The New Fuel Regime and Its Implications

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When the budget was signed last week, President Muhammadu Buhari made it known that he shares in the plight of Nigerians. However, the announcement to remove the fuel subsidy by the Minister of State for Petroleum, Dr. Emmanuel Ibe Kachikwu, yesterday seems contrary to Buhari’s statement and this is not exactly the anticipated “change” Nigerians were well…anticipating.

Petrol in Nigeria has been fully deregulated and it will start selling at no more than N145 per liter from approximately N86.50 per liter. This implies that everyone can import standard fuel into the country and sell at a profitable rate.

This pronouncement made Nigerians skeptical because during the first town hall meeting of the Federal Government held in Lagos, the Minister told Nigerians that the refineries have started working again. This reduced the anxiety of average citizens who have long been held “hostage” by the fuel scarcity. If the refineries are working why can’t there be optimum production to ease the suffering?

Prices of virtually every commodity have gone up since the period of fuel scarcity prior to the complete removal of the subsidy. For the average Nigerian the fuel subsidy is not only necessary but worsened by the lack of dollars in circulation, which has placed significant pressure on the consumptive economy. Moreso, foreign exchange rates have risen and that legitimizes the new rate. Equally, salaries have not been increased to catch up with the economic realities of this time. Although, the labor unions have started demanding for an increase in the minimum wage to N56,000 per month from its current N18,000.

Fuel scarcity in Lagos

A history of price increases

In 1973 the price increased from 6 kobo per liter (the Nigerian cent at the time in relation to the naira) to 8.45 kobo until 1993 when it became N5 per liter. Even in the early 2000s, prices averaged about N20 per liter. Former President Olusegun Obasanjo kept increasing the amount until it averaged about N75 in 2007 and a transition to the administration of President Goodluck Ebele Jonathan increased prices at the pump to N141 in 2012. This led to an uprising by labor unions, and his administration was forced to reduce the price to N97 before it dropped to N86.50 due to the crash in oil prices in the international market.

Artisans and MSMEs (micro, small, and medium sized enterprises) the powerhouses of the economy, cannot work because there is neither electricity nor fuel and there is still a high level of purchase of petrol to generate power in the home and in the average Nigerian’s vehicle on the black market.

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A protester holds up a sign in 2012 the last time Nigeria saw a fuel price hike of this magnitude.

According the the Minister the price increase from N86.50 to N145, was the only way out of the exorbitant prices of N150 to N250 Nigerians were subjected to at many filling stations across the country. He however stated that the government had articulated many social protection programs in the 2016 budget to cushion the effect the hike may have on Nigerians.

Labor unions, specifically Nigeria’s Trade Union Association are set to resist what they are calling a “criminal” fuel price hike in opposition to the change. As much as President Buhari is on the path to “change” he might have to back down as Jonathan’s administration did in 2012 with the coming of nationwide protests.