Buhari and The Politics of Petrol Subsidy

What promises to be by far the most impactful of President Buhari’s policies in his appropriation for 2022 will be what he does with the pump price of petrol.
The Federal Government plans to remove the subsidy on petroleum products and electricity in fiscal 2022. Yet, when he presented the 2022 Appropriation Bill to the joint session of the National Assembly, President Muhammadu Buhari did not mention that.
He simply lamented that it was a drain on government resources and pointed at the failed attempts made in fiscal 2020 to remove the subsidy. His words:
“The National Assembly will recall that in March 2020 the Petroleum Products Pricing Regulatory Agency announced that the price of petrol would henceforth be determined by market forces.
“However, as the combination of rising crude oil prices and exchange rate combined to push the price above the hitherto regulated price of 145 Naira per litre, opposition against the policy of price deregulation hardened on the part of Labour Unions in particular… This petrol subsidy significantly eroded revenues that should have been available to fund the budget.”
Petroleum subsidy is such a touchy subject that even Buhari would not touch it and possibly generate controversy while presenting his budget to the National Assembly.
It was left for the Finance Minister, Zainab Ahmed to announce the plans days later while presenting the budget. According to Ahmed, “Efforts at addressing revenue leakages include … elimination of regressive subsidies on petrol price and electricity tariffs”.
Ahmed announced that bold, decisive and urgent actions were required to achieve the budget’s objective, and that the government was determined to do the needful.
She however, added that government, nevertheless, realized the need for the vulnerable sections of the population to be cushioned from the impacts of such policies by safety nets.
Buhari has a history with petroleum. Between 1976 and 1978, he was Nigeria’s petroleum minister under Olusegun Obasanjo, then Head of State. Then, as a presidential candidate, he serially dismissed the issue of petroleum subsidy as fraud by the government in power. He also dismissed the IMF/World Bank’s calculation of oil subsidy.
“The cost of one barrel at the wellhead and then the cost of transportation to the refinery, the cost of refining it and its cost at the pump…If anybody says he is subsidizing anything, he is a fraud”, he had declared in 2011.
But by Quarter 2, 2019, as president, he climbed down his moral high horse. His finance minister, Ahmed, announced after a Federal Executive Council (FEC) meeting that the country had to do something to exit petroleum subsidy.
“We need to find how we can exit fuel subsidy. But how do we do that? We do that only when we have enough buffers to cushion the effects of the removal for our people…In some countries, they provide buses to transport people, in some countries they provide subsidies for people that are directly requiring the subsidies… We have not found a way to do it. What we are doing now, the subsidy, it is everybody that is benefiting, whereas it should be the people that are really vulnerable that need it”, she said.
It is significant that something could force Buhari into retreat, as this petrol subsidy did, which he publicly acknowledged. This was a man that ignored the cries of a large section of the public concerning the incompetence of some of his former military chiefs which saw Boko Haram hitting targets in the north-east almost at will and taking territory. For years, Buhari was deaf to the calls of many well-meaning Nigerians to change these military chiefs. And when he finally changed them, he filled the positions with men from only his section of the country and his religion. Again, he was deaf to the huge hues and cries raised by this appointment and other lopsided appointments. It was therefore a singular feat that petrol subsidy could force this man into a retreat.
So, here we are at the cusps of fiscal 2022. Minister of Finance, Ahmed has announced that petrol subsidy would be paid till June 2022 and no more. So, would Buhari finally, do it? What would it mean for his fiscal balances? And what would it mean for vulnerable Nigerians?
Buhari’s 2011 stance that fuel subsidy was a fraud, appeals to me. The parameters he based his argument on makes sense to me – “The cost of one barrel at the wellhead and then the cost of transportation to the refinery, the cost of refining it and its cost at the pump…”

I agree that it is corruption for the Nigerian Government to have virtually abandoned refining of fuel since the military era (1990s). At first, the calculation of the ‘subsidy’ was academic. The NNPC shipped crude to refineries abroad, including neighboring West African countries and collected refined products adding the bit it refined locally to make up supply. Then, it insisted on collecting the difference between the international fuel price benchmark and the local pump price. Nigerians protested against that, pointing out that even the products of the local refineries were charged at the international benchmark. It seemed to have prompted the NNPC to stop refining, resorting to full scale importation.
I recall the periodic fraud of turnaround maintenance (TAM) of the refineries which every president since Abacha has done with nothing to show for it. I recall that Sani Abacha’s government contracted a company which was noted for things other than engineering to do the TAM – akin to contracting a tailor to handle an open heart surgery. The outcome was predictable. Since then, it has been like that. Each outsider seeking the presidential seat perceives the odium of the NNPC’s scam and swears to clean it out. But on getting to power, they all appear to get converted.
Obasanjo wanted to correct this wrong when he privatized the Port Harcourt and Kaduna refineries on the eve of his departure. But his successor, Yar’Adua, reversed the privatization and the sleaze continued till date. Buhari’s government has enjoyed it for six years, and now looks set to staunch it with the Petroleum Industry Act 2021 (PIA) which Buhari has signed. With the PIA in place, it’s very likely that the petrol subsidy would be stopped in fiscal 2022.
If he scraps the subsidy, Buhari would make significant savings. His NNPC chief, Mele Kyari said that the fuel subsidy costs Nigeria between N100bn and N120bn per month. That amounts to between N1.2 trillion and N1.44 trillion per annum. That’s more than the education budget of N1.2trillion, the second largest allocation in fiscal 2022 budget – a very significant number.
But how would that affect vulnerable Nigerians? Recent estimates put Nigerians living under poverty level at about 90 million. If the government has any programme to cushion the effects of the removal of this subsidy, it has not disclosed. It was mentioned mid-2021 that the state governors wanted the subsidy gone, and that that could send the price of petrol to about N280 per litre. Nigerians will kick if they don’t see sufficient cushion for this drastic hike from the current N162 per litre.
According to the managing director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, Nigeria spends between N100bn and N120bn to subsidies domestic petrol supply monthly. That adds up to between N1.2trn and N1.4trn per annum.
Just think of how many roads this could fix every year; how many hospitals it could raise to world-class; how many standard gauge rail systems it can build. This humongous amount simply evaporates through the exhaust pipes of motor vehicles, finish! This list of alternatives to which it could be deployed to lasting benefits is very tempting, particularly for a politician who would want to render accounts of his stewardship in concrete terms.
For the populace too, the list of alternatives is tempting too. Who wouldn’t want to travel in comfort in a rail coach, rather than driving from Lagos to Onitsha, for instance? What real benefit is there patting the fuel tank of your car for guzzling part of a trillion naira?
So why was there resistance to the removal of fuel subsidy in 2020 as Buhari mentioned? Why would there still be resistance any time it is brought up in the near future? It’s all about its inflationary effect. Since 1986, each time the subsidy is removed, prices of everything shot up, driven by the increased cost of fuel.
The main medium of mass transportation in Nigeria is road, mostly by 14-seater commuter buses which run on petrol, replacing the luxury buses of the 1980s as the roads grew increasingly worse and hardly navigable for the latter. If you touch the price of petrol, the cost of transportation will head skywards. Nigerians are already overburdened and are sensitive to anything that can add to their burdens, however meaningful the intention is.
Added to this, there is a high level of skepticism from the populace each time the government says it wants to save money. For good reason, the people know that the saved money never gets accounted for; it simply vanishes into the black hole to which only the politicians in power have access. About the only one that was different, surprisingly, would be the government of Gen Sani Abacha. It created an agency called Petroleum Trust Fund (PTF) to handle the subsidy savings and execute specific social infrastructure projects – roads, hospitals, schools – for the people. Abacha employed Buhari to run the PTF, and that outfit gave the people the feel-good factor, if little else.
Minister of finance, Zainab Ahmed, noted in 2019 when this government first touched the petroleum subsidy matter: “We need to find how we can exit fuel subsidy. But how do we do that? We do that only when we have enough buffers to cushion the effects of the removal for our people…”
So, has the government worked out enough buffers to cushion the effects of the subsidy removal? We are yet to be told. Maybe the government is going the way that governments of other nations in similar situations didn’t think of. Recall that Ahmed had said in 2019 that: “In some countries, they provide buses to transport people, in some countries they provide subsidies for people that are directly requiring the subsidies… We have not found a way to do it…” If Buhari plans to follow any of these ways, the signs should have appeared, seven months to implementation. But let’s keep the watch.
But there is the possibility of reducing the impact and certain trouble if the government takes more time to prepare and not insist on July take-off.
A look at the details of inflation in Nigeria shows that food prices contribute highest to inflation. According to the National |Bureau of Statistics (NBS), year-on-year inflation hit a four-year high of 18.17% in March this year but slid marginally to 17.93% in May. In the same month, food inflation was 22.28%.
Hear what a World Bank report published June this year says about food prices in Nigeria: “Food prices accounted for over 60% of the total increase in inflation. Rising prices have pushed an estimated 7 million Nigerians below the poverty line in 2020 alone…”
In May, maize was the only Nigerian staple that had been harvested for the year, and only in the southern part of the nation. Yam and cassava had not been harvested. Ask any housewife (in the southern part of the country) and she will tell you that a ‘painter’ measure of garri sold for N1,400 around that same time and right through to late August when yam harvest started. By October, cassava harvest had kicked in, and the prices of garri dropped 50% to N700 for the same measure.
Given the prime place of food in inflation trends in Nigeria, choosing July to remove fuel subsidy is insensitive, if not downright ignorant. That is in the very heart of food inflation. The outcome will be very different should the government make its move late September or October.
Mind you, hardly is there any room for the average Nigerian family to adjust its budget to accommodate the certain effects of the removal of fuel subsidy. As things stand, the average Nigerian family spends some 56% of its income on food, the highest in the world (compared with 6.4%, 6.8%, 9.1%, and 9.8%. in the US, EU, Canada, and Australia), according to the US Department of Agriculture. Add school fees (over 43% of Nigerians are under 14), add housing, healthcare, transportation… and you see that Nigerian families are roasting. Some 45% of them (90 million) are projected to be living in extreme poverty, under $1.90 per day by 2020.
But if the government would make concerted efforts in agriculture to produce and very importantly, store basic foods, that would help Nigerians much. If the government plays the buffer stock manager, buying and storing in the time of supply surplus and selling in time of shortage, the pains of Nigerians would be reduced, and it would be easier to implement policies like fuel subsidy removal. Current attempts at this are grossly insufficient.