My last Monday column, which called for a policy-focused election campaign rather than a pointless debate over President Bola Ahmed Tinubu’s school certificates, could not have been more prescient. Since former Vice-President and presidential candidate of the opposition ADC, Alhaji Atiku Abubakar unveiled details of his alternative fuel subsidy reform policy last Wednesday, the narrative landscape of the election campaign looks to have changed. Within 24 hours, presidential advisers, official and unofficial spokespersons, and even President Tinubu himself had responded to Atiku’s proposals through various channels. The media and Nigerians have also followed suit. This is as it should be and good for Nigerian democracy.
Now that we have two competing policies on fuel subsidy, a major issue that affects Nigerians, how are they different? This is a difficult question because a policy that is already three years in operation will compare generally unfavourably with an alternative that is still on paper. After all, all policies look better on paper. Still, we must try.
Having engaged repeatedly with President Tinubu’s main economic policies in these pages, I can identity three major issues with his subsidy policy. The first is the approach. Yes, the old subsidy regime had become fiscally unsustainable. But the real problem was not subsidy itself, but the systemic corruption, inefficiency, and lack of transparency in its administration. For example, fuel subsidy payments ballooned from a total of N578.07 billion in 2019 (6.5% of the budget) to N4.39 trillion or about 25 per cent of the budget in 2022. That is a staggering increase of 659 per cent. The outbreak of COVID in 2020 and the Russia-Ukraine war in 2022 both disrupted global oil prices, but 7-fold increase in the subsidy bill in just four years points more directly to the entrenched corruption in the subsidy programme.
As multiple investigations showed, importers inflated fuel import figures, received payments several times for the same products, and often for zero imports. Rather than a reform approach that deal with the corruption in the system, however, President Tinubu threw the baby away with the bathwater by removing fuel subsidy entirely. His approach, therefore, effectively transferred the burden of corruption perpetrated by a few individuals on all Nigerians. The Nigerian economy has been in a tailspin ever since as the prices of food, medicines, rent, school fees, and everything else have gone up three or four times from their 2022 levels.
Secondly, if the policy approach was wrong to begin with, the implementation has been worse. The policy implementation has been inflexible, inhumane, and contradictory. For example, while subsidy removal was supposed to improve public finances and reduce borrowing, the government has continued to borrow heavily, while savings from subsidy removal have largely gone to offset higher debt-servicing costs precipitated by naira devaluation. That’s a contradiction. Moreover, the policy has no clear human face. With subsidy in place under the late President Muhammadu Buhari, there was N-Power, TraderMoni, MarketMoni, FarmerMoni, etc. None of these exists now, and the government’s current Conditional Cash Transfer programme designed to cushion the effects of subsidy removal on the poorest Nigerians and supported by a World Bank loan has been anything but clear or effective.
The implementation has also been inflexible. Three years after, there has not been significant evaluation of how the policy affects Nigerians and what the government could do to mitigate the impact. When the U.S-Iran war broke out in February this year, and the price of petrol jumped from N800-N900 to over N1,400, the government could have been more flexible by instituting a temporary subsidy policy to cap prices until global crude oil prices return to near normal. The government did nothing and left Nigerians to their own devices.
Finally, the Tinubu government’s policy communication on fuel subsidy and other economic reforms has been combative and reactive, rather than meaningfully engaging. A World Bank 2024 report has stated that most of the increased allocations to the states has come from the currency unification policy, not subsidy removal, while the government’s own claims of N30 trillion or N15 trillion subsidy savings have been mired in controversy. Yet, the government insists its reforms are working fine, and any voices to the contrary have been dismissed as either politically motivated or not looking closely enough at current GDP growth rates, stock-exchange volumes, or increased allocations to states. But Nigerians experience the reforms very differently from the government’s statistical claims. The difference between statistical indicators and actual human experience of economic policy is a recurring situation the world over. Rather than appreciate this simple fact and revise its policy communication approach accordingly, the government insists it is right and Nigerians are wrong to complain.
All of these have left the Tinubu administration most vulnerable on one of its own signature policies. This is where Atiku’s proposals come into the picture. Atiku says he will begin by attacking corruption in the old subsidy regime, not by throwing the baby away with the bathwater, but by shifting subsidy from consumption to production. Rather than pay out hundreds of billions to briefcase fuel importers for ghost imports, Atiku would sell crude oil specifically for local consumption cheaper to refineries who must refine right here in Nigeria. This is why his subsidy policy is measured per barrel of crude oil rather than per litre of refined products. Furthermore, Atiku says he will track and trace every single barrel, from the source to the pump, through independent verification and auditing mechanisms.
Atiku’s proposal is closer to the model in the United States, where the American government provides subsidies to oil companies for oil exploration, extraction, research, and refining in return for lower prices at the pump. In fact, Atiku’s proposal is a return to Nigeria’s original subsidy policy. The federal government allocated a certain portion of Nigeria’s total daily crude production to NNPC at subsidised rates. The NNPC refined it in its four government-owned refineries, and then sell to marketers and Nigerians at significantly cheaper prices than international rates. The collapse of the refineries and fuel importation ruined all that.
As a policy, Atiku’s proposals have two marked advantages. First, it will bring back subsidy and cap prices at the pump. That means lower and more stable fuel prices. On the morning of May 29, 2023, a litre of petrol was N195-N230, depending on where you bought it in Nigeria. By evening of the same day, it had nearly trebled to N480-N600, due to President Tinubu’s announcement of subsidy withdrawal during his inauguration speech. It has more than doubled since then and now sells at about N1300. In other words, petrol prices under the Tinubu policy have had a 6-fold increase since 2023. And on top of the over N1000 increase per litre, the prices fluctuate almost on a weekly basis, which is not good for a fragile economy like ours.
Under Buhari’s eight years, prices changed several times but only by combined amount of about N110, from N87 to N195 per litre throughout. In five years under President Goodluck Jonathan, fuel prices increased only once by a change of N22, from N65 to N87. For many Nigerians, therefore, Tinubu’s subsidy policy feels punitive in a country that is a major oil-producing nation. Atiku’s plan will arrest the persistent price fluctuations by freezing prices at lower than the current rates. Even a subsidy that reduces the current price by 40 per cent in Atiku’s plan will lower the price from N1,300 to N780 and freeze it at that rate for longer. If it works out this way, and this is a big if, it can only be a good thing for the economy.
Furthermore, by shifting subsidy from imported consumption to local refining, the Atiku plan would also ensure long-term viability of local Nigerian refining capacity. Existing refineries would no longer have to operate under a climate of pricing instability, and new ones will be encouraged to spring up. This means more Nigerian jobs, and more value-chain multiplier effects in petrochemicals, fertilizers and agriculture, pharmaceuticals, paints and cosmetics, and above all gas and electricity generation. In short, Atiku’s plan is a real deal for Nigeria.
Yet, the Atiku plan still comes with several inherent problems. The first is the problem of smuggling. Nigeria is bothered by small nations that do not produce much oil of their own, where a litre of petrol sells up to three to four times whatever the price is in Nigeria. Our borders with those nations are more porous than a basket, resulting in rife smuggling of all kinds of commodities, from food items to petroleum products. It is easier to say you will track every barrel of crude from a refinery to the filling stations than to achieve it without an effective and secure pipeline network. Without a secure pipeline network or an effective mechanism to check smuggling, Nigeria would simply be subsidising petroleum products for our neighbouring countries, as we only too well know from past experience.
Moreover, Nigerians need to know the math of this policy. How much would Atiku subsidise for local consumption and what would be the impact on federal revenues and foreign exchange earnings? Nigeria now produces about 1.505 million barrels per day. If you allocate even just 25 per cent of that, or 376,000 barrels per day, the opportunity costs in terms of foreign exchange earnings and overall federal revenues could be massive. And third, the Atiku policy depends almost entirely on sound governance, presumably by the NNPCL. But the NNPCL is a different beast altogether. Its four refineries are grounded, and having borrowed heavily against future revenues years ahead, the NNPCL is up to its neck in debt on behalf of the federal government. NNPCL can scarcely be relied upon to deliver this sophisticated policy. So, who will do it?
All told, the new policy-focused direction of the election campaign is good for Nigerians, and I say to all sides, please bring it on.
UPDATE NEWS:
Nigerians can now invest ₦2.5 million on premium domains and profit about ₦17-₦25 million. All earnings paid in US Dollars. Rather than wonder,
click here to find out how it works.
