Subsidy removal: President Tinubu pulls inflation triggers

• Subsidy jumps from N800 bn in 2014 to N4 trn
• NNPC under accountability, transparency burden

Sopuruchi Onwuka

President Bola Ahmed Tinubu, on Monday set off fuel scarcity in the country as marketing companies responded to his inaugural address in which he declared removal of fuel subsidy. He did not however address issues of loss of local refining capacity and associated high cost importation of all refined products in the country.

The new president who still faces protests from opposition parties seeking to annul his election on the ground of fundamental flaws, credibility and gaps in the volume of votes he secured in the Federal Capital Territory.

While declaring in the inaugural address that he would stimulate growth in the country’s battered economy, President Tinubu’s declaration of fuel subsidy immediately plunged the country into acute fuel scarcity with most of the marketing companies closed their retail outlets to motorists.

It is not immediately clear how details of the fuel subsidy removal would be worked out, but analysts who spoke to The Oracle Today predict that the announcement could trigger economic and labour crises in the country where the organized labour has demanded restoration of local refining as condition for fuel subsidy removal.

The Oracle Today reports that removal of fuel price subsidy would directly translate to petrol price increase which reached over N300 per liter the last time when a similar directive was announced by the outgoing administration of Muhammadu Buhari.

Fuel price increase is feared to exacerbate the already galloping inflation in the country, further weaken the Naira against major international currencies and worsen poverty in the country. Marketers in the country also warn that deregulating the fuel market without liberalizing supply would consolidate state monopoly in the domestic fuel market where the Nigerian National Petroleum Company (NNPC) Limited remains the sole importer and sole beneficiary of the huge local market for petrol.

After the inauguration of the president and governors who emerged from the highly disputed February presidential election and March elections conducted by the Independent National Electoral Commission (INEC), most of the fuel retail outlets in the major cities of the country including Lagos and Abuja closed to customers.

“Fuel subsidy is gone,” Tinubu declared, confirming his campaign pledge that he would not negotiate retention of local fuel rebate when he becomes president.

Nigeria’s annual fuel subsidy has steadily risen from N800 billion in 2014 to N4.3 trillion in 2022, and is on trajectory to over N7 trillion by the end of the year. Stakeholders in the industry stridently demand transparency and accountability in the management of the subsidy system following wide disparity between the NNPC and other market players on the actual demand figures upon which the subsidy calculation is based.

There are also calls on the NNPC Limited and the Nigerian Midstream and Downstream Regulatory Authority (NMDRA) to come online with official data on which major financial deductions from the nation’s oil revenue are determined. International industry advisory firms and the local petroleum marketing groups insist that industry data sharing would directly improve the transparency and accountability profile of the subsidy management.

Ironically, whereas the industry groups accuse state monopoly players in the market of capturing the entire subsidy funds, NNPC yesterday welcomed it a financial relief.

Chief Executive Officer of the company, Mallam Mele Kyari, under whom the subsidy claims have surged by about 700 percent, still claims that the company’s funds are trapped in the subsidy system and would now be freed up with the declaration by the new president.

In hastily declaring fuel subsidy removal, President Tinubu held up the traditional argument that deregulation of the petrol market would free up funds from petrol subsidy for infrastructural development. However, early subsidy withdrawals from diesel and kerosene failed to translate to enhanced infrastructural development in the country.

The president’s hasty announcement, market players told The Oracle Today yesterday, would only aggravate the already disastrous inflationary jumps in the economy, worsen unemployment and increase the cost of production.

President Tinubu stated that his economic blueprint was being prepared for release within weeks to tackle key anomalies in the market, including high interest rate. He also pledged to expand the economy by at least 6% a year, lift barriers to investment, create jobs and unify the exchange rate, while also tackling rampant insecurity.