Africa’s largest oil producer is running out of gas, again

The long queues have returned to filling stations in Nigeria as scarcity of the important commodity returns to Africa’s largest oil producer following the failure of the federal government to offset subsidy claims.

Just months ago, a similar situation almost grounded the country. But it is happening again as the government failed to nip the problem in the bud. The Nigerian government is waiting for the National Assembly to approve payment of the latest claim by oil marketers — about $2.1 billion.

Nigerians who manage to get fuel in the past one month have had to endure endless queues or buy at inflated prices on the black market. This will not change until the oil markets are paid.

price as at November 16 source: http://www.globalpetrolprices.com/
prices as at November 16
source: http://www.globalpetrolprices.com/

The development brings to fore again the need for Nigeria to end the subsidy regime. With oil selling below $50 per barrel, several countries in the world have enjoyed lower pump prices of petroleum products but both the Nigerian government (in subsidy) and the people of the country have continued to pay unreasonably high prices for the products. Worse still, oil accounts for 80 percent of government revenue, meaning revenue has dropped drastically due to oil price slump. To pay the current claim by oil marketers, Nigeria has to borrow.

Despite being a major producer of crude oil, Nigeria does not have the ability to produce petroleum products to satisfy local demand as refineries are in bad states. The government, therefore, subsidizes fuel cost to ensure the people of the country pay less for the imported products. But with scarcity becoming too frequent due to delay in offsetting subsidy claims, Nigerians have ended up paying more for fuel for several months in the year. There have also been claims that only people in urban areas actually buy fuel at the government approved price. If a huge percentage of the poor people whose pains the government tries to assuage by paying part of the cost they should incur for fuel are actually paying more than the approved price, what then is the need for subsidy?

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When Nigeria appointed a new head for its national oil company earlier in the year, he said fuel subsidy is not sustainable. “Subsidy creates distortions in government revenue distribution,” Nigerian National Petroleum Corporation (NNPC) managing director Emmanuel Kachikwu said in August.

Although there has been claims in several quarters that once corruption in the oil sector can be addressed, subsidy payments would be worth it but despite the ongoing reforms in the sector, the recent subsidy claim is the highest in recent times leaving more questions to be asked.

President Muhammadu Buhari had promised earlier in the year not to remove fuel subsidy. Speaking after receiving a briefing from the Ministry of Petroleum Resources, NNPC and other agencies in the oil sector, the president said: “I have received many literature on the need to remove subsidies, but much of it has no depth.

“When you touch the price of petroleum products, that has the effect of triggering price rises on transportation, food and rents.  That is for those who earn salaries, but there are many who are jobless and will be affected by it,” he said.

Sadly, most of those salary earners and jobless people have had to spend more due to intermittent scarcity. No matter the price, they still have to buy.

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Despite increasing calls for the removal of fuel subsidy, the government is being careful about the decision. When the administration of ex-president Goodluck Jonathan attempted to remove subsidy in 2012, it led to nationwide protests. The present government is, therefore, believed to be threading softly on the path. But making difficult decisions such as removal of fuel subsidy is the reason why many voted President Buhari.

The president is now in a political dilemma on whether the regime which his Minister of State for Petroleum and head of the NNPC described as unsustainable should continue or not. But for anyone who thinks more of the economy before politics, now is the best time for the subsidy regime to stop.