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What the removal of fuel subsidy means to me, you and Nigeria

By Anayo M. Nwosu

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Thank God that President Buhari didn’t miss the second opportunity to remove the subsidy on prices of petroleum products. The first opportunity was in his first few months in office when crude oil prices dipped so low that the landing cost of imported petroleum products were lower than the pump prices.

You could recall that Nigeria virtually imports all its refined products needs, therefore, when the prices of crude oil which is the raw material for production of fuel fall, the prices of refined products would fall. A reversal is the case when the international prices of crude oil rise.

Right now, with crude oil prices falling again, the total cost of importing a litre of fuel is lower than the price you pay at the filling stations; meaning that NNPC/PPMC are making profit from selling the petroleum products to you currently.

The author, Chief Anayo Nwosu

You must have noticed a reduction in the pump prices of petrol some months ago and of recent. It is the NNPC’s response to falling cost of importing fuel.

Understanding the new federal government’s policy of fuel pricing

Few days ago, PPPRA that is the federal government’s agency charged with regulation of petroleum products’ pricing has quietly removed “government’s hand” in determining how much fuel is sold to the public and the price at which it is sold.

This means that fuel prices will rise and fall based on market forces and based on the quality or type of the product but within approved quality range.

This means in a practical sense that if fuel prices rise, government will no longer fix a price and absolve the cost above the fixed price which is called “Fuel Subsidy”.

The implications of fuel subsidy removal

Below are key implications of fuel subsidy removal:

(a) Fuel would be sold at different prices in different locations in Nigeria. Meaning that those living around the ports of import or the refinery would pay less while those the live farthest would pay the highest for a litre of fuel.

(b) There would be a lot of investors to build refineries in Nigeria because the biggest impediment to investment has been removed. They can recover their cost by fixing appropriate prices for their products.

(c) A lot of government agencies in the value chain of petroleum products pricing maintenance especially distribution Petroluem Products Equalisation Fund would go. There is not to equalise. Everyone would have to bear the burden of geography and enjoy efficiency.

(d) Petroluem Products Marketing Company, an arm of NNPC that currently does the patriotic duty of the sole importer of petrol in Nigeria due to market impediments of access to foreign exchange over the private Oil Marketing Companies would soon be like NTA, NITEL and National Arts Theatre in the face of competition.

Immediate beneficiaries of subsidy removal

(a) The immediate beneficiaries of removal are Nigerians as huge funds used for oil subsidies which is more than budgetary allocations to Education and Health combined would be freed up. Nigeria will develop more than we are doing right now.

(b) Dangote Refineries. They will become a monopoly as they are nearly becoming in cement. Their proposed installed capacity can service entire West Africa. But Lekki axis will become like Apapa as fuel tankers would make a mess of Lekki-Aja-Epe environment.

(c) The people who live around the ports and the modular refineries like those in Lagos, Port Harcourt, Warri, Calabar and Onne will pay cheaper for fuel than others.

(d) The pressure on Naira, our currency would ease if investors build more refineries for local consumption and for export.

(e) The federal government would now meet the credit conditions or pass the test of international lenders that have wondered about our wisdom in retaining Oil Subsidies which reduces the government’s capacity to service its existing and proposed loans and that has trapped the capital for our development.

Good news to owners of fuel-sensitive cars

Ask mechanics, most big or expensive cars break down more often due to consumption of low grade fuel. Petrol quality is a measure of its Octane Rating. Some are of Premium, Medium and of low quality grades. And some are criminally adulterated.

If I were a smart filling station owner in Lagos, Onitsha, Benin, Port Harcourt, Kano and Abuja, I would reserve a pump for a high grade fuel for big and sensitive cars and the big men would pay for it. It is cheaper to buy good fuel at a higher price than to spend a fortune in replacing their cars’ fuel pumps and sensors.

Conclusion

Some opponents of this government would say that the Federal Government’s removal of fuel subsidies is to meet one of the conditions set by foreign lenders before being allowed to draw down approved loans.

Even if that is true, there is Security problem impediment. No lender would give long term loans to a borrower that may not live to repay the loan.

The widespread security problems in the country also limit Nigeria’s access to low cost foreign loan and foreign direct investments. The interest rates charged on loans all over the world are a function of country risks beside capacity to repay.

The removal of the fuel subsidy came late but it came at a time when Nigeria cannot function economically with it in existence.

A huge quantum of corruption would die a sudden death with the removal of fuel subsidy. Many civil and public servants would not be happy with what the government has just done.

Did anyone notice that many people in government are yet to show any excitement over this most important achievement of Buhari government?

Why should they?

Your guess is as good as mine.

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