The Bola Tinubu government has started off with the removal of the fuel subsidy, the controversial scheme that has existed for more than 30 years. Experts have argued the fuel subsidy is expensive, unsustainable and a fodder for corruption. Critics worry its absence could further squeeze Nigeria’s poorest. Is Tinubu’s ‘brave new era’ one to anticipate or dread?
On New Year’s Day in 2012, when many Nigerians were in their villages and hometowns celebrating the holidays (as is the common tradition) and preparing to return to the cities to begin another year of work, then-president, Goodluck Jonathan, announced his government was ending the fuel subsidy. Through the Petroleum Products Pricing Regulatory Agency, the Jonathan’s government explained that it was deregulating the petroleum sector, which meant that Nigerians would start buying petrol at the international market price. Overnight, the price of petrol went up from N65 to N141. The price hike, which led to an increase in the cost of transport fares, sparked outrage among Nigerians, many of whom had been forced to buy the commodity at the black market rate during the Christmas holiday, a situation typically caused by fuel suppliers’ hoarding.
The removal of the subsidy on New Year’s Day had a domino effect at a level perhaps not expected by the government. Transportation costs increased by more than 200 per cent and many Nigerians that had travelled for the holidays and spent money in celebration were left stranded. Some were forced to sell their belongings at prices less than their original values to raise money for transportation.
The price of other commodities went up, too, as traders complained that the high cost of transporting their goods had to be factored into the selling price. By the sixth day following the fuel subsidy removal, Nigerians were calling on the Nigerian Labour Congress (NLC) to declare a strike due to the hardship caused by the removal of the subsidy. In a last-minute attempt at intervention, President Jonathan gave a speech on 7 January, 2012 explaining to Nigerians that the country could not afford to continue to subsidize petrol due to its financial strains on the economy. He promised that the money saved from the subsidy would be channelled into a government programme to help the youths. The then-governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi, backed the removal of fuel subsidy saying that the country spent $8 billion on it the year before and that ‘subsidies should be subsidies for production and not for consumption’.
Despite this, a nationwide strike began two days after, followed by a series of protests, particularly in Lagos and Abuja. Under ‘Occupy Nigeria’, protesters gathered for days at Freedom Park in the Ojota area of Lagos. On 16 January, the president announced a reduction in the price of fuel from N141 to N97 per litre. In return, the NLC announced the suspension of the protests and strike action. At the end of it, the police had reportedly killed 15 protesters and more were injured. Jonathan’s presidential election loss in 2015 was partly ascribed to his administration’s mishandling of the fuel subsidy issue which culminated in a nationwide strike.
More than two decades after the Occupy Nigeria protest caused by fuel subsidy removal, debate and conversation around it still continues. In October 2022, when former president, Muhammadu Buhari, presented the 2023 budget to the National Assembly, Buhari announced that the subsidization of petrol would end by June 2023, arguing that the scheme was unsustainable. The then-minister of finance, Zainab Ahmed, explained that the federal government had projected to spend N6.7 trillion on petrol subsidy payments for the year 2023 but that the amount had been reduced to N3.35 trillion to fund the subsidy till June 2023. In April 2023, however, Ahmed announced that the administration had suspended the removal of the subsidy. However, since the subsidy was not in the latter part of the 2023 budget, the responsibility fell on President Bola Tinubu to either go with the original plan of his predecessor or to provide a supplementary budget that would cover fuel subsidy. He chose the former.
On 29 May 2023 when he was sworn in as president, Tinubu in his inaugural speech declared that ‘fuel subsidy is gone’, a statement that almost immediately changed the entire fuel market. Fuel stations tripled or quadrupled the price of their petrol with some selling for as high as N1,000. Long queues returned as some stations, uncertain about the volatility, refused to sell. To bring some sort of sanity, the Nigerian National Petroleum Company (NNPC) Limited introduced new price lists across the nation at an average of N500 which put the sudden increase to about 200 per cent over the previous price of N185.
Although all three major presidential candidates—Tinubu, Atiku Abubakar and Peter Obi—had promised to discontinue subsidy payments on petrol, and although many Nigerians have been mentally preparing for its end, its sudden confirmation by Tinubu on his first day in office has raised mixed reactions. While some Nigerians approve of the bold move made by Tinubu saying it was long overdue, others caution that it will have a devastating impact on the nation especially, on poor people.
The fuel subsidy removal is expected to lead to a significant rise in the price of commodities and thus the cost of living. For context, Nigeria is already battling a 33.3 per cent unemployment rate which is expected to rise further to 40.6 per cent in 2023, according to KPMG. The consumer price index, which measures the rate of change in prices of goods and services, rose to 22.04 per cent in March 2023 and is expected to go further up as the new price becomes the norm.
Many Nigerians believe that subsidized petrol is the only benefit citizens gain directly from the government and how Tinubu manages this situation may go on to define his administration. For a scheme that costs Nigeria about N400 billion monthly, how did the fuel subsidy come to be?
A BRIEF HISTORY OF NIGERIA’S FUEL SUBSIDY
Nigeria discovered oil in 1953 but in commercial quantity in January 1956. Production started in 1957 and exportation coincided with Nigeria’s independence in 1960. In the early 1970s, due to rising global oil prices, the price of petrol went up. It was a good development for Nigeria: an oil-producing state, the country generated more revenue. From 1960 to 1973, oil production rose from just over 5 million to over 600 million barrels. The country’s revenue from oil too accelerated from N66 million in 1970 to over N10 billion in 1980. With rising oil prices, the local price of petrol also went up. To cushion the effect of rising local petrol prices, the government introduced a subsidy. In 1977, through an official gazette, Olusegun Obasanjo’s military government introduced price controls, setting a cap on the sale of petroleum products to Nigerians at N0.05 per litre.
From then on, the federal government subsidized the domestic consumption of petroleum products. While the international market price of petrol continued to rise, the price in Nigeria remained the same as the government continued to pay the difference. This went on until 1992 when the military regime of Ibrahim Badamasi Babangida raised the price of petrol from 15 kobo to 20 kobo per litre in 1992. Since then, every subsequent government has slightly raised the price of petrol. However, when Obasanjo was elected as Nigeria’s president in 1999, he raised the price to N30 sparking protests orchestrated by NLC. This would be a recurrent theme of Obasanjo’s administration as the government and the Adams Oshiomhole-led NLC constantly clashed over the price of petrol. Obasanjo’s last action as president in 2003 was to increase the price of petrol to N70. When Obasanjo’s successor, Umaru Musa Yar’Adua, came into office, Yar’Adua reduced the price to N65 due to protests.
The Jonathan administration was the first administration to indicate its plan to stop fuel subsidy payments, and did so on the basis that the subsidy was not economically sustainable. With all four refineries in the country working below capacity, Nigeria was importing more than 90 per cent of its petrol. Marketers thus were subsidized by the government for the imported fuel they brought into the country. As president, Jonathan argued in 2012 that it was either the country ‘deregulate and survive economically, or we continue with a subsidy regime that will continue to undermine our economy and potential for growth, and face serious consequences.’ Between 2010 and 2014, his administration spent N3.9 trillion on fuel subsidy.
Although Buhari claimed he did not know what the fuel subsidy meant when the Jonathan administration announced its removal in 2012, his own government, which took over in 2015, continued its payment. Despite tinkering with the price of petrol and raising it to N185 per litre, his administration paid about N11 trillion in fuel subsidies, the highest since 1999.
Fuel subsidies have historically been associated with allegations of corruption. Official data from NNPC pegged Nigerians’ daily consumption to 66.8 million litres, a figure that was lower than the petrol output it supplied. In 2022, at a session with the House of Representatives Committee on Finance, Comptroller-General of Nigeria Customs Service, Col. Hameed Ali (retd.), famously asked: ‘If we are consuming 60 million litres of PMS per day by their (NNPC) own computation, why would you (NNPC) allow the release of 98 million litres per day? If you know this is our consumption, why would you allow that release?’ The answer lay in the massive corruption that has allegedly eroded the Nigerian petroleum industry.
BARRELL OF CORRUPTION
While the intention behind the payment of fuel subsidies was to control prices and make the commodity more affordable to Nigerians, it has allegedly turned into a corruption scheme, where more money is paid out than the volume of petrol being consumed by Nigerians. Sanusi was vocal during the Jonathan administration about fuel subsidy being a kind of scam as some people benefit from it at the expense of ordinary Nigerians who are being denied government intervention in key areas like education and health. According to him:
A lot of the petroleum subsidy that we say is being paid is from phantom fuel that never came into this country. The only reason it makes sense is that there are a number of people who control the levers of power, who are making billions and billions of dollars out of this scam that is called fuel subsidy.
In 2012, Nigeria’s former minister of finance and the current director-general of the World Trade Organization, Ngozi Okonjo-Iweala, said the government recovered N29 billion from oil marketers who had initially been paid by the government but were later found out to have made fraudulent claims either by not importing fuel or overstating the amount of petrol imported into the country. Like Sanusi, Okonjo-Iweala also admitted that the scheme was a fertile ground for fraud and supported its attempted removal by the Jonathan administration.
Apart from alleged fraud perpetuated by oil marketers, in an investigation, NNPC found out that more than 60 million litres of petrol were smuggled out of Nigeria each month to neighbouring countries where Nigeria’s subsidized fuel was being sold in the black market. For a long time, the cost of petrol was cheaper in Nigeria than in all its neighbouring countries due to the commodity being subsidized. Smugglers then began getting licences to open filling stations in border towns from which they smuggled and sold petrol to other countries like Niger, Chad, Benin Republic and Cameroon. A 2018 NNPC report revealed that ‘16 states, having amongst them 61 Local Government Areas with border communities, account for 2,201 registered fuel stations.’ What this means is that Nigeria was paying for the fuel consumed in the neighbouring states and bearing the economic weight.
TO BE OR NOT TO BE: A POLITICAL DECISION
Although the removal of fuel subsidy has already started to take its toll on Nigerians with the cost of transportation going up, the price of commodities may soon follow the same trajectory. While the NLC has rejected the removal of fuel subsidy, citing the financial strain it will have on Nigerians, some experts believe it is the best decision for the country to take, arguing that Nigeria’s economy cannot support the continued subsidizing of petrol. Segun Olakoyenikan, a financial analyst, believes that Nigeria should have made the difficult decision as far back as the early 1990s when global crude oil prices were below $15. By deferring the inevitable, Nigeria found itself in a position where it was not only subsidizing fuel for neighbouring states but also incurring debt. According to Olakoyenikan:
I firmly believe that if we had removed the subsidy in 2012, we would have had sufficient time to adjust to any potential shocks that may have arisen from the removal before facing the additional challenges of Covid-19 and the war in Ukraine, which further exacerbated our situation. By eliminating the subsidy at that time, we could have avoided the substantial debt we accumulated over the past decade to keep petrol prices artificially low. The funds saved from removing the subsidy could have been redirected towards critical projects in healthcare and education, thereby significantly improving the quality of life for Nigerians.
While some have argued that the subsidy removal could be effective at addressing corruption and saving Nigeria billions of dollars in debt, there is concern as to whether only poor Nigerians are making huge sacrifices while those in power are minimally affected. The former vice president, Professor Yemi Osinbajo, admitted that Nigeria runs one of the most expensive governments in the world and there is no concrete sign that this has or will reduce. A few days ago, the National Assembly announced a N30 billion severance package for exiting lawmakers. The situation is also similar at the state level where for example in Benue State, members of the House of Assembly passed a lifetime maintenance bill for former elected governors and their deputies in the state into law. As part of the bill, former governors will receive N40 million every four years.
It seems as though while ordinary Nigerians are bracing up for austere measures, those elected into office continue to prioritize themselves through allocations that serve their interests. which This makes the subsidy removal the biggest test yet for the Tinubu administration. While Nigerians are going through a tough period, they will be awaiting what significant changes will be delivered in critical areas such as infrastructure, healthcare and education. A lack of clear development in these areas can signal the beginning of the end of the new president’s goodwill and put a dagger into the heart of not just his presidential legacy but that of his party⎈
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