An energy expert has explained why fuel subsidy removal planned for June 2023 will not solve the challenges of fuel scarcity.
The fuel scarcity challenge that has been active in some parts of the country has been ongoing since the fourth quarter of 2022.
Meanwhile, independent marketers have already said the scarcity could continue until the fuel subsidy is removed in June 2023.
In an Arise TV interview on Monday, January 16, energy expert, Zakka Bala, who opposed the subsidy removal as a solution to the lingering fuel crisis, said that Nigeria has already removed subsidies in the prices of diesel, kerosene, and aviation fuel, yet, the country has not recorded any equitable competition in the value chain.
Backstory: In an interview last week, Mike Osatuyi, the National Operations Controller at the Independent Petroleum Marketers Association of Nigeria (IPMAN) said that fuel scarcity challenges will extend to June 2023, which is the date earmarked for the eventual removal of fuel subsidy.
“We are getting the product between N230 per liter and N240 per liter, without transportation. If I get the product at N260 per liter, how much should I sell? There is rent and arbitrage and they are not giving us the product at the official price even though the government promised to do so. It is until the federal government removes subsidy, that petrol scarcity will be over”.
Effect on Nigerian businesses: As a result of the subsidy removal on kerosene, aviation fuel, and diesel, Bala said Nigeria has recorded collapses in strategic commercial sectors in the country. He gave an instance with the challenge of Banks opening at 10 am and closing up at 3 pm because of an energy crisis as a result of the cost of diesel and availability of fuel for generators, due to scarcity and other challenges. He also said:
“If you go to some airports, there are flight delays and job losses due to energy crisis. Many people are not bothered to understand the meaning of subsidy and look at it from the Nigerian context. The subsidy is a globally accepted economic pain cushioning concept, so it is not unique to Nigeria alone. If the concept is not working in Nigeria, it will not invalidate the global meaning. What we should do is look at the inefficiencies that are stopping subsidies from working.”
- According to Bala, the only commodity left to be deregulated in the petroleum class is PMS (fuel). “If we remove subsidies in fuel, the Nigerian economy will grind to the cliff edge and collapse into the valley,” he said.
- Energy analyst, Kayode Oluwadare told Nairametrics that fuel subsidy payment removal could result in the closure of businesses and the negative global economic projections made by the International Monetary Fund (IMF) could make things even worse. According to Oluwadare:
- “Many Nigerian businesses are already struggling with survival due to power supply issues and some cannot afford to buy diesel which is deregulated. So, they switch to PMS generators to run their businesses. Stopping PMS (fuel) subsidy will mean they have no cheap substitute to run their businesses. What happens then?”
- For context, there are over 200 million citizens relying on less than 10,000 MW of electricity, so there is already a severe power supply deficit.
- For additional context, Ada Abel, General Manager at Abuja-based FQ Loaf Bakery told Nairametrics that the bakery buys diesel for up to N880 per liter from filling stations when there is a need to generate power supply following power cuts.
For the record: Oluwadare further spoke about the issue of subsidy removal, highlighting the fact that at this moment, Nigerians have the option to queue and buy fuel for cheaper rates at filling stations run by the Nigerian National Petroleum Company Limited, NIPCO, and, other private companies.
- However, if the fuel subsidy is removed, no one knows how things will play out and Nigerians will no longer have the luxury of queueing to buy at cheaper rates. So, the local economy is likely to have a crisis.
