In a recent assertion by Bayo Onanuga, the Tinubu
administration's stance on fuel subsidies has been staunchly defended. Onanuga
claims that the government has been transparent about its subsidy policy since
President Tinubu announced the deregulation of the Premium Motor Spirit (PMS)
sector on May 29, 2023. He argues that the government's decision to stop paying
fuel subsidies is evident in the absence of such provisions in recent budgets
and contends that there has been no deception on the government's part.
However, a deeper analysis of the situation raises significant concerns about
the accuracy of these claims and the broader implications for the Nigerian
economy.
The Reality of Fuel Subsidies: Unpacking the Claims
To begin, it's essential to address the core of Onanuga's
argument: that the Tinubu government has been transparent and consistent in its
policy regarding fuel subsidies. Onanuga points out that since the deregulation
of the PMS sector, fuel subsidy provisions have been excluded from the 2023
supplementary budget, the 2024 budget, and the amended 2024 budget. This exclusion,
he argues, proves that the government has not lied about ending fuel subsidies.
However, this assertion overlooks a critical detail: the admission by the Nigerian National Petroleum Corporation (NNPC) Limited that it owes suppliers approximately $6 billion. This debt, which Onanuga characterizes as a "generous disposition" by the NNPC to absorb rising costs, suggests that the burden of the fuel subsidy has merely shifted rather than disappeared. The absence of a formal budgetary provision for subsidies does not necessarily mean that the government has ceased subsidizing fuel. Instead, it indicates that the mechanism of subsidy has become less transparent, with the financial burden being quietly borne by the NNPC—a state-owned entity.
The Implications of NNPC's Financial Burden
Onanuga's portrayal of the NNPC's absorption of fuel costs
as a noble act to protect Nigerian consumers is misleading. While it is true
that the NNPC has been shielding consumers from the full brunt of rising petrol prices, this strategy is unsustainable and carries severe financial risks. The
NNPC's inability to pass on these costs to consumers has resulted in a
significant financial strain on the corporation, as evidenced by its $6 billion
debt to suppliers.
This debt has far-reaching implications for Nigeria's
economy. The NNPC is a major contributor to the Federation Account, which funds
the operations of the federal, state, and local governments. By absorbing the
cost of fuel subsidies, the NNPC has reduced its remittances to the Federation
Account, thereby depriving the government of critical revenue. This shortfall
in revenue has the potential to disrupt essential government functions,
including infrastructure development, social services, and public sector
salaries.
Moreover, the NNPC's financial woes raise concerns about the long-term viability of Nigeria's oil sector. If the NNPC continues to absorb fuel costs without adequate compensation, it risks insolvency. Such an outcome would not only affect the corporation but also have a ripple effect on the broader economy, leading to potential job losses, reduced foreign exchange earnings, and heightened economic instability.
The Myth of Fuel Deregulation
Onanuga's defense of the Tinubu government's subsidy policy
also hinges on the claim that fuel subsidies have been effectively eliminated
through deregulation. However, the reality is more complex. While the
government has removed the explicit budgetary allocation for fuel subsidies, it
has not fully transitioned to a deregulated market where fuel prices are
determined by market forces.
In a truly deregulated market, the price of petrol would
fluctuate based on global oil prices and exchange rates, with no intervention
from the government. However, in Nigeria's case, the government has continued
to influence fuel prices indirectly through the NNPC. By instructing the NNPC
to absorb rising costs rather than pass them on to consumers, the government
has effectively maintained a de facto subsidy, albeit through a different
mechanism.
This approach undermines the principles of deregulation and
market efficiency. It creates a false sense of stability in fuel prices, which
is unsustainable in the long run. As global oil prices and exchange rates
fluctuate, the NNPC's financial burden will only increase, leading to greater
economic distortions and potential crises in the future.
The Dangote Refinery: A Panacea or a Pipe Dream?
Onanuga suggests that the forthcoming Dangote Refinery and
other local refineries will serve as a "game changer" for Nigeria's
fuel market, reducing the need for subsidies and alleviating the NNPC's
financial burden. While the Dangote Refinery represents a significant development for Nigeria's oil sector, pinning too much hope on it as a solution
to the subsidy issue is premature and potentially misguided.
First, the Dangote Refinery, despite its projected capacity
to meet Nigeria's fuel demand, will not immediately resolve the underlying
issues of the country's fuel market. The refinery's operations will need to be
integrated into the existing supply chains, and the benefits of reduced foreign
exchange demand for fuel imports will take time to materialize. Additionally,
the refinery's success will depend on several factors, including its ability to
operate efficiently, the stability of global oil prices, and the government's
ability to create a conducive regulatory environment.
Second, the reliance on the Dangote Refinery as a solution
to the subsidy problem raises concerns about market monopolization. If the
refinery becomes the dominant supplier of fuel in Nigeria, it could lead to
reduced competition and higher prices for consumers, particularly if there are
inefficiencies or disruptions in its operations.
Moreover, the assumption that the Dangote Refinery will eliminate the need for fuel imports and subsidies overlooks the complexities of the global oil market. Even with increased local refining capacity, Nigeria may still need to import certain refined products, depending on the refinery's output mix and the demand for different fuel grades. This means that the government will still need to manage the challenges of foreign exchange demand and global price fluctuations.
Transparency and Accountability: The Need for Clear Communication
One of the most significant issues with the Tinubu
government's handling of the fuel subsidy situation is the lack of transparency
and clear communication. Onanuga's assertion that there has been no lie from
the government fails to address the confusion and misinformation that has
surrounded the issue.
The government's decision to remove the budgetary provision
for subsidies without clearly explaining the alternative arrangements—such as
the NNPC's absorption of costs—has created a perception of deceit. This lack of
transparency erodes public trust and makes it difficult for citizens to
understand the true state of the economy.
For the government to regain credibility on this issue, it
must commit to greater transparency in its handling of fuel pricing and
subsidies. This includes providing clear, detailed explanations of how fuel
prices are determined, the role of the NNPC in managing costs, and the
long-term strategy for achieving a truly deregulated market.
Conclusion: The Need for a Sustainable Fuel Policy
In conclusion, while Onanuga attempts to defend the Tinubu
government's handling of fuel subsidies, a closer examination reveals
significant flaws in the current approach. The government's decision to remove
budgetary provisions for subsidies without fully deregulating the fuel market
has merely shifted the financial burden to the NNPC, creating a hidden subsidy
that is unsustainable and economically damaging.
The reliance on the Dangote Refinery as a solution to the
subsidy issue is also problematic, given the complexities of the global oil
market and the potential risks of market monopolization. Instead of relying on
short-term fixes, the government must focus on developing a comprehensive,
sustainable fuel policy that addresses the root causes of Nigeria's fuel market
challenges.
This policy should include a clear plan for transitioning to
a fully deregulated market, transparent communication with the public, and
measures to protect the most vulnerable consumers from the impact of rising
fuel prices. Only through such an approach can Nigeria achieve long-term
stability and growth in its fuel market and broader economy.
