The Nigerian Government announced on Friday that it has scrapped the Petroleum Support Fund, also known as fuel subsidy.
Speaking to journalists at the Port Harcourt refinery where he had spent Christmas inspecting the facility, the Minister of State for Petroleum, Ibe Kachikwu, said the government could no longer pay the subsidy due to the fraud tainting the scheme.
Mr. Kachikwu, who is also the Group Managing director of the Nigerian National Petroleum Corporation (NNPC), also added that the government could no longer afford the payment due to the dip in its revenue, caused by the drop in crude oil prices.
He said a new pricing template he signed off on Thursday effectively removed the payment of subsidy on petrol and that oil marketers would be informed of the development in the coming days.
The official price of petrol is N87 but it is sold for higher prices in many states of the federation.
When pressed on what the new price of petrol would be following the removal of the subsidy, Mr Kachikwu said it would sell for below the current official price, maybe as low as N85 per litre.
“It (new pricing regime) is out,” the minister said. ”I signed off on it yesterday (Thursday). I imagined that in the next couple of days the marketers would get advice on that. The nice thing about the PPPRA, where I signed up on it yesterday is that the price will be far below N87,” he said.
“So for the first time, people will understand that the pricing modulation I was talking about is not a gimmick. It is for real. We have gone to find out how we will be able to fluctuate this market to reflect what the reality of the crude market is. The objective is that one, we cannot afford to continue to subsidise.
“We can’t even understand where those subsidies were going to. There are a lot of fraud elements in it so we need to cut that off.
“The second is the earning capacity of the Federal Government is deteriorating by the day with lower prices of crude and come out more,” he said.
The call for government to scrap the payment of subsidy on petrol has become louder recently following the drop in crude oil prices.
Last week, a leader of the ruling All Progressives Congress and former Governor of Lagos, Bola Tinubu, joined the call for the government to scrap the subsidy regime.
Mr. Tinubu, who had opposed the removal of the subsidy under the administration of former President Goodluck Jonathan, said subsidy was originally a good idea, but it had since been “perverted”.
He, therefore, urged the government to divert the money it is currently paying on subsidy to other social programmes and infrastructure that would have more rewarding impacts on the people.
“In a perfect world, I wish we could sanitize the subsidy regime and thus continue (with) it. However, I have reached the conclusion that there are too many demons in the system for this hell to be converted into good earth let alone heaven,” he said while speaking at the 10th memorial anniversary of left-wing politician and scholar, Bala Usman, in Kaduna.
“I would choose to remove the subsidy and use the money to help people – let us feed our school children, with our local produce promote agriculture, create jobs and start erecting a social safety net for the vulnerable among us in true need,” he added.
On Tuesday, President Muhammadu Buhari told a joint session of the National Assembly that he had directed “the Petroleum Products Pricing Regulatory Agency (PPPRA) to adjust its pricing template to reflect competitive and market driven components” that would keep the price of petrol selling at “N87 per litre for now.”
According to Mr Kachikwu, the President’s comment was informed by the analysis that was done that put the price at below the official price of N87.
“But in applying that where we landed when we did the analysis for the very first time was about N85 or N86 so it is below N87.
“And maybe the first price that will come will reflect it. That was why Mr. President said that prices will be N87 for now. And that is what we have in mind,” he said.
The announcement on fuel subsidy removal came two days after the Nigerian Labour Congress threatened it would vehemently oppose any cut on the subsidy regime.
At the end of its Central Working Committee meeting in Abuja, the NLC said the discordant pronouncements from government officials on plans to cut subsidy was creating panic and confusion in the system, even as it reaffirmed its opposition to any fuel price increase.
An attempt by the government to cut fuel subsidy in 2012 led to what came to be known as the #OccupyNigeria protest.
Nigerians were outraged when in the early hours of January 1, 2012, then President Jonathan announced the removal of subsidy from petroleum products.
The then president’s New Year announcement meant that PMS, which sold for N65 a litre – with subsidy – would go for N141, more than a hundred per cent increase.
This action translated into more than one hundred per cent increase in fares, food, rents and virtually every all goods and services in Nigeria.
Petrol is central to Nigeria’s economy and literally close to every Nigerian’s heart.
Expectedly, that announcement immediately drew Nigerians to the streets, sparking spontaneous protests across the country.
But it soon became clear that the subsidy regime was characterised by monumental fraud.
For instance, to benefit from the 2011 fuel subsidy largesse, some oil companies “manufactured” fictional oil ships (vessels) they claimed traversed seas and oceans of the world carrying imaginary petrol, with Nigeria the final destination of the product, a Technical Committee set up by the Federal Government discovered.
For supplying this phantom product to Nigeria, some seven companies pocketed a princely N13 billion naira from the 2011 fuel subsidy payments, the committee’s report, exclusively obtained by PREMIUM TIMES at the time, showed.
Some other companies, not wanting to create fictional vessels, decided to space- travel existing ones; such that real vessels, which were definitely in countries like China and UAE, were purported to have discharged petrol into storage depots in Nigeria at the exact time they were in those other countries. The 11 companies involved in this category of fraud pocketed N21 billion from the 2011 subsidy payments, the report said.
Sources in the oil industry revealed at the time that those companies were able to perpetuate the crime with the help of field officers of the Petroleum Products Pricing and Regulatory agency (PPPRA) and the Department of Petroleum Resources (DPR), men of the Nigerian Navy, Nigeria Custom officers, banks and others involved in the various stages of fuel importation.
The companies and their owners are still being prosecuted by the Economic and Financial Crimes Commission.