Fuel Price: Rejecting NLC’s Democracy of Cheap Petrol and Suicidal Subsidy

“After almost 50 years of fuel subsidy, it is very clear that what the fuel subsidy delivers to Nigerians is a “black market economy”, defined by intermittent scarcity, import dependence, multi billion naira illicit profits for a few, hoarding, diversion and smuggling of subsidised fuel, massive waste of foreign exchange, rising debts  etc”. 

The Nigeria Labour Congress (NLC) has recently issued a sharp rebuke against the Nigerian National Petroleum Company Limited (NNPLC) over its announcement of a new fuel price, set at N855 per litre. This increase has sparked outrage from the NLC, whose statement, signed by President Joe Ajaero, accuses President Tinubu’s administration of “betrayal” for implementing what they describe as a covert price hike.

The NLC’s discontent stems from an earlier agreement where the government committed not to increase petrol prices in exchange for a minimum wage settlement of N70,000. The Congress expressed profound disappointment, asserting that one of the reasons for accepting this wage was the assurance of stable fuel prices, despite acknowledging the inadequacy of the amount.

The Labour Union has demanded an immediate reversal of the fuel price increase, as well as the rollback of a recent 250% hike in electricity tariffs. They criticize the government’s policies as being driven by a “ferocious right-wing market agenda.”

Fuel Queues, $ 6.8 Dollar Debt to International Oil Traders and a Wobbly Naira

In the last 3 months, Nigeria has been plagued by fuel queues which get longer everyday. The NNPLC on Sunday 1st of September admitted that the scarcity of petroleum was due to “financial stress” i.e inability to pay the international traders supplying PMS.  The debt owed oil traders has been reported to be $6.5 billion. Hitherto, the NNPLC and the government have strenuously and consistently denied the  reemergence  of the fuel subsidy due to the depreciation of the naira.

Nigeria is engaged in a seemingly permanent  battle to attract forex inflow and stabilise the exchange rate. The subsidy on petroleum, the real cost of which is calculated to be near N1,300 per litre, is a major reason for Nigeria’s fiscal woes and exchange rate volatility. The Buhari regime subsidised imported petroleum for 8 years straight, borrowing from foreign banks to finance the addiction.

The cost of transportation of refined crude which is less than 10% of the pump price of petroleum is the only saving to be made when Dangote Petroleum Refinery starts to sell PMS to Nigerians.  Reverting to the price of petroleum preferred by the NLC would hence still mean subsidising the product by almost 70%.

Many Questions for the Nigeria Labour Congress

The NLC’s stance seems oblivious to the broader economic implications.

How will the NNPLC/ the Nigerian Government settle the outstanding $6.5 billion debt to oil traders? How will the government fund investment in physical and social infrastructure if it continues to  commit sums above its oil revenue to  subsidising fuel? (About 30% of the subsidised petrol is illegally exported).

What is the impact on the economy when millions of Nigerians spend hours queuing to buy petrol or in traffic jams caused by the queues.  NLC’s demands would likely worsen Nigeria’s fiscal and foreign exchange positions, deterring investment and leading to further job losses.

Nigeria has had the fuel subsidy in place for almost 50 years and billions of naira has been lost through the corruption the subsidy regime breeds. The subsidy regime has stifled investment in domestic refining, leading to a significant loss of refining capacity. The Nigeria Labour Congress seems fixated on maintaining subsidy and has scarcely expressed any concerns about the deep corruption and economic distortions it generates.

The NLC never issues any statement when Nigerians queue for hours and hours for petrol or when the media reports the smuggling of subsidised petroleum outside the country or the mega billion corruption associated with the fuel subsidy and NNPLC management of imported subsidised petrol. Labour is also never concerned when petrol stations and keg-carrying touts all over the country sell fuel at up to 50% over the subsidised price, some during the intermittent periods of scarcity and others that are far from capital cities, permanently.

Should Nigeria support a government-run system of corruption, scarcity and waste  and the never-ending multi-billion turn-around maintenance of NNPCL’s refineries?

Or should Nigerians support a future of deregulated  prices and efficient private operators like the Dangote, Aradel and Waltersmith Refineries?  The Dangote Refinery, exemplifies the potential benefits of a  fully deregulated, market-driven approach.

To generate electricity for its operations so as not to burden Nigeria’s power grid, Dangote Refinery built a 1,500 megawatts in about 3 years; it took Nigeria’s 6 power generating companies “a whole” II years to add just 760 megawatts of power to the national grid despite billions of naira of public funds invested. This is because Nigeria’s electricity system is also hobbled, even after the 2012 partial sale to private investors, by government ownership of huge chunks of the system and a regime of subsidies.

Subsidy Has Generated Scarcity and Want for All and Billions for a Few

Subsidies , not a “ferocious right-wing market” is what has been slowly killing the Nigerian economy since we started selling crude oil in large volumes in the early 1970s. The subsidy regime is now almost bankrupting the nation. It has wasted our national wealth, tied the public services in corruption and waste, and made us dependent on loans after wasting our own resources. What the public has gotten in return is poor services, scarcity and being saddled with policies that cannot generate investment and jobs.

Efficient private sector firms don’t pour their money in countries and sectors entangled in subsidies- Aliko Dangote has invested $20 billion in building a refinery only because of his immense political connections and knowledge of the system. Far more endowed businesses with a global track record in refining did not dare.   It is generations of the political managers of the subsidy system – and the senior public servants who administer it- that have become billionaires.

Do Nigerians really want to sustain this NLC vision of their future? Nigeria is broke and indebted. We have now “maxed out the credit”-after consuming our own wealth through subsidies, waste and corruption- it is now actually time we tried the discipline of the “ferocious right-wing market”!

The evolving downstream sector of the petroleum sector -a system built on private investment and market prices-should not be marred by the opaque and deeply corrupt subsidy system the NLC seems to be madly in love with. After almost 50 years of inefficiency and the shame of a major petroleum producing nation becoming dependent on imports of refined petroleum, Nigerians should be sick and tired of this insane romance with “cheap” petrol.

The subsidy system has long failed Nigeria, draining national resources and fostering corruption. Instead of clinging to an unsustainable model, Nigeria should embrace reforms that prioritize efficient, market-driven solutions. The public should rather advocate for effective programmes to mitigate the impact on the most vulnerable while pushing for improvements in education, healthcare and infrastructure investment  that create genuine economic opportunities.

True democracy involves fighting for policies that benefit all citizens, not just a select few in the NNPCL and Aso Rock. The NLC’s call for cheap petrol and mega subsidies represents a flawed vision of democracy, one that perpetuates economic hardship and corruption. A democracy in which the ultimate good that citizens can use their rights to fight for is cheap petrol and massive subsidies is an unworthy democracy.

After almost 50 years of fuel subsidy, it is very clear that what the fuel subsidy delivers to Nigerians is a “black market economy”, defined by intermittent scarcity, import dependence, multi billion naira illicit profits for a few, hoarding, diversion and smuggling of subsidised fuel, massive waste of foreign exchange, rising debts  etc.

Yes, we recognise the fact that the Central Bank of Nigeria’s less than competent handling of the exchange rate reform which resulted in 70% devaluation of the naira in 15 months and effectively restored the subsidy has created the need for yet another fuel price hike to again eradicate the subsidy.

But the attitude, “you’ve broken it so fix it at your own cost” is childish. The additional hundreds of millions of dollars that Nigeria has to pay for imported petroleum or that it has to forgo if crude oil is supplied, refined and sold domestically at a price below the international oil price is not a cost anyone in Aso Rock or the NNPCL is bearing. This cost  and the associated debt, opportunity forgone to increase our forex reserves and restore the stability of the naira or invest more in social and physical infrastructure is borne by Nigerians.

In fact, while Nigerians, including  generations unborn bear the cost, continued opaque subsidy “arrangements” create opportunities for elites for crooked multi-million dollar deals and the smuggling of subsidised fuel to neighbouring countries. This has been the pattern for four decades; it is suicidal to think the results will be different now.