The debate on whether to retain or remove fuel subsidy has been reignited following the recent fuel scarcity in major cities across the country but economists are insisting that subsidy remains fraudulent and unproductive.
TechEconomy gathered, weekend, that some filling stations in Ilasamaja sold fuel at the rate of N180 per liter as against N165 sold previously. Queues had also started springing up in most filling stations in the metropolis.
It is this ugly situation that has resurfaced the conversation around fuel subsidy, the components, and the true cost, vis a vis the economy.
Data from the Nigerian National Petroleum Corporation, NNPC, Limited notes that payments for petrol subsidy cost the Federation Account N1.217 trillion in the first five months of 2022.
But the World Bank last week estimated that the increase in the global price of crude oil will push the fuel subsidy budget of the federal government from the current N4trn to about N5trn by the end of 2022.
Nigeria’s crude oil production averaged 1.42 million barrels per day (bpd) in May. The figure is 70,000 bpd higher than the average crude oil production in April.
Recall that the Nigerian government had set in motion plans to remove the subsidy late last year. But after wider consultations with stakeholders, it became untenable.
Economists are saying that fuel subsidy ought to have been removed many years as the non-removal compels the Central Bank of Nigeria (CBN) to continue to squander money.
“Fuel subsidy is clearly fraudulent, inefficient, and unproductive,” Godwin Owoh, Professor of Applied Economics, noted in a 100-page report seen by TechEconomy.
“When other countries talk about subsidy, it is about helping companies, including public enterprises, to maximize their profits. But the subsidy is equal to fraud in Nigeria.
Nobody understands what is being subsidized. This is the argument that has been made and we don’t need to wait for the World Bank to tell us how inefficient it is,” he said.
Owoh warned that interventions were major drivers of the country’s inflation, which currently stands at 17.7 percent, and warned that they would plunge the country into a deeper economic mess.
According to the World Bank, Nigeria could stand to lose more than N3trn in revenues in 2022 because the proceeds from crude oil sales, instead of going to the federation account, would be used to cover the rising cost of gasoline subsidies that mostly benefit the rich.
Shubham Chaudhuri, World Bank Country Director for Nigeria said with oil prices going up significantly, and with it, the price of imported gasoline, we now estimate that the foregone revenues as a result of gasoline subsidies will be closer to N5trn in 2022.
“And that N5trn is urgently needed to cushion ordinary Nigerians from the crushing effect of double-digit increases in the cost of basic commodities, to invest in Nigeria’s children and youth, and in the infrastructure needed for private businesses small and large to flourish, grow and create jobs.”