from Africa in Transition

Fuel Subsidy Haunts Nigeria — Again

May 30, 2012

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Sub-Saharan Africa

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According to the Nigerian press, funding for the fuel subsidy has run out, with seven months left in the year. Further, the press quotes the executive secretary of the Major Oil Marketers Association for Nigeria (MOMAN) as saying that the government has made no payment toward the fuel subsidy in 2012. In other words, it is substantially in arrears. Apparently, oil imports have continued, with a spokesman for the Nigeria National Petroleum Corporation (NNPC) stating that there is enough in the country: "But the product will not be for too long and we shouldn’t wait until we have a crisis before we start looking for a solution." The danger is that imports of petroleum—upon which the country is dependent—will stop. That would lead to fuel shortages in a country in which most goods move by road.

The Ministry of Finance estimated daily fuel consumption at 19 million liters daily. But, according to the press, NNPC says that actual consumption has been 33 million liters. A way out would be for the National Assembly to increase the appropriation for the fuel subsidy. But President Jonathan and Ngozi Okonjo Iweala, the Minister of Finance, have said that their goal is to eliminate the subsidy altogether because of its costs and the distortions it causes in the market.

However, the National Assembly may not be happy. In January, when President Goodluck Jonathan tried to abolish the fuel subsidy, the country faced a general strike. Jonathan backed down, and restored part of the subsidy. But in the aftermath, the House of Representatives established an ad hoc committee to look into the fuel subsidy led by Farouk Lawan. It uncovered massive fraud in the operation of the subsidy, and, according to the press, it calls for the overhaul of NNPC and the Petroleum Product Pricing and Regulatory Agency (PPPRA.) The committee’s report has political traction. For example, lecturers at Ahmadu Bello University in Zaria are calling for President Jonathan to act on the report.

Though Nigeria is one of the world’s larger oil producers, it is dependent on importing gasoline and other petroleum products because of a lack of refining capacity. The fuel subsidy is very popular because it is the only means by which most Nigerians benefit from the country’s petroleum. I am told that civil organizations and trade unions have contingency plans in place for strikes and demonstrations should the government seek to eliminate the fuel subsidy altogether, as it might be tempted to do in light of the current fiscal shortfall. That puts the government between a rock and a hard place, given its apparent shortage of revenue.

More on:

Sub-Saharan Africa

Financial Markets

Nigeria

Heads of State and Government

Economics

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