Last year, Nigeria came close to removing fuel subsidy following the lifting of petrol pump price to N165 per liter. The move generated a lot of backlash and protest from organized labor, who argued that it will compound the suffering of Nigerians.
Ever since then, the topic has remained controversial. On one hand, the government is facing pressure from the International Monetary Fund, World Bank and economic experts, to remove the fuel subsidy and channel the fund to educational or infrastructural development. On the other hand, the government is being dared by organized labor unions, who have threatened to embark on an indefinite nationwide strike if the subsidy is removed.
Caught in the dilemma, the Nigerian government has been exploring a way out. The only choice hung on Dangote Refinery, which is expected to be launched in July this year. Based on this expectation, the government had set a mid-year timeline for the removal of the subsidy – but it has been forced to change the timeline.
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On Monday, the Minister of Finance, Budget and Economic Planning, Hajia Zainab Ahmed, said in Abuja, during a meeting held at the National Assembly, that the Federal Government had postponed the planned removal of subsidy on petroleum products till further notice.
The meeting was convened at the instance of the President of the Senate, Ahmad Lawan, following the unwavering determination of organized labor to embark on strike, should the government remove the fuel subsidy.
At the meeting which had in attendance the Minister of State for Petroleum Resources, Timipre Sylva and the Group Managing Director of the NNPC Limited, Mele Kyari, among others, the Finance Minister said there is a change in Federal Government’s initial plans to remove subsidy on petroleum products from July this year.
“Provision was made in the 2022 budget for subsidy payment from January till June. That suggested that from July, there would be no subsidy. The provision was made sequel to the passage of the Petroleum Industry Act which indicated that all petroleum products would be deregulated.
“Sequel to the passage of the PIA, we went back to amend the fiscal framework to incorporate the subsidy removal. However, after the budget was passed, we had consultations with a number of stakeholders and it became clear that the timing was problematic. We discovered that practically, there is still heightened inflation and that the removal of subsidies would further worsen the situation and impose more difficulties on the citizenry.
“Mr. President (Muhammadu Buhari), does not want to do that. What we are now doing is to continue with the ongoing discussions and consultations in terms of putting in place a number of measures. One of these includes the roll out of the refining capacities of the existing refineries and the new ones which would reduce the amount of products that would be imported into the country.
“We therefore need to return to the National Assembly to now amend the budget and make additional provision for subsidy from July 22 to whatever period that we agreed was suitable for the commencement of the total removal,” she said.
While this decision will compel organized labor to shelve its proposed strike, it sets Nigeria up to spend more on fuel subsidy in the coming months, especially as oil price rises. Brent Crude reached a seven-year high at $88.67 a barrel, as of Monday. This means a major adjustment has to be made in the 2022 budget to accommodate the shift in subsidy removal plans.
In 2021, fuel subsidies gulped over N2 trillion from the national budget amidst revenue shortfalls, which were exacerbated by the oil downturn and forced the government to borrow to fund the budget. With this turn of events, the government, who is still counting on loans to fund the 2022 budget, will pay more to finance the subsidy particularly as oil price goes up.
However, it is a win for the people whose poor living condition degenerated under covid strains, and cannot afford the amount of additional economic hardship the subsidy removal would bring.