The era of fuel subsidy is gone forever in Nigeria, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, has said.
Speaking on an Africa Independent Television (AIT) programme on Monday, Mr Kyari said, “There is no fuel subsidy anymore in Nigeria. It is zero subsidy forever.”
Going forward, the oil chief said, “There would be no resort to either fuel subsidy or under-recovery of any nature. NNPC will play in the petroleum marketplace, just like another marketer in the space.”
“But we will be there for the country to sustain the security of supply at market price,” he said, indicating the government was not deregulating the petrol sub-sector, and would still fix prices.
Mr Kyari described the NNPC as a transparent organisation, saying the state oil firm was probably the “only company in the world that publishes its monthly financial and operations reports.”
He said the corporation was proud of the initiative, assuring Nigerians of NNPC’s commitment and observance of transparency and accountability in all its transactions.
On the country’s current oil production amidst the decline in oil prices, he disclosed that as of last Sunday, Nigeria produced about 2.3 million barrels of crude oil, including condensates, even as he maintained that the plan was for the country to ramp up its production to about three million barrels per day in the nearest future.
Nigeria, he said, was endowed with the premium crude oil grades supplied to Europe, Asia and India, stressing that despite the impact of the current COVID-19 pandemic, which has affected demand and supply fundamentals, all of Nigeria’s export terminals are still in operation.
“The key issue in the crude oil business is market fundamentals of demand and supply. I believe #COVID-19 will subside and countries will come back to life. I don’t see oil prices going below the $20 we saw last week. I’m certain, all things being equal, oil price will bounce back,” Mr Kyari said.
The NNPC helmsman assured Nigerians of ample supply and distribution of petroleum products across the country, saying despite the coronavirus pandemic, the corporation had in stock about 2.6 billion litres of petroleum products that could serve the country’s energy needs for the next two months.
He said the NNPC was collaborating with all relevant stakeholders to ensure that the supply and distribution value chain was not disrupted to guarantee energy security for the country, particularly during the current crisis period.
Politics of Fuel subsidy
The Nigerian government has subsidised fuel for decades and fixed retail prices of petroleum products.
While some experts have called for total deregulation of the downstream oil sector, others have opposed it, saying the majority poor Nigerians may not be able to afford the products if the prices were not regulated and subsidised.
While diesel has been largely deregulated and retail prices at different filling stations allowed to vary based on market forces, the government has regulated the price of petrol, the most common of the petroleum products, especially in urban Nigeria.
When President Muhammadu Buhari assumed office in May 2015, he promised to abolish petrol subsidy from the fuel pricing templates of the Petroleum Products Pricing Agency ((PPPRA) and allow market forces to determine retail prices at the filling stations.
On May 11, 2016, he announced a controversial removal of fuel subsidy across the country.
The development saw the petrol price reduced initially to N86.50 per litre from N87 before adjusting upwards to N141. Later, the price was adjusted further upwards to N145 per litre.
Since then, the government quietly restored subsidy in the pricing template of petrol without any formal announcement.
Rather than call the excess cost above the N145 per litre ceiling fuel subsidy, the government gave the NNPC approval to describe it as ‘under-recovery’ as part of its operational cost.
The NNPC then became the sole importer of petrol into Nigeria and was essentially subsidising the product for users. The price remained at N145 per litre despite variations in the international price of crude.
In 2018, Nigeria spent about N722.3 billion on fuel subsidy, according to the Nigeria Extractive Industry and Transparency Initiative.
With the recent sharp decline in the global price of crude oil as a result of the impact of the coronavirus pandemic, Nigeria, for the first time since 2016, reduced the retail price of petrol by N20 to N125 per litre.
Last week, with the further drop of the crude oil price at the international market, the petrol price was again adjusted to N123.50 per litre.
With crude oil prices gradually building, amid interventions by the Organization of Petroleum Exporting Countries (OPEC) member countries to cut output to strengthen the market, it is not clear if the government would not bring back subsidy if the price builds beyond the previous ceiling price of N145 per litre.