Fuel Subsidy Timeline and Lifetime

By Olalekan Badmus

In 1977, the Olusegun Obasanjo military government introduced a Price Control Act with an establishment of a Price Control Board at the federal level and a Price Control Committee in each states of the federation.

Specifically, Section 6 of the Price Control Act prohibits “any person to sell, agree to sell or offer to sell any or employ any other person, whether or not that other person is of full age, to sell any controlled commodity at a price which exceeds the control price”.

Oil is an international product and is always priced at international cost, whenever there is a significant increase in global oil prices, Nigerians will be required to pay more locally to consume energy. In essence, the price of energy is always determined by the price of oil in the global market.

Due to the worldwide increase in energy prices and the surging inflation at the time, the Olusegun Obasanjo’s led military government subsidized the price of fuel to Nigerians through the price control act by selling petrol to Nigerians at a price below the actual cost.

Several years and decades later, analysts have been divided over the sustainability of the subsidy regime. Some are of the opinion that it is inequitable to continue to subsidize fuel due to low number of vehicle owners while many argued that fuel is the only product that directly or indirectly affects the common man; even if you don’t own a vehicle, you still need one to transport from one place to another.

There has also been a strong argument to suggest that the fuel subsidy regime has been taken over by corruption with over 20 Trillion Naira spent on subsidy since it was introduced. With shrinking revenue and rising cost of government overhead and debts obligations, analysts have since clamored for an end to the subsidy regime.

Several administration has proposed and attempted to end the subsidy regime in the past. On 1st January 2012, then Nigerian President Goodluck Ebele Jonathan (GEJ) abruptly removed the fuel subsidy provided by the government to the citizens. The government promised that the removal would free up the much needed funds for infrastructure development thereby opening up the economy. It also argued that the subsidy is benefiting the wealthy who consume more fuel and those selling subsidized fuel outside the country.

The quick rise in prices of goods and services following the removal of subsidy and the low trust level between the citizens and the government spurred a nationwide resistance to the government’s decision to remove subsidy which increased price of fuel from 65 Naira/litre to 141 Naira/litre.

Nigerians took to the streets to protest against the government in major cities across the federation. The Nigerian Trades Union Congress (TUC) and the National Labor Congress (NLC) along with other unions joined in and began a nationwide strike action on 9th January 2012 referring to their action as “Occupy Nigeria”.

After much negotiation and demonstrations, on 16th January 2012, President Goodkuck Jonathan eventually bowed to pressure and returned the subsidy albeit partially by reducing the cost of fuel from 141 Naira to 97 Naira thereby bringing an end to the protest and industrial action across the country.

All seems to be well and good and on comes President Muhammadu Buhari in May 2015, a man who famously asked during the campaigns, “what is subsidy?”, suggesting that he do not believe it exists. Well, he will later find out if it does or not, for the next eight years of his presidency.

Unsurprisingly, the then Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) and the Minister of State for Petroleum, Dr Ibe Kachikwu in October 2015, barely 6 months into the administration of President Buhari, revealed that the President has assured that he will not be tempted to remove fuel subsidy until full measures are put in place to cushion the effect of such removal.

Kachikwu insisted that President Buhari will not entertain any talk to remove subsidy until necessary palliatives especially in health, education and transportation are put in place. Few months later, the NNPC GMD announced that President Buhari has given his approval for the removal of fuel subsidy in 2016, citing significant drop in oil prices from $60 per barrel to $35 thereby negating the need for subsidy payment.

In less than two years, the big elephant returned to the room as fuel subsidy was reintroduced amid growing suffering and surging poverty rate by the Nigerian citizens. Although, some analysts suggest that it may have had to do with the preparation of the Buhari’s led APC federal government for reelection in 2019.

This back and forth continues unabated with no clear hint of an end until October 2022, during the presentation of the proposed 2023 budget to the national assembly, in Abuja, where President Buhari had declared that subsidy was no longer sustainable considering the current fiscal impact. President Buhari announced that Subsidy will end by 2023.

He also noted that there would be alternative provisions to curb the effects of the petrol subsidy removal. This disclosure reiterated the announcement made by Zainab Ahmed, the Minister of Finance, Budget and National Planning. Specifically, Mrs. Ahmed said the federal government will stop payment of petrol subsidy by June 2023.

The finance minister said the subsidy regime was not sustainable, adding that it might force the government to increase borrowing in 2023. She argued that once approved by the National Assembly, the country will be incurring N3.35 Trillion on fuel subsidy from January to June 2023, instead of the projected N6.7 Trillion Naira for the full year 2023.

By that provision, it was envisaged that subsidy regime, which was being referred to Under-recovery by the Buhari’s administration will be coming to an end by June 2023. All stakeholders were looking forward to post subsidy regime as it has been established that the 2023 budget only catered for subsidy payment for the half year 2023.

By implication, the administration of President Buhari after several attempts had failed to remove the fuel subsidy for his entire eight years tenure. Although, the top three Presidential candidates in the February presidential election had committed to removing petrol subsidy, the emergence of President Tinubu as the winner of the election had raised many eyebrows.

Analysts were skeptical of the realization of this promise and rightly so. President Tinubu had promised to continue the legacy of President Buhari, whom they both share membership of the All Progressive Congress (APC), one of such legacies is expected to be continuation of fuel subsidy payment.

President Tinubu, during his inauguration on May 29, 2023 announced the end of payment of fuel subsidy. Without mincing words, the President declared that “Fuel Subsidy is gone”. It was as declarative as it was audacious.

In plain sight, the whole energy sector and indeed the entire country woke up to the new reality. Many Petroleum retail outlets immediately shut down their stations, some adjusted their price upwards. Fuel price went from N220/litre to N500/litre.

While some people flawed the declaration as hasty, many were supportive. It was argued that President Tinubu had no choice, fuel subsidy had been removed technically by former President Buhari, President Tinubu merely proclaimed the new reality.

What followed was series of arguments and counter arguments on the timing of such declaration, most especially without putting proper measures to cushion the effect of subsidy removal in place. Most importantly, President Tinubu received the backing and support of the Nigerian masses. They were ready to trek; pay triple cost for transportation; ensure the harsh economic conditions that would follow, with hope of a new dawn. A new future of prosperity, of infrastructure revolution in several sectors of the economy.

The ripple effect of the subsidy removal on the economy cannot be overstated. The federal government announced several measures to mitigate this effect including palliative and promise of a new minimum wage. Everyone embraced the new reality, either grudgingly or happily, it didn’t matter. The ‘cancer’ called fuel subsidy, which was gulping an average of N 400 Billion monthly and about N 5 Trillion yearly is finally gone.

Fifteen months later and several official communication from the federal government reiterating an end to the payment of fuel subsidy regime, and just like a cat with many lives, fuel subsidy reportedly resurfaced, with another identity called ‘Shortfall’ and this time around in trillions.

Few days ago, it was reported that in the last 15 months, the federal government has spent N 15 Trillion on the payment of ‘fuel subsidy’. This value according to BusinessDay was obtained from the National Bureau of Statistics (NBS) and information from petroleum marketers.

“According to the NBS, Nigeria imports between 1.4 billion litres and 2.5 billion litres per month, indicating an average of 1.95 billion litres per month. In 14 months (June 2023-July 2024), the country has consumed 27.3 billion litres”

According to Independent Marketers, the landing cost of petrol and other logistics costs stand at N1,203 per litre. The NNPC Retail sells petrol at N650 per litre at its stations, leading to a differential of N553 for each litre of petrol. This N553 differential value is being paid by the federal government as “Shortfall”.

BusinessDay opined that with the “N553 differential and 27.3 billion litres consumed in 14 months, the amount likely to have been spent on Shortfall (Subsidy) over the period by the Tinubu administration is N15.097 trillion”. This discovery has also been reinforced by the audited financial statements of the Nigerian National Petroleum Corporation Limited (NNPCL) for the financial year 2023.

Just like several administration before his, it is evident that President Tinubu’s administration will have to deal with payment of fuel subsidy for a long time to come, it does not matter if it is tagged Shortfall or Under Recovery, the federal government is still paying to bridge the gap between the real price of fuel and the retail price being sold to Nigerians.

With this new reality, it begs the question, what will happen to all the gain of purported subsidy removal? What will happen to all the expected infrastructure development? What will compensate for all the hardships endured by Nigerians in the name of subsidy removal? And most importantly, how sustainable is this payment of fuel subsidy? Is it justified for Nigerians to be paying N 700 per litre for fuel despite subsidy when some fifteen months ago, it was being sold for just about 30% of that price (N 220)?