Fuel Subsidy Tragedy And The Way Forward

By Victor Ofure Osehobo 

Many Nigerians do not know what is fuel subsidy. They just want fuel in their cars. They wonder how Nigeria has crude and imports fuel. A Nigerian born in 1999 has been hearing about subsidy all its life and it appears it is bug the government cannot deal with. 

However, for the records fuel subsidy is a government policy that provides financial support to reduce the cost of fuel for consumers. It is a form of government intervention in the energy market aimed at *making fuel more affordable for consumers*. 

Fuel subsidies can take different forms, such as direct payments to consumers, *price controls, or tax reductions for fuel producers and distributors*. In some cases, subsidies are targeted towards certain groups of consumers, such as low-income households or specific industries.

Nigeria has been spending a fortune on this subsidy. According to reports, Nigeria spent over $5.8 billion on fuel subsidy in 2019 alone. According to reports by Nigeria's former Finance Minister, Mrs Ngozi Okonjo-Iweala, Nigeria also spent over $35 billion on fuel subsidy between 2010 and 2015. It spent about $5.6trillion between 2017 and 2022. The national oil company once said that about #400billion was being spent monthly on subsidy. Is this rationale?

The rationale behind fuel subsidies was to alleviate the burden of high fuel prices on consumers, particularly those who are economically vulnerable. They were also intended to promote economic growth and development by making fuel more affordable for businesses, which can reduce transportation costs and stimulate economic activity.

Today not a few of us realize that fuel subsidies have had several negative than positive consequences. They have been expensive for governments to maintain, especially as fuel prices keeps rising and the subsidy program has over the years been poorly targeted. Subsidies has also distorted market prices, leading to inefficient use of resources and  encouraged diversion of fuel, misuse and overconsumption of fuel. In addition, subsidies, for decades, created a disincentive for investment in renewable energy and energy efficiency measures, as they made fossil fuels more competitive.

Furthermore, the Nigerian fuel subsidy regime has contributed a great deal to environmental problems such as air pollution and climate change by encouraging the use of fossil fuels, which are major sources of greenhouse gas emissions.

Ironically, Nigeria has been considering removing fuel subsidy for several years, and each time the country's government announced that it would phase out the subsidy especially on premium motor spirit (PMS), which is commonly known as petrol, it has reneged. In 2022, the government decision to remove the fuel subsidy was driven by several factors. 

One of the main reasons is the high cost of maintaining the subsidy, which has been a significant drain on our country's finances. Though Nigeria is one of the world's largest oil producers, our refineries are outdated and underperforming, so we have to import most of our needed refined petroleum products, including petrol. The government has been subsidizing this cost of importing petrol to keep prices low for consumers, but this has been a costly and inefficient process that has put a strain on the country's finances.

The fuel subsidy had to go to promote transparency and accountability in the petroleum sector. The subsidy has been plagued by corruption and inefficiency, with some unscrupulous individuals and groups taking advantage of the system to enrich themselves at the expense of the government and the Nigerian people.

In addition, removing the fuel subsidy is seen as a way to encourage investment in the country's refining sector and promote the development of alternative energy sources. By removing the subsidy, the government hopes to create a more level playing field for private investors in the refining sector, which could lead to increased competition and efficiency. More Nigerian businesses need to follow Mr Aliko Dangote's lead and invest in developing refineries. It is also hoped that the removal of the subsidy will encourage more investment in renewable energy sources, which could help to reduce the country's dependence on fossil fuels.

No doubt, the decision to remove the fuel subsidy and the announcement by President Bola Ahmed Tinubu in his inaugural address is a controversial one. It has its supporters and critics. The fear that it will lead to higher fuel prices and greater economic hardship is true. The government has however pledged to mitigate the impact of the subsidy removal by implementing programs to support vulnerable groups, such as low-income earners and small business owners.

 

But far the largest rationale for the removal of the fuel subsidy is that Nigeria has significant potential for renewable energy sources, including solar, wind, hydro, and biomass. By transitioning to renewable energy, the country can overcome the challenges of removing the fuel subsidy and create a more sustainable and resilient energy system. 

The Tinubu government has a rare opportunity to solve the national energy challenges through several means. 

1. Promote renewable energy investment: 

The government must provide necessary incentives to encourage private investment in renewable energy, such as tax breaks, subsidies, and favorable regulatory policies. This would help to reduce the cost of renewable energy and make it more competitive with fossil fuels.

2. Develop renewable energy infrastructure: 

The government must invest in the development of renewable energy infrastructure, such as solar and wind farms, hydroelectric power plants, and biomass facilities. This would help to increase the country's renewable energy capacity and reduce its dependence on fossil fuels.

3. Implement energy efficiency measures: 

Nigeria must promote energy efficiency measures, such as the use of energy-efficient appliances and lighting, building insulation, and smart grids. This would help to reduce energy consumption and lower the demand for fossil fuels.

4. Support decentralized energy systems: 

The government must promote the development of decentralized energy systems, such as mini-grids and off-grid renewable energy systems. This would help to increase access to energy in rural areas and reduce the need for expensive fossil fuel-based infrastructure.

5. Provide capacity building and training: 

There must be deliberate government efforts to provide capacity building and training programs to develop the skills and knowledge needed to design, install, and maintain renewable energy systems. This would help to create new job opportunities in the renewable energy sector and promote economic growth.

By implementing these strategies, the Tinubu government can help Nigerians overcome the challenges of removing fuel subsidy and transition to a more sustainable and resilient energy system based on renewable energy. This would drastically reduce the country's dependence on fossil fuels, promote economic growth, and mitigate the impacts of climate change.