The Federal Government appears to have reintroduced subsidy payments on Premium Motor Spirit (PMS), commonly known as petrol.
This move leverages the Nigerian National Petroleum Company Limited (NNPC) to manage market fluctuations and maintain a monopoly in the downstream sector of the nation’s oil and gas industry.
According to analysis, the NNPC is now incurring about N318 billion in monthly losses, which may be categorised as under-recovery. This situation echoes the previous administration’s clandestine reintroduction of subsidies.
The federation account bears the brunt of these losses, as funds are deducted before NNPC remits any money to the account designated for the three tiers of government.
This development comes weeks after President Bola Tinubu assured that petrol prices would not increase. However, market indicators suggest otherwise.
For instance, the international trading price of PMS has risen by nearly 20%, and the exchange rate has increased by over 12%.
As a result, the landing cost of PMS has surged, leading to an average subsidy of about N200 per litre, or N318 billion monthly.
Marketers have expressed concerns about their inability to import fuel due to restricted access to foreign exchange. This has led to a de facto NNPC monopoly, as the state-owned firm can subsidise fuel through its foreign exchange earnings.
Industry insiders warn that if this situation persists, many marketers could go out of business.
A Short-Term Fix with Long-Term Consequences
The Federal Government’s decision to reintroduce fuel subsidies through the NNPC is a move fraught with risks and challenges.
While it may offer temporary relief to consumers, it places an enormous financial burden on the federation account and sets a dangerous precedent for market manipulation.
The government must consider the long-term implications of this policy. By maintaining a monopoly and manipulating the market, the NNPC undermines the principles of a free market and discourages competition.
This could lead to inefficiencies and even corruption within the sector.
The subsidy puts an undue burden on the federation account, which is already stretched thin. This is not a sustainable solution and only serves to kick the can down the road.
The government should focus on creating a more transparent and competitive market, perhaps by allowing private players to import fuel and compete on a level playing field.
Steps for the Government
- Reevaluate the sustainability of fuel subsidies and consider alternative solutions.
- Foster a competitive market by allowing private players to import fuel.
- Ensure transparency in NNPC’s operations to prevent potential corruption.
A Sustainable Future Demands Bold Actions
The government must act swiftly and decisively to address these issues. Failure to do so could lead to a financial crisis and undermine the country’s economic stability.
Did You Know?
- Nigeria is Africa’s largest oil producer, yet it imports nearly all its refined petroleum products.
- The NNPC was established in 1977 and has been a significant player in the Nigerian oil and gas sector.
- Fuel subsidies are a contentious issue globally, often leading to protests and political instability.
- Nigeria’s local refineries are mostly dormant, requiring the country to import almost 100% of its PMS.
- The Petroleum Industry Act (PIA) aims to provide a legal framework for the Nigerian oil and gas sector but has been met with mixed reactions.