Can Kyari be trusted on his subsidy removal claim?

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“As of today, subsidy/under-recovery is zero. Going forward, there will be no resort to either subsidy or under-recovery of any nature. The NNPC will just be another player in the market space. But we will be there for the country to sustain security of supply, at the cost of the market”

– Mele Kyari, GMD of NNPC on Monday, April 6, 2020

The above quote was the cheering remark was credited to the Group Managing Director of Nigerian National Petroleum Corporation, Malam Mele Kyari, during his interview on the African Independent Television programme called, “Moneyline with Nancy” on Monday, April 6, 2020.

Another heartwarming news was the GMD’s claim that as of last Sunday, Nigeria produced 2.3 million barrels of crude oil, including condensates. Kyari said that the plan was for the country to ramp up production to three million barrels per day in no distant future.

I really want to believe the NNPC GMD on his subsidy removal claim but I can’t. Procedurally, that information, I think, should have come from the President not only because he is the No. 1 citizen but also because he is the substantive Minister of Petroleum Resources.

Perhaps, if this was a decision taken at the Federal Executive Council meeting, I may have believed it as well. Secondly, I do not see how the “no more subsidy” claim can be sustained without sufficient local production of refined petroleum products. Subsidy on refined petroleum product was introduced under the military in the 1990s. There are claims to the effect that the policy was actually introduced by General Ibrahim Babangida.

Subsidy was meant to be an interim measure. It was what was to be paid to the NNPC-licensed importers of refined petroleum products to ensure that they sell the products at government approved prices pending the time that the country’s four refineries in Port Harcourt, Warri and Kaduna would undergo what is known in industrial parlance as Turn Around Maintenance or TAM. Unfortunately, the TAM was never done well even when it was contracted out at highly inflated costs hence the refineries continued to produce at well below installed capacity and the country continues to shamefully import refined petroleum products till date.

The Nigerian Tribune reported in its July 15, 2019 edition that its investigation had revealed that Nigeria’s refineries gulped $5.178bn in TAM in 25 years with capacity utilisation stalling at 20.66 per cent. The newspaper’s investigation further revealed that on Turn Around Maintenance for the refineries, the Federal Government spent $216 million between 1993 and 1998; $92 million, between 1998 and 1999; $1.57 billion, between 1999 and 2007; $200 million in 2009, $900 million in 2012, $1.6 billion in 2013, $550 million in 2015 and $50 million in the last year.

The newspaper further noted that “despite the huge spending, the refineries have failed to live up to expectations, consequently, according to the Central Bank of Nigeria statistics, Nigeria, the fifth largest exporter of crude oil in the world, spent $36.37 billion on petroleum products importation between 2013 and 2017. Similarly, the deplorable state of the refineries, which resulted in inadequate fuel supply, also occasioned a huge loss of about N10 trillion to fuel subsidy between 2006 and 2018 as the Federal Government had to pay the difference between the landing cost of imported PMS and the pump price. The situation has not improved as the NNPC still bridges the gap between the two to make the PMS available to end users at N145 per litre”.

As earlier pointed out, the inability of the country’s comatose refineries to produce sufficient products for local consumption led to the introduction of the subsidy regime which has been a drainpipe on the country’s financial resources. The Daily Trust of April 7, 2020 reported that in 2019, it is estimated that over N780 billion was spent on fuel subsidy while in the current fiscal year (2020), N450 billion was provided for in the budget as fuel subsidy expenditure. These funds are what the country will be saving if Mele Kyari’s Monday claim on AIT comes to light. The implication of that more resources should be available to fix our deplorable social infrastructure such as roads, hospitals, schools, electricity and many others.

Perhaps, as a means of demonstrating its seriousness about deregulating the downstream petroleum sector, the government in the last couple of weeks has reduced the pump price of Premium Motor Spirit from N145 to N125 and later to N123.50. Expectedly, when the price of crude oil bounces back in the international market, the nation’s pump price will also be adjusted upward. This means fuel marketers will be allowed to charge cost reflective prices.

This will likely lead to a situation where there will be no uniform price nationwide. The beauty of this is that it will lead to healthy competition among the marketers as it will make them to introduce various price regimes and freebies that will woo customers. It then means that the product may be sold cheaper at Lagos, being the point of entry of the products, than it will be sold in a place like Sokoto which is far in the hinterland because of the cost of trucking from the Lagos port to the place. Had it been that there is no pipeline vandalism and products are transported via pipelines and only distributed by trucks intra-state the price could be sold with very little price differentials across the country.

Allowing these marketers to charge cost recovery prices will ultimately curb smuggling of petroleum products out of Nigeria.  This may happen as the price the products will be sold in Nigeria may be at par with that of our neighbouring countries where these products are smuggled to.

Again, I ask, can Kyari be trusted that there will no longer be fuel subsidy in light of the fact that we are still fully dependent on importation of refined petroleum products? We have traversed this road before when on May 11, 2016, the President, Major General Muhammadu Buhari (retd.) announced removal of fuel subsidy across the country. That was when the price of petrol was hiked to N145 per litre. Unfortunately, it was after that astronomic increase from N87 per litre to N145 per litre that the Federal Government through the NNPC started paying what it termed under-recovery even when there was no budgetary provision for it in the nation’s annual budgets.

Truth be told, full deregulation of the country’s petroleum sector is the way to go if we want to do away with the fraudulent and corruption ridden subsidy regime. Once the marketers are allowed to charge cost-reflective prices, many of the licensed private sector players who have been dilly-dallying on building refineries will pick up courage to construct their own. With many more refineries coming on stream like that of Dangote, importation of refined petroleum products will naturally fizzle out and the pump price of the products will become stable; more petrochemical industries will spring up, more jobs created and the nation’s economy will experience improvement. This is the more reason the country’s petroleum industry laws need to be urgently reviewed.

 

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