The presidential candidate of the Labour Party, Peter Obi, has repeatedly declared his intention to end Nigeria’s fuel subsidy regime if elected president.
But as it turns out, the Nigeria Labour Congress (NLC) is very much against any plan to remove fuel subsidies in the country. And this has created confusion among Nigerians, seeing as there is a strong tie between the Labour Party and the NLC.
The connection between LP and the NLC: The Labour Party is the brainchild of the NLC and Nigerian workers. In July 2022 interview, NLC President Ayuba Wabba confirmed that the Labour Party was registered and promoted by the NLC and working Nigerians.
He also disclosed that statutorily, the NLC and the Trade Union Congress (TUC) are members of the Central Working Committee and the National Executive Council of the Labour Party. However, neither the NLC nor the TUC micromanages the party.
Where the contradiction lies for Obi and NLC: Peter Obi has repeatedly stated that fuel subsidies will be removed immediately after he becomes president, if he ever does. It may strike some people as odd that Obi wants to remove subsidies as a Labour Party candidate when the Nigerian Labour Congress (NLC) has vehemently opposed the removal of fuel subsidies for years.
In January 2023, the President of the NLC issued a statement highlighting the fact that in the face of rising inflation and difficult economic conditions, the Nigerian worker has not had the luxury of an increase in salaries. So, it would be unfair to remove fuel subsidies, without at least attempting to resolve some outstanding issues. He said:
- “Pronouncements by some leading presidential candidates to remove petrol subsidy if elected to office do not address recovery of local refining, affordable refined products, decent jobs, economic expansion, wealth generation, and shared prosperity.
- “The penchant to mouth subsidy removal as a solution to government’s criminal neglect of our public refineries is not only wicked, but also betrays a predilection to lazy quick fixes, surrendering our economy to foreign interests, transfer of government inefficiency on Nigerians, and enslaving our people with poverty and hardship.”
Wabba also pointed out the effect the removal of kerosene and diesel subsidies have done on businesses and households, as many Nigerians can no longer afford the commodities.
So, as the NLC is opposed to fuel subsidy removal and the Labour Party candidate, Peter Obi is in support of the removal, isn’t that a clash of interests? As earlier noted by Wabba, the NLC wants the country to be self-reliant in crude refining before the fuel subsidy removal is carried out.
Can 100% refining capacity make a difference? In its Public Finance Review report of November 2022, the World Bank notes that increased domestic petrol refining will have little effect on the cost of petrol supply and will not reduce the fiscal burden of the petrol subsidy materially. The World Bank suggests that Nigeria supplies petrol to consumers by either selling crude oil to the highest bidder and importing petrol from the lowest-price bidder or refining domestic crude to produce petrol and other fuels.
- The oil revenue accruing to the government should be the same in both cases, as domestic refineries should purchase crude at the prevailing international price. The savings from switching from imports to domestic refining would arise from shipping costs, which are about $0.01–0.04 or ₦4–17 per litre.
- The report also notes that benchmark petrol prices are set in the major global refining centres, where economies of scale and other sources of efficiency enable refiners to keep the cost of refining low, offsetting the disadvantage incurred by shipping costs.
The need to remove the petrol subsidy: To finance the subsidy, the government must increase its borrowing, raise additional revenue elsewhere, or reduce spending on other public goods and services. This will only result in hindering growth and weakening the fiscal accounts.
- Stakeholders note that petrol subsidy payments prevent consumers from adjusting their purchasing behaviour in response to changes in the cost of supply and create financial incentives to overconsume petrol, resulting in a loss of consumer surplus.
- Also, the subsidy distorts relative fuel prices, encouraging the use of petrol even when other energy sources like clean energy, might be more efficient.
