A Review of the Nigerian Energy Industry

Fuel Subsidy: Buhari’s make or mar decision

25 May 2015, Lagos – As Nigerians grapple with the worst energy crisis ever to befall the nation, there is very little doubt that the subsidy regime that has been fostered on the nation by the labour movements and some sections of the media can no longer be sustained.

Retired General Mohammadu Buhari, Nigeria's President-elect
Retired General Mohammadu Buhari, Nigeria’s President-elect

Africa’s largest economy and oil producer has frittered away obscene amounts for two decades sustaining a regime that subsidies consumption. Better-managed countries subsidise production such as agriculture and manufacturing.

In the process, Nigeria’s fuel subsidy scheme has created rent seeking opportunities, overnight billionaires and cabals that have corruptly fed fat from the inefficiency of an unsustainable regime. What is worse is that the fuel subsidy regime has stifled the repair and privatisation of existing refineries and the construction of new ones; it has impeded wholesale reforms at the state-run Nigerian National Petroleum Corporation (NNPC); and played a role in stalling the passage of the Petroleum Industry Bill (PIB).

As oil marketers and the Federal Ministry of Finance bicker over outstanding subsidy claims and exchange rate differentials, there is very little doubt that the current sorry pass could have been avoided had the Jonathan administration been allowed to do away with subsidies in January 2012.

But the Nigeria Labour Congress (NLC) and Trade Union Congress (TUC), egged on and sponsored by members of the opposition, held the country to ransom until the government was forced to buckle under their demands that subsidies on petrol and kerosene must be retained.

Even the state governors who once threw their weight behind the removal of fuel subsidies but were forced to beat a retreat in the face of the nationwide strike in 2012, are today in denial over the obvious fact that almost half of the country’s savings in the Excess Crude Account (ECA) was used to pay oil marketers’ subsidy claims.

Well, come May 30, the opposition which once ridiculed and undermined the Jonathan administration for daring to remove fuel subsidies will be wearing the shoes. It shall feel the pinch as it struggles to contend with the demands of labour, meet its recurrent obligations in an over-bloated public sector (largely comprising the wage bill), and deal with other contending forces.

The problem is Major-General Muhammadu Buhari, who shall be leading the new administration,  has a predilection for harping on his days as petroleum minister almost 40 years ago and head of state a decade later when NNPC was able to meet Nigeria’s energy requirements and the refineries were functioning.

That was then and this now. Buhari needs to understand that even if NNPC’s three-and-a-half refineries were operating at optimal capacity today, they would not meet all of the country’s energy needs. Without additional refining capacity, Nigeria would still have to import petroleum products to meet its fuel requirements until such a time that it has sufficient refineries to meet domestic demand.

But in order to increase refining capacity, Buhari’s administration would have to muster the political will to remove fuel subsidies completely and introduce palliative measures that will ameliorate the impact of possible higher petrol and kerosene prices at the pump.

Fortunately, with the price of the crude oil selling at under $70 per barrel, there could no better time to eliminate subsidies, as any adjustment at the pump will be minimised.

Besides, doing away with subsidies would free up resources that could be used by the federal government and the states for infrastructure and capital projects that will create jobs and impact positively on the lives of Nigerians.

Largely, whilst the acts of oil marketers that have held the country to ransom could be deemed repugnant, it could, on the other hand, be a blessing in disguise. It would provide the impetus for Buhari and his team to take the unpopular but necessary reforms in the downstream oil sector. The subsidy issue will, without doubt, be the first test to confront Buhari as he mounts the saddle on Friday. It will be a make or break decision for his administration.

Nigeria can no longer afford to keep beating about the bush. The time to eradicate fuel subsidies and chart a new path for oil industry   is now. It’s a make or mar decision for Buhari.


-Ijeoma Nwogwugwu, This Day

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