TELL Magazine

Says COVID-19 financial crisis responsible for hike in fuel, electricity tariffs.

The Federal government has called on Nigerians to support the present hike in fuel and electricity tariffs, explaining that the government is facing a financial crisis caused by COIVD-19 pandemic which has led to a 60 percent shortfall in revenue.

President Muhammadu Buhari said at the opening of the three days First Year Ministerial Performance Review Retreat which started on Monday in the Presidential Villa, Abuja that the pandemic has caused economic and social crisis, and disrupted life. The COVID-19 pandemic, he explained, “has led to a severe downturn in the funds available to finance our budget and has severely hampered our capacity to (work).”

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Removal of fuel and electricity subsidies were some of the measures the government took to survive the crisis. “One of the steps we took at the beginning of the crisis in March when oil prices collapsed at the height of the global lock down, was the deregulation of the price of premium motor spirit (PMS) such that the benefit of lower prices at that time was passed to consumers. This was welcome by all and sundry. The effect of deregulation though is that PMS prices will change with changes in global oil prices. This means quite regrettably that as oil prices recover, we would see some increases in PMS prices. This is what has happened now. When global prices rose, it meant that the price of petrol locally will also go up,” he explained.

What he did not say is that had the government kept faith with its stated plans in 2016 of resuscitating Nigeria’s four refineries in Port Harcourt, Warri and Kaduna, domestic supply of petrol, diesel and kerosene would not be subject to the vagaries of the international crude oil price and fluctuations in the price of the dollar.

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Ibe Kachikwu, then minister of state for petroleum resources, had on March 8, 2016, at a media briefing in Transcorp Hilton, Abuja, unveiled the government’s master plan for unbundling of the Nigeria National Petroleum Corporation, NNPC, and stabilization of petroleum products in the domestic market. Kachikwu said Nigeria was working to end importation of petrol in the next 18 months. That should have been in August 2017 had the government worked that plan, which was estimated to cost about $500 million to bring the four refineries back to full capacity.

In addition, to ensure self-sufficiency in domestic supply, government said it was discussing with new joint venture partners to build more refineries. Kachikwu said it was a shame that Nigeria imports most of its domestic petrol consumption.

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“The policy, on the whole, is that we must target a time frame of 12 and 18 months to get out of importation. It is not good for the country, it is not a good image; it does not create jobs and we lose tax when it comes to the government… We are working feverishly, trying to work with joint venture partners who can come in and work with us. We have advertised recently for co-located refineries and asking people to come and co-locate new refineries into our refinery premises so that they can share pipelines, tankages, and we are working hard to see that we can complete whatever refinery upgrade we are trying to do within the next 12 to 18 months.”

For the co-located refineries, he said that government would be “able to finish within two to three years; and if we do that, we will have excess capacity of refined products.” It was also expected that when Dangote’s refinery comes on stream, Nigeria would be exporting refined petroleum products with the consequent benefits along the value chain.

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Tragically, four years and five months later, that policy has not seen the light of the day. The rot and sleaze continue to the benefit of private pockets while Nigerians groan under the weight of unbridled exploitation.

TELL asked The Minister of State for Petroleum, Timipre Sylva, what happened to that policy he inherited at a media briefing he addressed alongside the ministers of information and power on Monday, September 7 in Abuja. In reply, he said helplessly that “We are in crisis” and all efforts are being concentrated to manage this crisis, which informed industry sources reaffirm was avoidable had the government been committed to the domestic self-sufficiency in refined petroleum products.

For Nigerians hoping for a reversal, the President said there is no such possibility. “There are several negative consequences if Government should even attempt to go back to the business of fixing or subsidizing PMS prices. First of all, it would mean a return to the costly subsidy regime. Today, we have 60 percent less revenues; we just cannot afford the cost. The second danger is the potential return of fuel queues – which has, thankfully, become a thing of the past under this administration. Nigerians no longer have to endure long queues just to buy petrol, often at highly inflated prices. Also, as I hinted earlier, there is no provision for fuel subsidy in the revised 2020 budget, simply because we are not able to afford it, if reasonable provisions must be made for health, education and other social services. We now simply have no choice.”

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Ironically, Buhari and APC faithful, under the propaganda of ‘Save Nigeria’ shut Nigeria down and forced the Goodluck Jonathan government to reverse its policy of removing fuel subsidy. Buhari promised to return the petrol pump price to N65.00 and stabilize the domestic market in six months if elected president. However, five years into eight years tenure, he has decided to do what he stopped the previous government from doing. Had Buhari and APC allowed removal of oil subsidy under Jonathan, today, Nigeria would have been better off for it.

At the media briefing, TELL asked Lai Mohammed, minister of information and culture, who led the APC propaganda against removal of oil subsidy then if the ‘progressives’ now acknowledge their error, and if they would apologize to Nigerians for misleading them to reject what the APC government is now forcing down their throats. That question brought the press conference to an end as the Minister declined to answer. He had explained why it was inevitable that government must take the ‘courageous’ step of hiking the prices of fuel and electricity.

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“As you are aware, the long-drawn fuel subsidy regime ended in March 2020, when the Petroleum Products Pricing Regulatory Agency (PPPRA) announced that it had begun fuel price modulation, in accordance with prevailing market dynamics, and would respond appropriately to any further oil market development. Recall that the price of fuel then dropped from 145 to 125 Naira per litre, and then to between 121.50 and 123.50 Naira per litre in May. With the low price of crude oil then, the cost of petrol, which is a derivative of crude oil, fell, and the lower pump price was passed on to the consumers to enjoy.

“With the price of crude inching up, the price of petrol locally is also bound to increase, hence the latest price of 162 Naira per litre. If, perchance, the price of crude drops again, the price of petrol will also drop, and the benefits will also be passed on to the consumers. The angry reactions that have greeted the latest prices of Premium Motor Spirit (PMS) are therefore unnecessary and totally mischievous.”

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He explained that the cost of fuel subsidy was too high and unsustainable. He revealed that from 2006 to 2019, fuel subsidy gulped 10.413 trillion Naira, an average of 743.8 billion Naira per annum. According to figures provided by the NNPC, the breakdown of the 14-year subsidy is as follows:

• In 2006, N257bn
• In 2007, 272bn
• In 2008, 631bn
• In 2009, 469bn
• In 2010, 667bn
• In 2011, 2.105tn
• In 2012, 1.355tn
• In 2013, 1.316tn
• In 2014. 1.217tn
• In 2015, 654bn
• In 2016, Figure Not Available
• In 2017, 144.3bn
• In 2018, 730.86bn
• In 2019, 595bn

Mohammed said in spite of the increase of fuel price to 162 Naira per litre, petrol price in Nigeria still remains the lowest in the West/Central African sub-regions.

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Below is a comparative analysis of petrol prices in the sub-regions (Naira equivalent per litre);

• Nigeria -162 Naira per litre
• Ghana – 332 Naira per litre
• Benin – 359 Naira per litre
• Togo – 300 Naira per litre
• Niger – 346 Naira per litre
• Chad – 366 Naira per litre
• Cameroon – 449 Naira per litre
• Burkina Faso – 433 Naira per Litre
• Mali – 476 Naira per litre
• Liberia – 257 Naira per litre
• Sierra Leone – 281 Naira per litre
• Guinea – 363 Naira per litre
• Senegal – 549 Naira per litre

Outside the sub-region, petrol sells for 211 Naira per litre in Egypt and 168 Naira per litre in Saudi Arabia. “You can now see that even with the removal of subsidy, fuel price in Nigeria remains among the cheapest in Africa,” reaffirmed Mohammed.

On the service-based electricity tariff adjustment by the Distribution Companies, the Minister also explained: “The truth of the matter is that due to the problems with the largely-privatized electricity industry, the government has been supporting the industry. To keep the industry going, the government has so far spent almost 1.7 trillion Naira, especially by way of supplementing tariffs shortfalls. The government does not have the resources to continue along this path. To borrow just to subsidize generation and distribution, which are both privatized, will be grossly irresponsible.”

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However, government has provided for the masses in areas with less than 12 hours of electricity daily. “In order to protect the large majority of Nigerians who cannot afford to pay cost-reflective tariffs from increases, the industry regulator, NERC, has approved that tariff adjustments had to be made but only on the basis of guaranteed improvement in service. Under this new arrangement, only customers with guaranteed minimum of 12 hours of electricity can have their tariffs adjusted. Those who get less than 12 hours supply will experience no increase. This is the largest group of customers.”

In addition, government would stop arbitrary estimated billing. “Accordingly, a mass metering programme is being undertaken to provide meters for over five million Nigerians, largely driven by preferred procurement from local manufacturers, and creating thousands of jobs in the process. NERC will also strictly enforce the capping regulation to ensure that unmetered customers are not charged beyond the metered customers in their neighbourhood. In other words, there will be no more estimated billings.

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Under the Sustainability Plan, the government is also providing solar power to five million Nigerian households in the next 12 months. This is expected to produce 250,000 jobs and impact up to 25 million beneficiaries through the installation.

Like in the case of fuel, Mohammed provides the prices of electricity in neigbouring countries.

COST IN NAIRA PER KWH IN SOME AFRICAN COUNTRIES.

• Nigeria N49.75
• Senegal 71.17
• Guinea 41.36
• Sierra Leone 106.02
• Liberia 206.01
• Niger 59.28
• Mali 88.23
• Burkina Faso 85.09
• Togo 79.88

On the timing of the tariffs increase, which has been strongly criticized, Mohammed explained, “This is a mere coincidence. First, the deregulation of PMS prices was announced on 18th March 2020, and the price modulation that took place at the beginning of this month was just part of the on-going monthly adjustments to global crude oil prices. Also, the review of service-based electricity tariffs was scheduled to start at the beginning of July 2020 but was put on hold so that further studies and proper arrangements can be made.

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“Like Mr. President said today at the opening of the Ministerial Retreat, this government is not insensitive to the current economic difficulties our people are going through and the very tough economic situation we face as a nation. We certainly will not inflict hardship on our people. But we are convinced that if we stay focused on our plans, brighter and more prosperous days will come soon”.

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