The Nation Newspaper

Tag: price

  • More firms to close shop over gas price, says MAN

    The Manufacturers Association of Nigeria (MAN) has  said more firms are set to close shops following  the the scarcity and high cost of gas.

    Speaking with reporters at the MAN House in Ikeja Lagos yesterday, its Chairman, Gas Users Group, Dr Micheal Ola Adebayo said the issue of high cost of natural gas has persisted for some time now and has reached a crisis point as most factories have stopped production and are about to shut down.

    He said: “Manufacturers are constrained to draw the attention of the Federal Government and the general public to the issue of persistent increase in the price of  natural gas used by manufacturers to power their plants and machinery by the gas franchisers.

    “ Some of our members are about to shut down their operation due to non-supply of gas to power their operations on the other hand, and the current exorbitant and dollarisation pricing of the available ones on the other.

    “Infact, some of our factories have been threatened with disconnection on account of their inability to pay for the increase price.“

    Adebayo said the growth of the manufacturing sector is currently being hampered by the huge cost of energy crisis occasioned by power outages and high cost of petroleum products in the country, adding that the incessant increase in the price of gas will not only be punitive but add to the woes of the sector.

    According to Adebayo, the high cost of gas has led to high  production cost with energy now accounting for over 45 per cent of total production cost. He added that it has constributed to low capacity utilisation in the factories and made locally produced goods to be uncompetitive.

  • Concern on oil price recovery

    There are fears that oil demand has fallen short of expectations as production increases and rig counts rise, dampening hope of price recovery in the short term.

    Analysts said price recovery may take a year or more in the future because findings show that the demand response has been slower than bulls had hoped. U.S. drivers have covered fewer miles than expected this summer, and as they speed toward the Labor Day holiday in September, the overhang of gasoline in storage may put downward pressure on crude and refined product prices.

    “Right now, the only thing that would drive prices higher is robust demand,” said John Paisie, executive vice president at Stratas Energy Advisors, a Houston-based consultancy. The growth must be across the board, for products including distillates like diesel and jet fuel, as well as gasoline.

    “Demand just can’t be made up by one product,” he said, and demand for diesel has been lagging.

    Instead of seeing $60 a barrel, which would support an increase in production, the demand questions, and ongoing supply concerns, mean oil could fall further. “Demand is growing very moderately,” said veteran oil economist and independent consultant Phil Verleger. “There’s no real surge to it, call it the great moderation.”

    While gasoline prices have declined, the lower cost at the pump has only a moderate effect on consumer’s buying habits, Verleger said. Instead of racing out to fill their tanks, consumers are using the savings to pay down debt, he said.

  • Nigerians decry bread price hike

    The recent increase in bread price has drawn the ire of some Nigerians. Those who spoke to The Nation Shopping said before the hike, they ate bread at least four times  weekly because it was cheap.

    Mr. Akinya Oluwaseyi said he no longer buys three loaves of bread as he used to do owing to the hike in price. Mrs. Shukurat Babajide said has reverted to eating more rice because “rice can sustain one better than bread”.

    According to Mrs Babajide, notwithstanding that her family enjoys eating bread, its quality and size, has reduced drastically- a factor that now accounts for low consumption of the commodity.

    A distributor of Oldskool and Tee bread, who identified herself as Mrs. Keji, said until about a month ago, she used to buy a size of loaf at a distributor rate of N75, and resell to retailers at N85, who, in turn, sell to consumers at N100. This, she said, has changed as she buys from the bakery at N85, sell to retailers at N95, and the retailer on the other hand at between N120 and N150.

    The Nation Shopping investigation revealed that, indeed, not only has bread price been increased,  the quantity and quality have reduced. A sale representative of Harvest Bread, Mr. Odulami Olaonipekun, confirmed that several bread brands have increased their prices while the few ones that still maintain their previous prices have either reduced the weight or quality of the bread.

    He explained that going by the prevailing skyrocketing market prices of  bread ingredients, such as sugar, butter, yeast, preservatives, vegetable oil, flavors, no bakery or baker can break even, much more make profit without increasing bread price.

    “We used to buy a keg of vegetable oil for N6,500, but now, we are buying the same keg for between  N10,500 and N11,000. So you see that it is not easy to continue selling at the same old price,” Olaonipekun explained.

    Besides, he blamed the sudden increase in the cost of buying diesel and petrol, including the astronomical increase in electricity tariff as part of the reason for the price hike in bread.

    “The diesel I used to buy for N125 per litre suddenly changed to N195 without any genuine reason. All those things contribute to the increment in price because I don’t know how we can survive if we do not increase price, that means we will not be able to pay our workers’ salaries,” Odulami added.

    With the increased price comes a fall in demand and sales of the commodity. Another retailer, Mrs. Faith Fashola, said the new price has led to a drastic fall in her sales.

    Despite claims of high prices of bread ingredients, some bakeries maintain that they have not increased their bread price, but have rather reduced the weight of their product. For instance, a supervisor with Adura Agba Bakery, Mushin, Lagos, Mr. Kabiru Akeem, said the prices which they used to sell still remains the same as they are still building the name and would want to remain in the market as there are many brands to compete with.

    “We still sell at the previous price, not because the economic situation is not affecting us but because we are still building the name; but the increase in prices of everything has made us to reduce the weight of the bread,” Kabiru said.

    With bakers determined to remain in business, and those involved in the supply chain of bread determined to make profit, the heat has been passed to the final consumer.

    However, stakeholders in the industry are worried that going by the harsh economic situation, and the increasing level of consumer behavioural change, it may not be long before the bread industry collapses, leaving in its wake an addition to the country’s army of unemployed Nigerians.

  • Why cooking gas price is high, by NLNG

    Why cooking gas price is high, by NLNG

    Infrastructure bottlenecks and not scarcity are the real reason behind the rising cost of cooking gas or Liquefied Petroleum Gas (LPG) nationwide, the General Manager, External Relations, Dr. Kudo Eresia-Eke has said.

    Eresia-Eke in a telephone interview with The Nation said three factors namely; shortage of terminals for the discharge of LPG in the country, storage facilities at the terminals and delays in getting the product from the terminals, have resulted in increase of price, from N2,700 to between N4,000 and N4,200 for a  12.5 kilogramme (kg) cylinder in Lagos and environs.

    He stated that hitches in areas such as transportation of LPG from the NLNG’s base in Bonny, Rivers State to Lagos and distribution of the product to consumers, is the bane of the sub-sector.

    The issue, he said, made people to conclude that LPG is scarce in the country. “The increase in price of LPG was caused by infrastructure problems, and not scarcity of the product. Only two terminals were dedicated for the supply of LPG in Nigeria. The terminals, which are based in Lagos, are NAFGAS Terminal and the Northern Oil Jetty (NOJ), which is being managed by the Products and Pipeline Marketing Company (PPMC) on behalf of the Nigerian National Petroleum Corporation (NNPC).

    “The terminals are not only limited, but were made to give priority to supply of white products such as petrol, diesel and kerosene. This has made it difficult for LPG vessels to discharge its content promptly enough,” Eresia-Eke said.

    Other problems, according to him, are lack of adequate facilities for storage of LPG at the terminals and delays in accessing the product from the terminals.

    He said the decision by the Federal Government, to give the terminals priority to discharge white products first, is affecting supply of LPG. “The idea made LPG vessels to queue for days or weeks, ditto operators that are waiting to collect the product for onward distribution to the consumers,” he added.

    Eresia-Eke noted that NLNG has increased domestic supply of LPG from 150,000 metric tonnes (mt) annually to 250,000 metric tonnes annually in recent times. The issue, he said, attests to the fact that  NLNG has the  capacity to meet LPG consumption requirement in the country.

    He urged stakeholders including the government, to expedite actions on measures that would enable consumers to get the product regularly.

    The National Association of Liquefied Petroleum Gas Marketers (NALPGAM), had in May, 2016, raised concerns over what it described as astronomical increase in the price of cooking gas. NALPGAM’s Chairman, Mr. Bassey said the money paid on demurrage and other costs incurred by the operators have increased, thereby making it difficult for them to get the product.

    He said the issue has compelled marketers to increase the price above what they used to sell the product.

  • Govt sets up 16-man panel on fuel price palliatives

    Govt sets up 16-man panel on fuel price palliatives

    The sixteen-man Technical Committee for the implementation of the palliatives to cushion the effects of the hike in fuel price has been constituted.

    In a release from the Ministry of Labour and Empoyment, the committee, which will be chaired by the Minister of Labour and Employment, Sen. Dr. Chris Nwabueze Ngige (OON), has the representative of the office of the Secretary to the Government of the Federation, Prof. Adamu K. Usman as Secretary.

    Other members  includ Minister of State, Petroleum, Dr. Ibe Kachikwu, Minister of Budget and Planning Sen. Udo Udoma, Minister of Finance Mrs. Kemi Adeosun, Minister of Solid Minerals Dr. Kayode Fayemi, the Chairman of National Salaries and Wages Commission, Chief R.O Egbule and the representative of the Office of the Head of Service of the Federation.

    The Nigerian Labour Congress (NLC) will be represented by Comrade Peter Adeyemi, Comrade Amaechi Asugwuni, Comrade Ibrahim Khaleel, Comrade Igwe Achese and Comrade Abdullahi Sale.

    Similarly, the Trade Union Congress of Nigeria (TUC) will be represented by Comrade Augustine Etafo, Comrade Alade Bashir Lawal and Comrade Abdullahi Sale.

    The committee was inaugurated yesterday at the Conference Hall of the office of the Secretary to the Government of the Federation.

  • Marketers set to increase LPG price

    Marketers set to increase LPG price

    Liquefied Petroleum Gas (LPG) marketers yesterday in Lagos, agreed to increase the price of the domestic cooking gas by between 70 per cent and 100 per cent, following the scarcity of the product.

    The marketers lamented that problems, such as rising cost of buying LPG from terminal owners such as Pipelines and Product Marketing Company (PPMC), Algasco and others were taking toll on them. They also highlighted hitches in the supply chain, and monopoly as reasons behind the planned increase in the price of LPG.

    The Executive Secretary, Nigeria Association of Liquefied Petroleum Gas Marketers (NALPGAM), Bassey Essien, who spoke a stakeholders’ forum in Lagos, said the cost of obtaining LPG from terminal operators has increased in the past few days. He added that the development necessitated a corresponding increase in the price of the product.

    He said: ‘’Last week Tuesday, marketers bought 20 metric tonnes of LPG from terminal owners for N2.4million; the price rose to N2.6million on Thursday;  N3milliion on Friday; and  N3.5million  this Monday. “Based on this, marketers have agreed to increase the price, at which they are selling LPG to both the individual and industrial users.  “This is the only way marketers can recoup their investments and grow. By this, people would now be filling 12.7kilogramme cylinder with for between N3, 500 or N4, 000, as against N2, 800.’’

    Essien said NAFGAS and PPMC terminals are mostly used for distribution of LPG while other terminals are sparingly used.

    He said: ‘’As a result of this, most terminals are deliberately starved of gas. This means that marketers have no choice but to buy LPG from PPMC and NAFGAS terminals at a higher price.  In the light of this, the two firms are controlling the LPG market, by determining who to sell LPG to. Often times, few marketers have benefitted, while others have not. From all indications, a monopoly has been overtly or covertly created in the LPG market;  whenever a system is monopolistic in nature, few individuals or firms dominate business activities.”

     

  • Reps remove petroleum products, others from price regulation

    Petroleum products have been removed from the list of commodities being regulated by the Federal Government as enshrined in the Price Control Act CAP. P28 Law of the Federation of Nigeria, by the House of Representatives.

    Thirteen controlled commodities hitherto under the principal Act, include bicycles and spare parts, flour, matches, milk, motorcycles and spare parts, motor vehicles and spare parts, petroleum products, salt and sugar and fertilizer.

    While considering the recommendations of the report on the amendment bill sponsored by Gabriel Onyeama at the Committee of the Whole House yesterday, members were unanimous in adopting the delisting of petroleum products and fertilizer from the principal act.

    The bill  further seeks to amend “the first schedule of the principal Act” by deleting the existing list and substituting thereof a new list in the schedule.”

    The explanatory note on the bill states: “The bill seeks to amend the Price Control Act, to provide for concessions and waivers, stiffer penalties and to make better provisions for its implementation.”

    Fourteen commodities are now to be under the new price control legislation, consequent to the adoption of the recommendations of the report on the bill by members:

    They are: “Bicycles and spare parts, flour, matches, milk, motorcycles and spare parts, motor vehicles and spare parts, salt, sugar, rice, grains, cereals, electrical/electronic equipment, computers and computer accessories and cement.”

    The amendment of section 17(b) which increased the penalty to N100,000 against N200 and one year imprisonment against six months for any contravention of the regulations was also adopted.

    Also approved by members was the insertion of subsection 13(2) that stipulated the imposition of two years imprisonment or N200,000 on any person that contravenes any provisions of an order made by the court.

  • With fuel price hike, food prices go haywire

    With fuel price hike, food prices go haywire

    In response to the 69 per cent hike in fuel price, the prices  of food and the other commodities have risen. TONIA ’DIYAN and TAIWO ADEYANJU report. 

    It started like a rumour penultimate Wednesday afternoon, and by the close of work that day, Nigerians were faced with the stark reality that fuel price had been increased by about 69 per cent. The Federal Government increased the pump price of premium motor spirit (PMS), otherwise known as petrol, to N145.

    Characteristic of every PMS price increase, the food stuff segment has responded to the increase. Across the various markets, food prices have skyrocketed, making survival  more tasking.

    According to the Secretary of Tomatoes Sellers Association, Mile 12 branch, Lagos, Alhaji Biliya Adam, the new fuel price has affected the supply and transportation of tomatoes from the North.

    The Secretary of Daleko Market, Mushin, Lagos, Mr. Biola Owolabi, said the hike in  prices  affected everyone including retailers, wholesalers and manufacturers.

    Mrs. Modinat Badmus, a trader at the Iporin Market in Surulere, spoke of a low turnout of shoppers as the prices she usually bought her goods had increased. This, she said, affected the retail price.

    She said prices of beverages, such as milk, sugar and others, had increased at the market where she buys them.

    “A dozen of peak milk we used to buy for N450 now sells for N480, even five pieces of sugar we used to purchase for N250 is now N275,’’ she said.

    A trader, who at the Sabo Market in Sagamu, Ogun State, Miss. Deola Ajayi, said the removal of fuel subsidy had affected traders as the prices of items they buy from producers had increased.

    Ajayi said many shoppers had reduced their list, saying staple items such as 10kg of  Semolina has increased from N1,800 to N2,800, a bag of sugar which used to sell for N7,000 to N10,000, among others.

    The increase in price is not only applicable to staple items as a shopper, Mrs Omotayo Babajide, who bought local clothing material in large quantity for a ceremony, at the Idumota market on Lagos Island, said the trader she bought the same item from last week had increased it by N400. She said the trader claimed  that the price was increased by the manufacturer. This, she said, left her with no choice than to hike the retail prices of her items to cover cost and make a small profit margin.

    The price increase has also left a sour taste in the mouth of many traders. For instance, Mr. Abdulwahab Abdulkabeer, who deals in men’s wears at the Idumota Market, complained of low patronage and turn out of buyers.

    Also, at Yaba Market, Alhaja Oluwayomi Owolabi disclosed that traders have been experiencing low turnout of shoppers since the beginning of this year. For traders, who display their wares for sale till late night, the challenge of illuminating their stall is a worry for them, considering the cost of fueling their generators which is now seen as a luxury.

    She, however, urged the government to make the product available for the masses.

    Online shopping platforms are also not left out. For shoppers on the  platforms, it is double losses for them. First, they have to pay for the increase in commodity price and pay more for delivery services.

    Nosa Idehen, Founder, WesternMall Nigeria Limited, an online auction platform that deals with direct sales, said the main challenge for his kind of business was delivering of goods purchased. His words: “As expected the tariff involved in delivering to customers will increase. Because we always find ways of making shopping easier and cheaper we intend to use different drop points around Nigeria so that customers will be able to pick up their items at the closest drop off point saving cost.”

    SPAR Nigeria’s spokesperson, John Goldsmith, also agreed that the new fuel price is likely to affect The Hypermarket business and its numerous customers.

    His words: “SPAR Hypermarket stores are part of the community and the whole eco-system of the country and hence the impact of the strike on SPAR store will be same as other business establishment. Raising fuel prices definitely impact the operation of the stores in both short and long run. As a part of the business community, we aspire for stable business conditions which enables concrete decision making and helps align actions for enhancing shopper experiences.”

    Although he said there has not been any sign of panic buying across its stores, the situation, he explained, may induce temporary preponement of purchase and would never boost sales in a long run.

    Goldsmith explained that in the given economic scenario, the cost of inflation not only affects price of the products, but also the business operating cost.

    For online retail store Gidimall boss, Osamede Evbakhavbokun, the new fuel price has affected his business and in actual fact it is still affecting it. The price for all products has increased and as such reduced sales as customers and client are being cautious, taking their time to see what will happen in the coming weeks before they can make any purchase.

    “Yes, labour has advised Nigerians to stockpile their homes with food, though we are not into foodstuffs and perishable goods but even at that, the foodstuffs is actually too expensive to stock when a ball of tomato is about N150.00,” he said.

    Once there is an increase in price of products, it takes a little while before customers accept the change in price and it is eminent as the fuel price has increased the cost of all products.

  • Fuel price hike: Why I support Fed Govt, by Oshiomhole

    Fuel price hike: Why I support Fed Govt, by Oshiomhole

    Edo State Governor Adams Oshiomhole has explained why he stands with the Federal Government on the new price of petrol.

    According to him, it doesn’t make economic sense for the government to spend more than half its earnings just on fuel subsidy to the detriment of other development programmes.

    He spoke at a special thanksgiving service organised  by Apostle Charles Osazuwa, Senior Pastor and founder of Rock of Ages Christian Assembly International (RACAi), Benin City, to round off a 7-day programme of the church yesterday.,

    Oshiomhole said the former President Goodluck Jonathan spent as much as N1.2 trillion on fuel subsidy.

    He said: “l have listened to our chairman, Chief John Odigie-Oyegun, and he reminded us that the Hon. Minister of Petroleum, Dr. Ibe Kachikwu, has been under fire. I believe the fire will continue for some time. In spite of all that he is going through, the Minister recognized that we can’t be too busy to come to the church to ask God to help us to do the job. After all, the Bible says that the unless the Lord builds the house, the labourer labours in vain.”

    He said: “The fire that he is going through, the end of it will translate to prosperity for our people. Leaders must see ahead of their followers, and when followers can’t see what leader is seeing, with time and consistency, the followers will see the benefits of the decisions the leader has taken.

    “As many of you might have known, this is not my first time in the struggle against pump price increase. I have fought it over and over again, and at a point, God used us to shut down the country just to make a point to the then government in power, but the truth is that the fundamentals have changed.

    Under President Olusegun Obasanjo, we were talking of N20 billion for subsidy. And Obasanjo would ask me, Comrade, N20 billion can build XYZ road. I think the last one was about N40 to N45 billion a year for subsidy.

    “However, the last government under President Goodluck Jonathan quadrupled the number to N1.2 trillion. When your total earning is about N2 trillion and you spend more than half for petrol, how much will you use for your house? How much money will you use for clothing of your children? How much will you use to send your children to school?

    “Government must make investments in research, in education, in technology. If we spend all our money or half of it on subsidy, we will drink petrol without vehicles for us to ride in. It simply doesn’t make sense anymore.

    “The life of a nation is not different from the life of a human being. When you are traveling on a road which you believe will take you to a destination, sixteen years down the road, it appears to be getting longer and longer, only a fool will continue to travel on that road. From the way it is, this is the time to stop, look back and see other options that are available. I believe that is what this Minister of Petroleum and President  Muhammadu Buhari have done. I give my full support.”

    He added: “When a nation and a people could not for good reason trust the leadership, even when the leadership asks you to make a sacrifice, the first question you ask is, if I make the sacrifice, what about you? Obviously, for a government that was sharing money for security services to party leaders, that government didn’t have the moral standing to call on Nigerians to make sacrifices.

    “So, I think it was that thing that was missing, having a president that cares, a President that is not corrupt, a President that commands respect within the country and outside the country. When he asks you, change your ways of life, look at my own lifestyle, let us restart, we have all sinned in the past, let us repent so that we might not sin again, I think it makes sense to listen.

    “There will be sacrifice, so, no pain, no gain. I believe this is the time to accept a lot of pains, so that once free, the gains will come. I know under President Buhari the gains will come. I know that this time will come and go and Nigeria will maintain its progress.”

    Also speaking, Minister of State for Petroleum Dr. Ibe Kachukwu said the Buhari administration would change the country, explaining that things could not continue the way they had been.

    All Progressives Congress (APC) National Chairman Chief John Odigie-Oyegun noted that the country was going through difficult times, but the people had to change their ways for things to get better.

  • Is it oil subsidy removal, or price hike?

    Is it oil subsidy removal, or price hike?

    I started writing this article at the weekend, believing that the federal government had, at long last, decided to do away with the long standing and costly oil subsidy. Whatever its attractions, it is no longer financially sustainable. Worse still, it has led to long queues recently at the petrol stations right across the country. I was going to commend President Muhammadu Buhari for his courageous decision to remove the oil subsidy. But half way through the article, my eyes caught some newspaper headlines that the federal government may not have dropped the oil subsidy after all. Both the Minister of State, Petroleum, Dr. Emmanuel Ibe Kachikwu, and the National Chairman of the All Progressives Congress (APC), the ruling party, Chief John Odigie-Oyegun, were simultaneously reported by the media in the course of the week as declaring that the wasteful and fraud ridden oil subsidy had indeed been removed. Not so, says the Vice President, Professor Yemi Osinbajo, who personally issued a press statement that there was no removal of the oil subsidy, but only an oil price hike to reflect the downward trend in the exchange rate of the naira. This is as a result of the falling dollar reserves and increasing pressure on the naira exchange rate. Demand for it is long, but supply is short. The independent marketers are now obliged to source their foreign exchange needs from the secondary market at a premium.

    Obviously, there is some confusion and contradiction in senior official circles over this grave matter, with the ‘realists’ in the government urging President Buhari to remove the so-called oil subsidy once and for all, and the ‘romantics’ insisting on maintaining some form of oil subsidy, or the other. The government is being pulled in different directions on the issue by its top economic advisers. But I prefer to believe the Vice President on this matter as he heads the economic team of the government, of which neither Kachikwu, nor Oyegun, are members. He is in a better position to know exactly whether or not the federal government has finally taken a decision to bite the painful economic bullet by removing the oil subsidy once and for all. President Buhari has not been categorical about this. But then, if the oil subsidy had indeed been finally removed, there would have been no need for the federal government to fix the new price of N145 per litre for oil sales. In a fully deregulated and free market, prices are determined by market forces. Fixing the price of oil will seem to suggest that there is still some official subsidy on oil imports and sales. But then there does not appear to be any provision for oil subsidy in this year’s budget. Or is the price of N145 per litre merely a guide which the importers may, or may not, comply with? Either way, the public is entitled to know whether the subsidy stays, or not. Full deregulation, which is what a removal of the oil subsidy implies, means that market forces will determine the pump price of petroleum, and that the government will have little or nothing to do with price fixing, except in a regulatory sense.

    If this is the case, that the oil subsidy stays, I think it is a pity that the Buhari government has again lost the opportunity to bring to an end the sordid state of affairs in our oil sector by not fully deregulating it. It should abandon the oil subsidy in response to compelling financial and economic considerations in our country. Ex-President Goodluck Jonathan made the same mistake in 2012 when, in the face of some domestic opposition, he abandoned his plan to end the oil subsidy. Had he done so then, it would by now have saved the nation about N6 trillion, about the size of this year’s federal budget. In fact, this time, the reaction of the public to the news that the oil subsidy was being removed was overwhelmingly favourable, despite the pains involved. Even oil workers, including NUPENG and PENGASAN, agreed that it was time for the oil subsidy to go. This positive response to the media reports that the oil subsidy was being removed cut across all sections of our economy, including the industrial sector and independent marketers. The reason is that the scarcity of oil supplies in the market was beginning to hurt the economy badly. Consumers were already being forced to pay up to N150 per litre, or more, for oil in the parallel market. Better to have the oil at a higher price and keep business going than close it down because of oil scarcity. It is a function of economic survival. No matter how acute the pain is, it is still far better than outright death. Businesses were beginning to close down right across the country because there was no fuel to run them. The NLC and the TUC should reconsider their plans to go on strike on this matter. They should think more carefully about embarking on a strike for which there is little public support. This is not to say that their anger about the awful mismanagement of the economy is not justified. But a general strike now will harm our country even more. It will lead to more job losses, as employers will be forced to shut down their businesses.

    It was never going to be an easy decision for the federal government to abandon the oil subsidy. When he came to power last year, President Buhari was not keen at all to increase the pump price of oil. A senior adviser of the government with whom I brought up the matter told me bluntly that President Buhari was totally against dropping the oil subsidy. He rejected all advice that he should do so. For him, the removal of the long standing oil subsidy was both an emotional and sentimental issue. He believed that doing so would hurt the poor more, in a situation of mass poverty. But as the IMF has pointed out, only seven per cent of the poorest 20 per cent in our country derive any benefit from the existing oil subsidy. In fact, President Buhari first tried the option of giving the NNPC, which accounts for some 50 per cent of total oil imports, a monopoly on oil imports to reduce the vast corruption in the sector. But this did not work out as planned, due partly to the fabled inefficiency of the NNPC, its abject lack of the needed logistics and infrastructure, and the determination of the oil majors and independent marketer not to offer the NNPC their cooperation. This led to a supply gap and the long queues in the filling stations.

    The NNPC had to admit that it could not perform as expected without the support of the big oil marketers. This was what persuaded President Buhari to bring the independent oil marketers back. The alternative option, a price hike, is indeed courageous as it could have political costs. In the short run, it could make the government unpopular. .

    Yes, the full removal of the oil subsidy will definitely hurt the poor, at least in the short term, as it will increase the cost of living, and this will worsen the prevailing mass poverty in our country.  But the government’s options on subsidy for oil imports were limited. This subsidy accounts for over 20 per cent of the entire federal government budget. It was clear that it could no longer be sustained with falling oil revenues. Savings from the removal of the oil subsidy will be substantial and will fill some of the gaps in our huge budget deficits. More financial resources will be released to meet our huge infrastructure deficits and more jobs will be created as the economy adjusts to a deregulated oil sector.

    The oil subsidy was first introduced at a time when there was a surge in oil revenues. This surge has not been consistent leading to volatility in oil revenues and a heavy and unsustainable burden on the finances of the federal government. Subsidies can in the long run only be met by budgetary surpluses, not deficits. This year, the federal government will be looking to borrowing internally and externally some N2 trillion to balance its budget. Half of this borrowing is expected to be from external sources. But it is unlikely that it can successfully tap external sources for this huge borrowing, not for investment, but for budgetary support. If the subsidy is dropped, the government will be able to save nearly N1.5 trillion, or more, this year. This will reduce its huge budgetary deficits and the need to borrow abroad by nearly half. In fact, with more prudent management of its finances, including the introduction of practical measures to reduce the cost of governance, the federal government can easily balance its budget next year. Oil prices are beginning to rise again and this trend will, if sustained, lead to higher oil revenues. But this favourable trend should not be frittered away again on the wasteful oil subsidy.

    In fact, the federal government should avail itself of this opportunity to undertake a comprehensive review of its entire subsidy programme and strategy. As it is now, it is totally confusing, inconsistent and ad hoc. It must be based on clearer, more coherent and more consistent principles and objectives. That is not the case now. The focus and target of any future financial bailouts and subsidies should be more on production and less on consumption. Financial subsidies on consumption cannot be sustained when the national revenue and economic growth rate are both declining. This year, our growth rate will fall from six per cent to less than three per cent. The oil subsidy is a subsidy on consumption, not production. And there is really no evidence to support the view that it promotes economic growth in our country.

    For most of the time, oil was being sold to the public at a price exceeding the subsidised price. In fact, as we have seen in recent years from the scandals in the oil industry, the so-called oil  subsidy was largely a mirage, a big scam from which the oil barons and importers made scandalously high profits. Next to the huge scam in defence expenditures, most of which as we now know, actually ended up in private pockets, the biggest source of public corruption in our country is in the oil sector, where the fall in global oil prices are not reflected in local prices of imported fuel, and where some fictitious oil importers are paid for oil that was not actually imported. A deregulated oil sector will end all that.

    Now is the right time to address the problem squarely. President Buhari should go the whole hog now by ending the wasteful oil subsidy. The advantages in the long run should make the short term costs and pains more bearable.