Importance of New Fuel Subsidy Removal In Nigeria

Importance of New Fuel Subsidy Removal In Nigeria

INTRODUCTION
The crude oil sector in Nigeria contributes substantially to the economy; however, these benefits are being compromised by significant subsidies on refined oil imports.

The refined oil subsidy is paid primarily on imported fuel because domestic refineries cannot satisfy the national demand at current prices. Low fuel prices are considered an important benefit to the Nigerian people, where more than half the population lives in poverty in this oil rich country. The costs of these subsidies have been rising in recent years, due to volatile refined oil prices and the cost of corruption.

Though the subsidy helps the poor, by keeping Nigerian prices lower than world prices, the biggest beneficiaries have been importing companies and local wholesalers (The Economist, 2011) that smuggle some of the subsidized fuel into neighboring countries and sell it at higher prices (The Economist, 2012).

The Removal Of Fuel Subsidy
Several have been made in the past to remove fuel subsidy in Nigeria the last two attempt was made by former President Goodluck Jonathan who attempted to remove subsidy on January 1, 2012, the then opposition All Progressives Congress (APC) used the organised labour and other civil society groups to ambush and frustrate him, forcing the former administration to reverse it.

Second attempted was made by the present president, President Muhammod Buhari on May 12 2016 who completely remove the subsidy on fuel making the price per litre to raise over 60% (N86 to N145 per litre).

In this research we seek to discuss the implication the removal of this subsidy and the new pump price will have on Nigeria economy.

ECONOMIC IMPLICATION OF THE RECENT REMOVAL OF FUEL SUBSIDY ON NIGERIA ECONOMY (N86.5 to N145 per Litre)

The federal government’s partial deregulation of the downstream sector will, no doubt, be an incentive to private refiners, and boost capacity utilisation, as well as employment generation in the sector.

The following are the economic implication of the recent removal of fuel subsidy in Nigeria which make brings about the change in fuel pump price from N86.5 to N145.

1. New Regime of Partial Deregulation in the Downstream Sector: The federal government recently removed petrol subsidy and ushered in a regime of partial deregulation in the downstream sector of the Nigeria’s oil and gas industry.

Though the sector would have preferred full deregulation, the action is a right step, which will eventually lead to the ultimate goal, if the government could muster the political will to move a step further in the future.

2. Reduction in the Government Expenses in sourcing for foreign Exchange (Forex): Even though the price of refined products has dropped but with the high cost of forex, the government has freed itself of sourcing for forex at the official exchange rate of N197, which is far below the N318 black market rate.

3. Saves of Trillions of Naira spent on fuel subsidy: The current price of fuel pump price enable the Nigeria government to save trillions of naira spent over the years in the payment of subsidy and its attendant corruption, this money will now be available for infrastructure development and advancing the wellbeing of Nigeria.

4. Resolving Fuel Scarcity in Nigeria: The new pricing regime will no doubt resolve the recurrent fuel scarcity crisis by ensuring availability of products as marketers will now import product to their full capacity without government’s restriction in the form of import approval.

5. Reduction in Hoarding of fuel: The new price will also reduce hoarding, smuggling and diversion substantially and stabilise price at the actual product price.

6. Market stability: The new regime will also ensure market stability and improves fuel supply situation through private sector participation. Most importantly, it will create labour market stability.

7. Creation of New Jobs Opportunity: The new price regime has the potential of creating new jobs through new investments in private refineries and retails and at the same time prevent potential loss of jobs in existing investments, which were threatened in recent years.

8. Price stability: The government through this new price regime will ensure that the price of products are monitored and modulated to ensure that citizens get a fair value for products they purchase.

9. Government Focus on provision of critical infrastructure: The new price regime will enable the Nigeria downstream to strive on its own thereby giving the government more time and resources to focus on provision of critical infrastructure to the general masses.

10. High cost of leaving: Though the New pump prices have a lot of advantages but it did not come without its attending present disadvantages which the current high cost of leaving in Nigeria. Virtually all price of commodity has tripled in the market today, there is increase in the cost of transportation as a result of the new pump prices, also the cost running business in the country have also gone up. All these greatly affect the wellbeing of Nigerians which gives some faction of the citizenry to kick against the new pump price.

CONCLUSION
Low fuel prices are considered an important benefit to the Nigerian people, where more than half the population lives in poverty in this oil rich country. The recent increase in fuel pump price will presently have adverse effects on the wellbeing of Nigerians. Although with the hope of a greater future it necessary for us all to support this course taken by the present government to better the lots of all Nigerians through the removal of fuel subsidy rather than enriching few individuals through the payment of trillions of Naira on fuel subsidy which has little or no effect on the masses.