Lies, damned lies about fuel subsidy removal in Nigeria, by Olu Fasan

For decades, removing the petroleum subsidy in Nigeria was a political hot potato and then a political football. The first metaphor refers to the squeamishness of some past governments about removing the subsidy. The second describes self-interested and hypocritical politicians whose presidential ambitions led them to be Janus-faced on subsidy removal. In 2012, Bola Tinubu viscerally opposed removing the fuel subsidy, only to remove it on his first day as president in 2023. Atiku Abubakar’s support for fuel subsidy removal was as solid as the Rock of Gibraltar. But recently, he did a remarkable U-turn! In societies where impact assessments are central to policymaking, whether to remove the subsidy would depend on adequate consideration of alternative options, the adverse consequences of withdrawal and sufficient mitigation. But President Tinubu’s abrupt removal of the subsidy on his inauguration bore no hallmarks of such detailed preparation. Indeed, he later said: “When I got to the podium, I was possessed with courage, and I said, ‘Subsidy is gone.’” Thus, he acted on impulse. Unfortunately, the narrative about the fuel subsidy removal is defined by deception, half-truths and outright lies.

For a riposte, let’s return to basics. The fuel subsidy was introduced in the 1970s as an imperative. The reason was simple. Because Nigeria could not refine its crude, despite having state-owned refineries, it had to import refined petroleum. But the costs of imported refined petroleum are determined by world crude prices and the naira’s exchange rate. So, with high world oil prices and a devalued naira, the landing costs of imported refined petroleum were very high, as was, by extension, the price citizens paid for petrol. Thus, to relieve Nigerians of an unbearable burden, the government sold imported refined products to the public at below-market prices, that is, at subsidised prices. That’s the genesis of the fuel subsidy. But the chain of causation is important: Nigeria’s failure to refine its crude led to its reliance on imported refined petroleum; its reliance on imported refined products, when combined with high world oil prices and the naira’s devaluation, led to high costs of imported refined petroleum and, by implication, a high pump price for petrol.

In those circumstances, the government must either subsidise petrol for its citizens or expose them to market-driven high energy costs.

However, worldwide, governments subsidise petrol for their citizens. According to the IMF and the International Energy Agency (IEA), more than 150 countries subsidise fuel to lower energy costs. Of the major oil producers, China, Iran, Saudi Arabia, Russia and India “account for the largest absolute dollar amounts spent on keeping fuel artificially cheap.” Following the Russian invasion of Ukraine and the US-Iran war, which hiked world oil prices and created an energy crisis, many countries, such as Indonesia, increased their fuel subsidies. In Britain, the new prime minister, Andy Burnham, announced a cap of £2 on bus fares, a third off fares, ensuring cheaper travel for millions of Brits. These countries subsidise petrol for their citizens to tackle the cost-of-living crisis and control inflation.

But what about Nigeria? Well, barely a decade after the fuel subsidy was introduced, many governments tried, albeit unsuccessfully, to scrap it on the basis that it was too expensive. As part of its Structural Adjustment Programme (SAP), General Ibrahim Babangida’s military regime tinkered with the subsidy but did not remove it. The civilian administration of President Olusegun Obasanjo abolished the fuel subsidy in 2004 but restored it two years later as world oil prices went up and unions protested. So, it could be argued that previous attempts to remove the fuel subsidy faltered because of harsh economic realities, i.e. impacts on citizens, and hostile reactions. But the moral case for withdrawing the fuel subsidy was also weak. In a major oil-producing nation where there’s no social safety net, where the state can’t provide basic amenities and where the country’s oil wealth, a national asset, has long benefited only the elites, the fuel subsidy was, for ordinary Nigerians, “the only direct benefit they enjoyed from their country’s oil wealth”, as Dr Ngozi Okonjo-Iweala once put it. So, from socio-economic and moral perspectives, removing the subsidy wasn’t straightforward.

Yet, arguments about the fuel subsidy’s unsustainability never went away. For instance, the subsidy reportedly accounted for about 15 per cent of government expenditure in 2022, and some estimates put the total subsidy payments during President Muhammadu Buhari’s eight-year administration at about $25bn (N35trn). But that’s part of the deception, half-truths and outright lies about the fuel subsidy because over half of that amount was linked to corruption. In 2012, a House of Representatives committee found that the subsidy regime “was fraught with endemic corruption and entrenched inefficiency”, with “subsidy payments claimed for products not delivered.” In his book The Shadow of Loot and Losses: Uncovering Nigeria’s Petroleum Subsidy Fraud, Abdulrasheed Bawa, a former EFCC chairman, revealed that Nigeria lost $450mn to fuel subsidy fraud between 2006 and 2012. And in 2023, Isa Yuguda, a former Bauchi State governor, told a TV station that a friend in the oil industry told him that he had told President Buhari: “Mr President, please remove the subsidy. We are tired of making money!” But, in truth, it’s not the entire subsidy itself that needed to be scrapped; it’s the corruption behind it. Yet, successive governments condoned the massive corruption.

Which brings us to the opportunistic politicisation of the subsidy issue. As some readers will recall, in 2012, President Goodluck Jonathan decided to remove the fuel subsidy. However, Tinubu, then in opposition, sponsored the “Occupy Nigeria” protests to torpedo the decision. Indeed, Tinubu wrote a newspaper article titled “Removal of oil subsidy: President Jonathan breaks social contract with the people”. He argued that removing the fuel subsidy “will increase the price of petrol, transport and most consumer items.” Yet, on his first day as president, Tinubu removed the subsidy. Leaving aside the hypocrisy and opportunism, the question is: Did Tinubu not realise that removing the fuel subsidy “will increase the price of petrol, transport and most consumer items”, as he said in 2012? Of course, all the adverse consequences he predicted in 2012 inevitably accompanied his withdrawal of the fuel subsidy in 2023 and have led to deepening and widespread poverty and misery across Nigeria.

The misguided assumption that the Dangote Refinery would be a game changer, “nullifying the need to import refined petroleum” and thus the need for a fuel subsidy, has proved to be exactly so: misguided! Before Tinubu removed the fuel subsidy, the price of petrol was N197/litre; today, it’s averaging N1,600/litre, despite Dangote Refinery’s “full operation”. So, what’s the policy justification for the subsidy removal? Well, the presidency cites a N15.8trn subsidy windfall, saying much of it went to state governments to pay teachers and pensioners. But what’s the number of public-sector employees and their dependants relative to the wider population? And can the employed make ends meet with higher petrol, transport and consumer prices? Whatever its merits, the subsidy removal makes life harder for Nigerians, not better!

Unsurprisingly, Atiku, a major candidate in next year’s presidential race, indulged in the politics of grievance by abandoning his long-held support for subsidy removal and promising to restore the fuel subsidy if elected. But reversing the fuel subsidy removal is not the solution. Rather, the answer is to heed the IMF’s call for “adequate compensatory measures for the poor and efficient and transparent use of the saved money.” Sadly, that’s not how the Tinubu administration has handled the subsidy withdrawal to date. Last week, President Tinubu told APC governors to reduce transport fares in their states by using compressed natural gas (CNG) and electric vehicles. But that was a gimmick. From a climate change perspective, one can justify removing subsidies on fossil-fuel use if part of the savings is invested in energy transition, including electric vehicles. But the trillions saved from the subsidy removal are not used to tackle poverty, energy costs and climate change; rather, they are being wasted, mismanaged and embezzled. That’s a major deception, a big lie, at the heart of the fuel subsidy removal: it’s an extortionary tool of an extractive state!