressed optimism that the new administration would come up with palliatives that would cushion the effect associated with the removal of fuel subsidies.

He said: “All the presidential candidates during the campaigns all promised that they will remove fuel subsidy. The incumbent government before he left made us know that fuel subsidy is no longer sustainable.

“What we are talking about now is the implementation process. We hope to implement the programme in a manner that it will not be too hard on the people. And I think the government is working on it.

“I have confidence in the ability of the current president to navigate through the waters and make decisions that will be in the best interest of our people and the country as a nation.”

Governors of the ruling All Progressives Congress (APC) in attendance at the meeting included Hope Uzodinma (Imo), Mai Mala Buni (Yobe), Yahaya Bello (Kogi), Abduallahi Sule (Nasarawa), Mohammed Bago (Niger), Uba Sani (Kaduna), Inuwa Yahaya (Gombe), Nasir Idris (Kebbi) and Dapo Abiodum (Ogun).

Most industry experts could not explain how the deregulated downstream market would run going forward. Information from NNPC and other relevant agencies is also scanty.

A pricing template released by NNPCL for end-users shows that the pump price would now sell for N488 per litre in Lagos, being the cheapest, and peak at N557 per litre in some parts of the northern region.

The national oil company in a release confirmed the price adjustment, stressing that the development was in line with current market realities.

“As we strive to provide you the quality service we are known for, it is pertinent to note that prices will continue to fluctuate to reflect market dynamics,” the company said, in a statement signed by its Chief Corporate Communications Officer, Garba Deen Muhammad.

Going by initial plans, critical stakeholders’ engagement would precede subsidy removal to enable labour unions, the public and most importantly the industry players to have a clear picture of the implementation of subsidy removal and the deregulation of the downstream segment of the nation’s petroleum industry.

Vice President, IPMAN, Abubakar Shettima, was unclear if his members would have to source foreign exchange (FX) to import products while admitting that although tankers are lined up at the depot in Lagos to load products, the ex-depot price had not been communicated.

Instead of market forces to determine the price, the pricing template announced by NNPC points to a continuation of price setting, monopoly and usurping of the power of the Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA), which is being interpreted as anti-deregulation.

There was also concern about the need for the government to clarify the status of $800 million borrowed by the former administration for palliative purposes.

As the controversy rages, NMDPRA has remained silent on its roles as the regulatory body saddled with the responsibility of regulating activities in the downstream sub-sector of the Nigerian economy.

Section 206 (2) of the Petroleum Industry Act (PIA), reads: “The authority shall have the power to monitor the bulk sale of petroleum products and may publish market-based prices to ensure that the transactions in a manner that transfer pricing between the supplier & wholesale customer are undertaken at transparent arms-length basis.”

President, Nigeria Labour Congress (NLC), Joe Ajaero (middle) during a press briefing shortly after the Federal Government’s meeting with NLC/TUC over subsidy removal at the Presidential Villa, Abuja.

Also, Section 205 (1) of the Petroleum Industry Act 2021 says: “Subject to the provisions of this section, wholesale and retail prices of petroleum products shall be based on unrestricted free market pricing conditions.”

Industry players insisted that the masses are being short-changed, stressing that the current subsidy regime was meant to end by the end of June, which is still a month away.

Recall that the aide on Media and Communications to the former Minister of Finance, Budget and National Planning, Yunusa Tanko Abdullahi, had said: “By the principles and letters of the 2023 Appropriation Act and the PIA laws, there is no provision for subsidy after June 2023”. Also, the N3.6 trillion allocated to the social scheme is expected to cover the first half of the year as detailed in the 2023 Appropriation Law.

Former chairman of the Major Oil Marketers Association of Nigeria (Moman), Tunji Oyebanji, had earlier said marketers were currently in the dark as to how the Federal Government intended to manage the imminent deregulated market and the foreign exchange crisis.

“We are saying that there has to be a very clear roadmap so that all stakeholders can be carried along. For me, this is very critical.
“For example, at this point, we will remove subsidies, will other products be imported? We can’t wait until the day subsidy will be removed before we know. If they are importing we need to have placed an order. If NNPC will be importing, we need to know. Everyone needs to be on the same page,” Oyebanji said.

An expert in energy economics at the University of Ibadan, Prof. Adeola Adenikinju, told The Guardian, yesterday, that the increase in prices would create short-run discomforts for millions of Nigerians.

“However, in the medium term, we should expect new investments flowing into the sector to create new refineries, depots, etc. That will create jobs and revenues for the government,” Adenikinju said.

He added that like the situation was with the liberalisation of telecommunications in 2002, the prices would go down as new investors come into the sector.

An oil and gas governance expert, Dauda Garuba, said while the deregulation was long overdue, “especially as subsidy only works in the cities and for a few fat cats that feed on it,” the template remained unclear.

“What is however abnormal about the deregulation is that it is coming less than a month we have all set our minds on. NNPC Limited is technically the sole importer of petrol to Nigeria; I do not see its business fixing the price of petroleum products.
“Its filling stations should be among the ones to be regulated by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA),” Garuba said.

Garuba added that the decision would be very painful for the majority of Nigerians, especially for small and medium-scale businesses because petrol touches everything in Nigeria.

Considering that Nigeria’s minimum wage is about N30,000, which could only buy about 60 litre of PMS that would be used up within a week by a salon car driven by a civil servant, who covers an average of 40 kilometres to and from work daily, an energy expert, Ademola Adigun, said the current situation would increase the demand for salary increase.

“There will be inflation. There will be agitation for salary increase. There will be fresh negotiations with labour unions. But the biggest challenge, for me, is why we need to set prices when it is a deregulated market. The market should determine the price.
“Manufacturing is diesel-based. The direct effect might be minimal, but other supporting factors also arise. There will be pressure on salaries and wages, as well as demands and agitation by private sector workers. I expect trade unions to give notice of a strike. It is going to be tough on all of us in the short run. But we will survive as we adjust gradually,” he stated.

Adigun said the consumers must be protected from vulnerabilities, adding that the NMDPRA as well as the Consumers’ protection council must up their games.

He said the market would not thrive if NNPC has preference in terms of FX, adding that a level playing field is critical for all the operators.
Chief Executive Officer (CEO) of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said subsidy removal would unlock about N7 trillion into the federation account and reduce the fiscal deficit while easing the burden of mounting debt.

“Currently, it is extremely difficult to attract private investment into our petroleum downstream sector because of the unsustainable subsidy regime and the stifling regulatory environment.
“The subsidy removal will eliminate the distortions and stimulate investment. We would see more private investments in petroleum refineries, petrochemicals and fertilizers plants. Post-subsidy regime would also unlock investments in pipelines, storage facilities, transportation and retail outlets. We would see the export of refined petroleum products, petrochemicals and fertilizers as private capital comes into the space. Quality jobs will be created,” he said.

Yusuf said there must, however, be palliatives to be segmented into immediate, short term and medium-term deliverables.
He said: “Immediate and short-term options include wage review in public service, the introduction of subsidized public transportation schemes across the country and reduction in import duties on intermediate products for food-related production to moderate food inflation.

“In the medium to long-term, there should be accelerated efforts to upscale domestic refining capacity, driven by private investments; accelerated investments in rail transportation by the government to ease logistics of fuel distribution across the country as well as domestic freight costs,” he said.

Though the NMDPRA has pledged to grant licences to operators that are willing to import petrol, it has not resolved where the importer would source FX, whether from the parallel market or official window, which is subsidized by the Central Bank of Nigeria (CBN).

The Chief Executive Officer, Dairy Hills Limited, Kelvin Emmanuel observed that while the concerns about food and energy inflation are understandable, the impact of the deregulation policy would be immensely positive in the long run.

According to him, the deregulation policy will lead to a reduction in borrowings to pay subsidies, which would result in lower debt servicing and refinancing costs

He added that its impacts will also be positive on the monetary policy as lower pressure to borrow would translate into an increase in the government’s ability to restructure its debt.

A former President of the Trade Union Congress (TUC), Peter Esele, questioned the haste to do away with the scheme when the Finance Act spelt out the end of June as the timeline to transition.

Meanwhile, the Nigeria Employers’ Consultative Association (NECA) said poor handling of the issue could trigger a fresh crisis in the economy.
Director-General of NECA, Adewale-Smatt Oyerinde, said while it is desirable to remove the fuel subsidy, it was important that the removal was systematically and strategically done not to further impoverish Nigerians.

According to him, the economy would contract in terms of growth, as business activities would face serious backlash with aggregate consumption expected to fall.

“Consequently, any increase in price of fuel in the economy will rub-off negatively impact the cost of energy and transportation. This will trigger an increase in the cost of other sectors”, he added.

The Association of Senior Civil Servants of Nigeria (ASCSN) said the removal of subsidy and increase in fuel pump price would have a very negative impact on civil servants, considering that stagnated wages.

Meanwhile, an elder statesman and former Nigerian Ambassador to the Philippines, Dr. Yemi Farounbi, yesterday, urged President Tinubu and his team to harmonise their thoughts and be honest with Nigerians on the issue of fuel subsidy removal.

The veteran broadcaster said what the president’s media team was saying is different from what NNPC is doing.

He said it will also help if the true figures of the consumption per zone be given, adding that, that way Nigerians those who have been benefitting from the subsidy, what will be areas that will be affected by the subsidy withdrawal and therefore the areas that will need the palliative.

He said the Presidency may need to truthfully explain what will be the effect or impact of Dangote Refinery that will begin to supply the oil to be consumed by Nigeria on all these calculations.




source: Guardian