Africa’s biggest oil-producing country spent over N2 trillion on subsiding the price of fuel in four years, an amount which was far higher than funds allocated to education, health, defence, and agriculture and rural development that would have increased the economic growth or standard of living of its over 200 million people.
Over the years, the Nigerian government has continued to subsidise electricity and petrol, paying the difference between the cost of production and the cost charged to customers in order to make them more affordable, but in the end, analysts say it is largely not worth the cost.
Although NNPC’s books said no money was expended as subsidy on PMS in 2016, the government introduced another form of subsidy in 2017 which it described as“under-recovery”. The subsidy incurred by the NNPC as under-recovery that year was N476.5 billion, which rose to N1.0 trillion in 2018, representing about 99.7 percent increase.
In the first nine months of 2019, NNPC claimed it had spent N494.1 billion on under-recovery while a provision of N450 billion had been made in the 2020 budget.
Last year, Kabir Marafa (APC Zamfara), chairman, Senate Committee on Petroleum Downstream, said Nigeria had spent over N11 trillion as payment for outstanding fuel subsidy claims in the last six years.
Wumi Iledare, professor of economics and former president of Nigerian Association for Energy Economics (NAEE), said payments of subsidy is a gorilla that has swallowed Nigeria’s economy and has led to the collapse of education institutions, road infrastructure and health facilities because the country spends more than one-quarter of its budget subsidising petrol which benefits the elite more than the populace.
A comparative analysis of the NNPC data on subsidy and the Federal Government budget from 2015 to 2019 showed that while the administration has sunk over N2 trillion into fuel subsidy, the sum of N608 billion has been committed to capital spending for defence, N415 billion for agriculture, N219.03 billon for capital components of education and N215.45 billion as the capital budget for health in four years.
This implies that the cost incurred to subsidise petrol is more than budgets for capital projects for health, education, and agric (N1.4bn) sectors put together in the last four years.
The amount spent on subsidy is also larger than N608 billion making the capital component of the budgets for defence (including the army, navy, air force and defence intelligence as well as research agencies) in the last four years, though all the capital allocations traditionally never get completely released.
By implication, less money went into building classrooms, hospitals and buying farm tools whereas more funds went into the petrol subsidy that experts have severally described “as economic waste amid scarce resources”.
The expenditure on subsidy for PMS has also dwarfed the government’s spending to alleviate poverty and youth unemployment.
“The ordinary man hardly benefits from this under-recovery, subsidy or whatever name you may wish to call it. We sincerely believe this is the perfect time to ensure that these benefits come to the ordinary man and not to the elites,” Mele Kyari, NNPC’s group managing director, said in an interview.
Nigeria’s poor rely primarily on public transportation. As such, their per capita fuel consumption is significantly less than the country’s rich, who generally use private vehicles while neighbouring countries also benefit significantly from Nigeria’s fuel subsidy through smuggling.
“By stopping this under-recovery, we are also stopping the subsidising of the elites. In any case, subsidy is an elitist thing because it is the elites that benefit. They are the ones that have SUVs, three, four cars in their houses,” Kyari said.
International financial institutions like the World Bank and the International Monetary Fund are urging governments to cut costly national subsidies and to provide them in a targeted fashion to poor communities.
The World Bank says that subsidies “impose a heavy fiscal burden and are likely not sustainable”.
“Since these subsidies disproportionately benefit high-income households, they are a costly way to protect the poor,” World Bank said.
President Muhammadu Buhari has been keen to suggest that the government is out of the subsidy game. What the government calls its spending may have changed, but it still pays the bill to insulate Nigerians from the full cost of petrol prices.
Instead of paying subsidies to importers, as was done in the past, the Buhari government has made the national oil company (NNPC) responsible for fuel imports and swallowing the difference between its costs and the price at the pump.
DIPO OLADEHINDE
