Sometime in 2020, the Group Managing Director of the Nigerian National Petroleum Corporation, Mallam Mele Kyari, announced that subsidy on petrol had been removed.
This was followed up by a statement by the Minister of State for Petroleum Resources, Timpre Sylva, stating that President Muhammadu Buhari, had approved something akin to total removal of subsidy on petrol. Before then, prices of diesel and kerosene had been deregulated. The announcement of the removal also came on the heels of government’s efforts to borrow funds from the International Monetary Fund and the World Bank and one of their conditions to grant the loan requests was subsidy removal.
Also, the announcement of the removal came at a time when oil prices were very low and thus there were slight increases and even one or two reductions in petrol pump prices. However, industry watchers had already predicted that the big test for the policy would come when oil prices start to rise again. And the time of slightly high oil prices is here. With the pervasive weakness of the naira against the dollar and galloping inflation and no social cushion for millions of poor and vulnerable Nigerians against sudden rise in other commodity prices that frequent rise in petrol prices always triggers, it is expected that there would be stiff resistance against further increases.
Thus, as the oil price hit $60 and the landing cost of petrol also goes up, the government through the Nigerian National Petroleum has been finding it difficult to increase the ex-depot price of petrol that is reflective of the current market realities because of the backlash that may come. However, we support that the downstream subsector of the oil industry should be deregulated as there is the surest way to attract investments into the industry and to also substantial grow the crude refining sub-sector.
The real reason why subsidy removal is always stoutly resisted by labour and Nigerians is because the government has always been putting the cart before the horse. We believe that a massive investment in public transportation through a public-private partnership should have preceded the removal of subsidy. Such a huge intervention would have ensured that transport fares for the masses would not jump astronomically anytime fuel prices rise. It will ensure that there would be cheap transportation even when petrol prices are raised. There could even be some subsidy injected into mass transportation through the PPP arrangement which would be a tiny fraction of what would have been spent on subsidy.
Although, the issue of total deregulation of the downstream sector is long overdue and it is necessary, implementing it with a human face through reasonable social interventions is the only guarantee for its success and sustainability.