The removal of Oil Subsidy in Nigeria has always been a tough decision for every administration to take. In 2012, The Goodluck Jonathan Administration removed oil subsidy, this action sparked a nationwide protest, calling for the return of the oil subsidy especially as the price of fuel in the country subsequently went up, there by increasing the cost of every commodity in the country.
It’s however possible to realize that most people do not realize what fuel subsidy entails. Fuel subsidy in its simplest explanation means that a fraction of the price that consumers are supposed to pay to enjoy the use of petroleum products such as fuel, is then paid by government in a bid to ease the price burden on the buyers or consumers.
Let’s give a practical example on how Fuel Subsidy works in Nigeria;
Nigeria is an Oil producing country, however we do not have the resources needed to process the raw crude oil into finished products like, fuel. So the raw crude oil is now exported for refining.
When this refined crude oil which has now become fuel is being imported back to the country, it comes with a price, a price which is determined by the global index.
Now assuming the total open cost of fuel is 300 naira, the government’s part in paying for subsidy now slashes the price to 150 naira. Evidently while Nigerians enjoy fuel at the cost of 150 naira, the government pays the remaining 150 naira.
This arrangement has been a long standing structure between the Nigeria government and it’s citizen, the payment of fuel subsidy by the Nigeria Government has always been a benevolent gesture of the government done with a vision of alleviating the burden on Nigerians. If Nigerians resort to paying for the original cost of fuel, this will impoverish the populace in the country, the cost of every other commodity evidently sky rockets.
However it has become obvious that corruption has threatened the continuance of fuel subsidy in Nigeria. Overtime high level officers in the government and other top officials who oversee the subsidy arrangements have been faulted for siphoning and embezzling the subsidy paid by the government.
Independent Marketers have also been blamed for being corrupt, and exploiting the government, how do they do this, let’s paint a picture for you.
Following the deregulation of the oil sector, the Federal Government isn’t the main supplier of Petroleum Products in the country, encouraging private sector to takeover the role of supplying Petroleum Products in the country.
If these petroleum products which already have their subsidy paid for by the government, is made available to these private individuals and companies, they monopolize the market, setting prices on their free will, thereby making enormous profits. By implication, if the landing cost of fuel is 300naira, Government does it’s duties by paying for the subsidy bringing the price to 150naira, this should then bring the price at 150naira/liter for Nigerians to enjoy.
However, these private markets further increase the prices they sell, so rather than sell at N150/liter, they may then sell at 170/litre so as to make profit. Evidently while the government is paying billions in subsidy to make fuel affordable for Nigerians, private marketers and companies receive the commodity at a subsidized rate and then sell at a high rate, begging the question, What’s the essence of Federal Government paying for subsidy.
This explains why in times of fuel scarcity only Federal Government owned companies such as Nigerian National Petroleum Corporation (NNPC) sell at a subsidized price, hence causing enormous queue at NNPC stations all over the country.
Also with the Deregulation, some top privately owned companies are in the position of exporting petroleum products to nearby countries. After receiving subsidized prices of petroleum products, these companies now export the petroleum products at a price they choose, technically robbing the federal government.
The Federal Government has spent trillions of naira paying for fuel subsidy, yet the availability and affordability of fuel in the country, yet there is arguably no tangible improvement in affordability of fuel in the country.
There are recent moves to remove the payment of oil subsidy by the President Muhammadu Buhari Administration. The Federal Government spends around N34 billion everyday on the payment of oil subsidy, funds which will be better invested in other sectors of the country.
The removal of oil subsidy will not imply that the Federal government will relegate full control to private marketers, rather with the removal of fuel subsidy, the government would leave the procurement and price determination to market forces. The Government will now play a regulatory role of enforcing price regulations, ensuring that Nigerians do not have to pay exuberant prices for fuel in the country.
This move will help in putting an end to the endemic corruption that has plagued the fuel subsidy scheme in Nigeria, saving billions of naira for the Federal government.