According to the Nigeria Extractive Industries Transparency Initiative (NEITI), the country spent N22.88 trillion on fuel subsidies in 18 years.
The above is contained in a research note sent by CSL Stockbroker Limited.
According to analysts at CSL Stockbrokers, between 2005 and 2020, the country spent N13.70 trillion on subsidies, and they added that if the 2021 figure of N1.43 trillion, the 2022 amount of N4.39 trillion, and the N3.36 trillion proposed for the first six months of 2023 are added to the figure provided by NEITI, it means the country would have spent a total of N22.88 trillion on fuel subsidy in 18 years.
There has been tumultuous uproar by Nigerians-who have not recovered yet from the cash crunch that led to slow GDP growth and the coronavirus pandemic induced recession-over the announcement by newly elected president Bola Ahmed Tinubu that would no longer be subsidy on Petroleum Motor Spirit (PMS) as the current 2023 budget makes no provisions for it.
The announcement triggered severe and menacing fuel scarcity and there has been long snake queues at the petrol stations as the price of PMS has risen to N600 a litre from the government approved price of N185, a double whammy for country where over 50 percent of the citizens live on less than $1.98 a day.
Of course, the scarcity is caused by major oil marketers who have hoarded the products as they do not know the price at which to sell the products.
Of course, black markets have sprawl like mushrooms as the price of PMS ranges between N1, 000 and N1, 500.
The government had been unable to deregulate the downstream oil and gas sector because of protest by the trade union who embarked on a nationwide strike that paralyzed economic activities.
“Notable, the current divergence between deregulated and regulated prices is a key contributing factor to the supply crisis currently being experienced in the domestic market,” said analysts at Cordros Securities Limited.
Analysts at Cordros Capital are of the opinion that until the full deregulation of PMS is attained, it may be difficult to curb product smuggling.
30 million litres out of the 90,000 million litres/day of PMS consumed daily in the Nigeria market is smuggled to countries surrounding the borders, according to a latest report by the Nigerian Petroleum Company Limited.
The country had one of the lowest prices for PMS in the world at a regulated price of N185 a litre.
The International Monetary Fund (IMF) had said Nigeria’s “fiscal outlook faces significant risks” with the emergence of fuel subsidies and slow progress on revenue mobilisation.
Describing fuel and electricity subsidies as regressive, the Washington-based fund maintained that Nigeria’s continued reliance on administrative measures to address persistent foreign exchange shortages was negatively impacting confidence.
“On the immediate front, fiscal and external imbalances require removal of regressive fuel and electricity subsidies, tax administration reforms and installing a fully unified market-clearing exchange rate, the IMF said.
“The complete removal of regressive fuel and electricity subsidies is a near-term priority, combined with adequate compensatory measures for the poor. The mission stressed the need to fully remove fuel subsidies and move to a market-based pricing mechanism in early 2022 as stipulated in the 2021 Petroleum Industry Act.”
The president Bola Tinubu noted that funds for subsidies will be diverted to other aspects of government like infrastructure, education, and jobs.
According to partnership for global infrastructure investment, Nigeria will require $3.3tn in the next 30 years for infrastructure, which exceeds the current capacity of the public sector.
The newly commissioned 650,000 barrel a day Dangote Refinery will significantly magnify the current petroleum supply inadequacies in the country, save the country $30 billion foreign exchange requirement, and provide $10 billion in export.
“Though previous attempts to remove the subsidy on petrol have in many cases, been met with resistance from the populace, causing the government to either decide on a partial removal or rescind the decision.
This time around, economic realities will limit the government’s ability to backtrack. Nonetheless, Nigerians are not likely to be happy with the decision to raise prices,” said analysts at CSL Stockbrokers.
“Undoubtedly, an attempt to revise the price to suit current realities will be strongly resisted by the populace who have been hard hit by two recessions and a pandemic in the last 7 years amid rising food and utility costs, making us retain the view we have held since the beginning of the year that the elimination of the subsidies will be gradual with palliatives put in place to ameliorate the expected shocks,” summed analysts at CSL Stockbrokers.