Fuel Scarcity: The federal government has quietly reintroduced subsidies, what does this mean for the economy?

Buhari, Ibe Kachikwu, Fuel scarcity

Have the queues spurred by fuel scarcity around the country disappeared?

If the answer is yes, it is likely for two reasons. One, that many persons have given up hope of getting the product after the peak days of travelling for Christmas events have passed. The second reason would be that the Government has waded into the crisis, pulled its weight and taken on some of the burden of importing crude oil for use by the electorate.

At the height of this season’s crisis, government had to take up the responsibility of supplying the demand of the nation. The NNPC took over the jobs of the independent marketers who have apparently been pressuring government to push up the pump prices due to rising landing cost. The global dynamics of petrol supply during the winter season in Europe usually play a role in making the import of the refined product more expensive, the marketers say, hence the need to raise prices.

The Buhari administration did not want to raise the prices, however, and has had to be directly involved in order to keep the price at N145 per liter. This, Nigerians have been told, involves the government paying N40 for every liter purchased at the usual price to cover for the landing cost N171.40.

The NNPC has promised to supply 1.2 billion liters in January 2018 which translates to about 40 million liters per day. The nation’s oil company insists that it will maintain the ex-depot price of N133.28 per litre so as to prevent any rise in the pump price. This will imply that the government will be shelling out N48 billion in the new year to subsidize for its import of fuel into the country. This does not include what it has already spent this December to alleviate the scarcity that has lasted more than three weeks.

21st December: NNPC increases fuel supply from 30 million litres to 80 million litres.

23rd December: NNPC announces Total, Forte Oil, Oando, MRS, 11 and NIPCO are loading products round the clock from their various depots in Lagos for trucking to parts of the country

25th December: FG announces it will pay N40.70 for every litre imported to ensure pump price remains N145 per litre. At N40 per litre for subsidy, this would amount to N1.2 billion and N3.2 billion for the 30 – 80 million litres imported.

The Buhari administration put an end to the fuel subsidy regime in 2016. However, the scarcity of the present season has produced a necessity for intervening in the market with deregulation and liberalization of the petroleum sector still more a dream than reality.

Whether these interventions set to continue next year are to be called subsidies, or ‘implicit costs’, the fact that the government continues to give out money to certain persons for price control negates all the gains being preached since 2012 about the removal of fuel subsidies. The Buhari government has averted the backlash received by the former administration of Goodluck Jonathan but it will eventually have to be bold on what it intends to do in the long term to create a stable market of refined products in the country.

Evidently, the golden solution would be to bring life back to the nation’s refineries. This has not happened in the first two and a half years of the administration’s life. Perhaps it is preserving this as a tool to win over swing voters in 2019? Whatever may be its game plan, bringing a lasting solution to the frequent fuel supply difficulties in Nigeria is just one of many wishes Nigerians desperately look forward to as a New Year approaches.

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