The Troubles with Unsubsidising Kerosene – By Arnold A. Alalibo

Posted by admin Arnold Alalibo, Articles, Columnists, NNP Columnists Tuesday, February 23rd, 2016

By Arnold A. Alalibo | NNP | February 23, 2016 – If the latest pricing template of kerosene by the Petroleum Product Pricing Regulatory Agency (PPPRA) is anything to go by, then the federal government has withdrawn subsidy on the product. In the new price regime, the depot price of the product is N73 per liter. The increase may have come to stay as the Managing Director of Petroleum Pricing Marketing Company (PPMC) has already confirmed the new price in a memo signed on his behalf by one Mr. L.N.S Madubuike. Compared to the previous price of N40.90, an additional N32.47 increase was effected.

While the price upsurge has always been in the centre of the subsidy debate, and may explain whether government can persistently pay huge sums of money as subsidy on kerosene or not, I hope the authorities appreciate the implications of its action? Though more revenue will be earned on the product, it is not without some consequences. An important implication of the withdrawal is that Nigerians will expect government to work harder to produce the commodity locally and reduce dependence on importation. This expectation is befitting because it will not make sense to put the entire economic burden of importing the product on Nigerians.

The other is labor’s reaction to the development. If feelers put out there that labor unions are mobilizing to protest against the subsidy removal is accurate, then the policy may not go too far as labor’s alleged move may indicate a total rejection of the new price by Nigerians. I am not stunned at the reaction of labor because of the value of the commodity, especially to the ordinary Nigerian. Remember, it is the product that is most widely used by rural dwellers and the commoners in the cities for cooking and other domestic purposes.

Therefore, any price increase is bound to be resisted. Another significant consequence of the kerosene subsidy withdrawal is the reasonable fear that an increase in the cost of the commodity may compel citizens, who are unable to afford the new price, to resort to firewood or charcoal as alternative source of cooking with severe implications for deforestation and environmental pollution. The truth is that when kerosene was subsidized, it hardly ever sold at the regulated pump price of N50 per liter. The regulated price was only offered at Nigeria National Petroleum Corporation’s (NNPC) filling stations or its affiliates. The product was obtained elsewhere at prices between N100 and N150 per liter.

What this means is that those the subsidy intended to benefit did not enjoy it at all. Yet so much money was paid as subsidy at the expense of tax payers. This enabled product racketeers to smile to the banks while the citizens confronted the high cost of the product.
This understanding may trigger off a wave of protests in response to the subsidy removal and subsequent price increase. That is why local refining of petrol including kerosene has to be facilitated to ensure lower pricing and improve efficiency in the supply chain.
This is a reasonable expectation particularly when the cost of freight and importation logistics are calculated and subtracted from PPPRA pricing template. Even without subsidy, I believe kerosene, like other petroleum products, can be delivered at a lower price than is currently obtained.
Whether through a government-private sector partnership as has been done successfully in other climes or the outright sale of our refineries, a quick and lasting solution to the petroleum products supply and pricing puzzle in the country and the hardship Nigerians have faced for many years must be found.
However, if kerosene must remain unsubsidized, government has to ensure an unbroken supply to its end users. It will be sad and unacceptable if, in addition to bearing the high cost of the product, Nigerians still suffer shortages because of government’s inability to regulate the industry.
But, ultimately, the solution to the appropriate pricing and supply of kerosene in the country is the introduction of a policy that will encourage Nigerians to cook with gas or electricity.wp_posts