Fuel: Buhari’s unkept promises, failures and bungled subsidy policy

Before taking office in 2015, President Muhammadu Buhari and his party, All Progressive Congress (APC), repeatedly criticised past governments for failing to solve Nigeria’s perennial petroleum sector problems.

Mr Buhari called for a reduction in the prices of petroleum products amidst efforts by the Goodluck Jonathan government to deregulate prices and end subsidy payment. He said there was no such thing as “subsidy” and dismissed it as a scam used by government officials and their cronies to steal public funds.

When oil prices fell in 2015, the then opposition leader urged the government to “stop stealing from Nigerians and allow them to enjoy the relief that has come to consumers of petroleum products globally.”

In his response to the fuel scarcity in the country in March 2015, Mr Buhari lambasted past governments and Mr Jonathan for failing to fix refineries and leaving Nigerians at the mercy of fuel imports. He reminded Nigerians that two of the four refineries in the country were built under his watch as petroleum minister in the 1970s.

“The countless man hours that will be spent at petrol stations today, will reduce our productivity as a nation. This should not be so,” Mr Buhari said. “In my time as NNPC chairman and Petroleum Minister in the late 70s, 2 of our 4 refineries were built, and domestic consumption catered for. But over the last several years our refineries have declined, and we are at the mercy of imports.”

Many Nigerians enthusiastically welcomed Mr Buhari’s promise to end Nigeria’s years of fuel curse to allow citizens enjoy reliable supply and pricing.

As president, Mr Buhari appointed himself petroleum minister and seemed ready for the important assignment. He pledged to revitalise the dysfunctional refineries and boost foreign reserves by ending the importation of refined fuel.

These have not materialised seven years into the president’s eight-year term. More than any other in the past, the current fuel scarcity, especially in Abuja and Lagos, which has lasted months, has shown just how little the government has done to solve the fuel problem.

Refineries not working, scarcity persists

Fuel queues returned to Nigerian cities last November amid reports of a likely price increase by marketers, but the NNPC denied that the government is not planning a hike. It got worse in February after the importation of substandard fuel from Europe.

The federal government said methanol, a chemical additive, found in recently imported fuel exceeded Nigeria’s specification.

President Buhari directed that producers and providers of the off-spec petrol imported into the country be held accountable. There has been no update on that since.

The scarcity continued throughout March.

The government has not fixed the refineries for seven years.

The Port Harcourt Refining Company (PHRC) is made up of two refineries located at Alesa-Eleme, Rivers State and was commissioned in 1965 and 1989 respectively.

While the older refinery has a refining nameplate capacity of 60,000 barrels per day, the other has refining capacity of 150, 000 barrels per day, that’s about 210,000 barrels total refining capability a day.

Also, the Kaduna Refinery and Petrochemical Company (KRPC), has a refining capacity of 110, 000 bpd, and the Warri Refinery and Petrochemical Company (WRPC) is located in Warri, has a capacity to refine 125,000 barrels a day. But none of these is functional.

Despite spending billions of naira annually for the servicing and maintenance of Nigeria’s refineries, the country still imports refined crude.ⓘ

The Federal Executive Council (FEC) last year approved $1.5 billion (about N600 billion) for the rehabilitation of the Port Harcourt refinery, assuring that rehabilitation works on Kaduna and Warri refineries would also be carried out on or before May 2023. The project was widely criticised as wasteful, and nothing has since been heard of it.

Subsidy fiasco

Nearly all past governments made efforts to do away with fuel subsidies but all failed. When the Jonathan government attempted to remove fuel subsidy in 2012, it faced widespread outrage as the move sent the benchmark price of petrol from N65 to N141 per litre, and pushed inflation skywards.

That was the era of #OccupyNigeria protest, in which hundreds of thousands of Nigerians took to the streets, amongst them, Mr Buhari.

After days of protest, marked partly by the government’s clampdown on protesters, the administration reversed fuel price to N97. Just before leaving office in 2015, it was further reduced to N87 per litre.

The Buhari government began its move against subsidy in December 2015 by scrapping the Petroleum Support Fund and declaring an end to the era of subsidy payment.

Yet, appreciating the sensitivity of the matter in a country citizens regard cheap fuel as one of few benefits they derive from the government, Mr Buhari and the Minister of State for Petroleum at the time, Ibe Kachikwu, assured Nigerians that even with the removal of subsidy, the price of petrol would remain at N85 per a litre they met it.Advertisements

The government however argued that it was unsustainable to continue paying to make imported fuel cheap as fraudulent importers had seized on the arrangement to steal from the country. Mr Buhari took the nation by surprise a year later when his government abruptly increased the price of petrol to N145 per litre in 2016.

The government persuaded Nigerians to accept the increase, and like the Jonathan government which introduced the so-called SURE-P, pledged to channel saved revenue into pushing the refineries back to life.

When fuel queues resurfaced during Christmas celebrations in 2017 and New Year events of 2018, the NNPC said the landing cost of petrol was for months about N171.40 per litre.

With fuel selling at N145, it meant the government was covering a differential of N26.40. It was one of the few times the government suggested it was still paying subsidy although it would not formally admit it as that would seem hypocritical.

The NNPC and the fuel marketers traded blame on who was responsible for the scarcity, and it resulted in rising retail prices that averaged about N200 per litre in most states, except Abuja and Lagos where filling stations in the metropolis sold for N145.ⓘ

While the NNPC accused marketers of sabotage by diverting supplies to the hinterland and across the borders to neighbouring countries for profiteering, the marketers, in turn, blamed the NNPC for not having sufficient stock to complement growing demand.

It became evident when the government was quietly continuing with subsidy and indeed earmarked N305 billion for petrol subsidy in the 2019 budget proposal. Between 2006-2018, Nigeria spent $24.5 billion  on petroleum subsidies. In 2019 and 2020 about 3 trillion Naira ($7 billion) was spent on subsidies.

This amount is expected to increase this year and next. The administration never admitted it was paying and to mislead Nigerians, it introduced a new tagline for subsidy, calling it “under-recovery”.

In 2019, amid a new round of scarcity, the Petroleum Products Pricing Regulatory Agency (PPPRA) revealed that subsidy on petrol had risen to N47.5 per litre.

By 2020, Covid had arrived, forcing down the price of oil to as low as $20 a barrel. The government seized the moment yet again to announce another end to “under-recovery”.

“Nigeria cannot sustain its low pump prices of petrol amid shrinking revenue and poor foreign exchange earnings,” President Buhari said on his 60th independence anniversary in 2020.

He said that Nigeria suffered a significant drop in foreign exchange earnings and internal revenues due to a 40 per cent drop in oil prices and a steep drop in economic activities as a result of the Covid-19 pandemic.

“In this regard, sustaining the level of petroleum prices is no longer possible,” he said.

Because of this, Mr Buhari said petroleum prices in Nigeria were to be adjusted, and fuel price rose to N161 per litre.

To further justify the reason for the increase in fuel price, the president said, “it makes no sense for fuel to be cheaper in Nigeria than Saudi Arabia.”

“Chad, which is an oil-producing country, charges N362 per liter; Niger, also an oil-producing country, sells 1 liter at N346. In Ghana, another oil-producing country, the petroleum pump price is N326 per liter, Egypt charges N211 per liter and Saudi Arabia charges N168 per liter,” the president explained.

In November 2021, the government said yet again it will remove fuel subsidy by mid-2022 and replace it with a monthly N5000 transport grant to poor Nigerians as a measure to cushion the potential negative impact that would spring up. Many interpreted it as another attempt to end subsidy to pay subsidy.

The finance ministry said the transport grant would target 30 to 40 million poorest Nigerians, but our analysis revealed the plan seemed a typical government design to mislead citizens as the government would have needed N2.4 trillion to make the payment, even more than N1.8 trillion it was paying as petrol subsidy yearly.

The plan to end the subsidy a year before national elections was yet again reversed. The Minister of Finance, Zainab Ahmed, in January said the government had realised the timing was “problematic”, and will worsen the suffering of Nigerians.

Subsidy removal now is expected to drive the price of petrol a litre to N344 per.

Credit: Premium Times