A subsidy is an assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributed as subventions in an industry to prevent the decline of that industry (‘Subsidy’, 2012). Subsidies are used to cushion the price effect of products or commodities or services to the consumer; hence it is used to control price in an economy and ensure the consumer can afford such commodity. This paper seeks to examine the removal of fuel subsidy in the Nigerian Petroleum Industry recently.
Crude oil, since its discovery in commercial quantity in 1956, has been the main economic stay of my country, Nigeria. Mbendi (2012) reveals that Nigeria is the 10th largest oil producer in the world, the 3rd largest in Africa and the lost prolific oil producer in Sub-Saharan Africa; Nigeria is also a member of the Organization of the Petroleum Exporting Countries (OPEC). The oil industry in Nigeria is regulated by the Ministry of Petroleum Resources who retains close control over the industry and activities of the Nigerian National Petroleum Corporation (NNPC). The Federal Government of Nigeria, as reported by Chiejina (2012), over the years operated fuel subsidy regime aimed at making petroleum products available for its growing population to mitigate the effect of actual market prices of the products on the general populace.
Based on the pricing template of PPPRA, the expected pump price is N144.70. However, the official pump price in Nigeria is N65 per litre. The difference which is N79.70 is what the government subsidises, which is how it has been for the past five years. The reason for this subsidization is to help reduce how much Nigerians have to pay for petroleum products (i.e. fuel, gas, diesel and kerosene) and also to protect its citizens from crude oil volatility in the international market.
Sometime early this year, my government decided to remove the subsidy it provides on petroleum products abruptly as a New Year gift to the country. However, this action was greeted with resistance from the populace in major cities of the country – dubbed “Occupy Nigeria” after the Arab spring uprising. The Occupy Nigeria uprising began in January 2, 2012 and was characterized by civil disobedience, civil resistance, strike actions, demonstrations and online activism.
The economy responded to the resistance immediately with major loses and worse effect on the individual economy, as with the strikes the populace were made to sit at home as the Nigeria Labor Congress (NLC) and Civil Liberties Organizations (CLO) ordered (‘Occupy Nigeria’, 2012). Being a major exporter of crude oil to other countries, the impact of this uprising could be seen in the rise in crude oil prices due to shortage of crude in the global market. The government finally had a compromise with the NLC and CLO to place the price of crude at N97.00 and adopt a more strategic approach to the removal of fuel subsidy going forward.
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‘Subsidy’ (2012) Wikipedia. Available at: http://en.wikipedia.org/wiki/Subsidy (Accessed: 6 July 2012)
Mbendi (2012) ‘Oil and Gas in Nigeria – Overview’ 7 July [Online]. Available at: http://www.mbendi.com/indy/oilg/af/ng/p0005.htm (Accessed: 7 July 2012).
Chiejina, A. (2012) ‘Fuel subsidy removal: Repositioning Nigeria’s economy?’, BusinessDay 9 January [Online]. Available at: http://www.businessdayonline.com/NG/index.php/analysis/features/31698-fuel-subsidy-removal-repositioning-nigerias-economy (Accessed: 7 July 2012).
‘Occupy Nigeria’ (2012) Wikipedia. Available at: http://en.wikipedia.org/wiki/Occupy_Nigeria