Nigeria: Uneasy Truce Over Fuel Imbroglio - African Business Magazine
Nigeria: Uneasy Truce Over Fuel Imbroglio

Nigeria: Uneasy Truce Over Fuel Imbroglio

The removal of fuel subsidies at the beginning of the year, which virtually doubled the price of petrol overnight, caused one of the biggest strike actions in the history of the country. A truce was finally hammered out mid-January and the strike was called off. But underlying tensions remain.

It was expected, yet when it came, many were caught unawares. There were already indications that the government had quietly removed the fuel subsidy regime when it did not include it in the 2012 budget presented to the National Assembly late last year. The government formally announced an end of the policy on 1st January, 2012.

In a terse statement signed by its Executive Secretary, Reginald Stanley, the government agency saddled with the task of ensuring availability of petroleum products in the country fixed the price of a litre of Premium Motor Spirit (PMS), popularly known as petrol, at N141 ($0.94) up from N65 ($0.43). This announcement effectively marked the beginning of the long-planned deregulation of petrol in the downstream sub-sector of the oil and gas industry.

Nigerians, who saw the subsidy regime as their own benefit of being citizens of a major oil-producing country, did not welcome the announcement. The organised labour unions under the leadership of the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC), in collaboration with civil society organisations, led Nigerians on an eight-day nationwide strike, which crippled socio-economic activities in the country, in an attempt to force the government to rescind its decision. During the industrial action, offices, markets and the nation’s airports were closed for business. Minister of Finance, Dr Ngozi Okonjo-Iweala put the economic loss suffered due to the week-long strike at N300bn (about $2bn).

Nigerians were particularly furious over the timing of the announcement on 1st January, a period when many people travelled to the hinterlands for the holidays. Transporters immediately hiked their fares by over 100%. This left many Nigerians, who had not prepared for subsidy removal, stranded at various locations across the country.  But Presidential spokesman, Dr Reuben Abati, insisted everyone was aware of the new policy before it was eventually announced. He said: “This particular announcement had been foretold. Government had prepared the people’s mind that in 2012, there will be no subsidy on PMS. The thing has been discussed on the radio, in the market and has been a topic in the public place. There was controversy on its take off time.”

Despite repeated assurances by the government that the perceived high price of PMS would gradually fall after some time, Nigerians refused to believe this: there is a common saying in the country that when prices go up, they hardly ever come down.

Reaching for a truce

A series of marathon meetings in Abuja to find an amicable way out of the log jam between the Federal Government team composed of state governors, ministers, other top government functionaries and organised labour followed. President Goodluck Jonathan, who had earlier announced some palliative measures to cushion the effect of the subsidy removal on the eve of the strike, which commenced on 9th January, made another national broadcast on 16th January, where he announced a downward review of the price from N141 ($0.94) to N97 ($0.65).  

Jonathan said: “Given the hardships being suffered by Nigerians, and after due consideration and consultations with state governors and the leadership of the National Assembly, government has approved the reduction of the pump price of petrol, to N97 per litre. The Petroleum Products Pricing Regulatory Agency (PPPRA) has been directed to ensure compliance with this new pump price.”

He also announced a number of other measures to cushion the effects of subsidy removal. Some of them include a slash in the basic salary of the executive arm of government by 25%; reduction of foreign trips by government officials and implementation of the Subsidy Reinvestment and Empowerment projects.

The government also announced plans to deploy 1,600 diesel-run mass transit buses to the major cities; resuscitation of the nation’s moribund rail transportation system to provide the masses with cheaper alternatives as well as employment of 10,000 youths in all states and Abuja.  

In addition, Jonathan promised to accelerate the passage of the controversial Petroleum Industry Bill into law. The Bill seeks to regulate activities of the oil companies in the country. His administration, he added, will expedite action on the report of the forensic audit carried out on the Nigerian National Petroleum Corporation (NNPC) with a view to implementing the recommendations and sanctioning proven acts of corruption in the industry.

The Economic and Financial Crimes Commission (EFCC) has already swung into action, swooping on the NNPC and the PPPRA, to probe potentially illegal subsidy payments to petroleum suppliers at the request of the Petroleum Minister, Diezani Alison-Madueke.    

On the same day, organised labour suspended its industrial action, even though it insisted that the new price regime announced by the government was a unilateral decision. Labour also agreed to work with the Justice Alfa Belgore Committee set up by the government at the inception of the deregulation policy, to address likely grey areas in the policy. Another committee headed by a former Nigerian High Commissioner to the UK, Dr Christopher Kolade, is charged with monitoring how the money saved from subsidy is used.

The government’s argument

The government’s argument has always been that fuel subsidy was no longer sustainable because it had become a huge drain on the economy. In 2011, the government said it spent over
N1.3 trillion ($6.7bn) on the subsidy. It had planned to use the funds saved to create more jobs and to boost infrastructure.  

Last year, in a no-holds-barred statement, the governor of the Central Bank, Maalam Lamido Sanusi, blasted some petroleum importers and distributors and accused them of robbing the country blind by falsely claiming subsidy funds  for products they either did not have or which had been smuggled to neighbouring countries.

The government said that the policy would help to check the smuggling and that if it allowed the subsidy regime to continue, the nation would be enmeshed in such a huge debt that even the next generation of Nigerians would not be able to repay.

It further argued that the subsidy benefited the rich and discouraged potential investors from venturing into the refinery business because they felt their investments will not be profitable. The average cost of building a refinery is put at N300bn ($2bn). Currently, none of the nation’s four refineries are working, despite a series of expensive turnaround maintenance carried out on them by previous administrations.

Accusations of corruption

The labour unions and civil society organisations had expressed surprise over the earlier announcement and alleged a breach of trust by the government on an agreement in 2009 that the removal of the subsidy would not commence until certain conditions had been met.

These include, among others, repairs of the refineries and building of new ones; improvement in power supply and addressing the identified corruption in the scheme. They said the government had put the cart before the horse by the action. In addition, they want the government to determine the actual consumption of petrol in the country to know how it arrived at its pricing template. This, they said, had become necessary due to conflicting figures presented by the various government agencies in charge of the petroleum industry such as the PPPRA, NNPC and the Department of Petroleum Resources (DPR).  

President-general of the TUC, Peter Esele, said: “By going ahead to implement the fuel subsidy removal, government has breached a subsisting position it has with labour, and this has eroded labour’s confidence in the government.”

Winners and losers

There are indications that investors may not be in a hurry to invest in the refinery business, as envisaged by the government, due to uncertainties trailing the subsidy removal. But the so-called oil cabals are winners as there is still an element of subsidy in place. The government, which is expected to provide the remaining N44 ($0.29) to make up for the N141 ($0.94) subsidy, will bear the burden. For labour, the strike has marked a new chapter in the struggle against oppressive government policies. However, the masses, who feel the pain the most, will pay more for goods and services in the country.

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Written by African Business Magazine

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