By Izielen Agbon

“Of all our studies, history is best qualified to reward our research. And when you see that you’ve got problems, all you have to do is examine the historic method used all over the world by others who have problems similar to yours. And once you see how they got theirs straight, then you know how you can get yours straight.” – Malcolm X- Message to the Grassroots – 1963

THE federal government has been busy in the last few days trying to justify the PMS price hike from N148/litre to N162/litre. The government argues that fuel subsidy has ended and fuel prices are now determined by market forces. They proclaim that the poor do not benefit from low fuel prices. They argue that the fuel price hike is beneficial to the Nigerian masses and the Nigerian economy. They insist that lower fuel prices encourage smuggling of petroleum products into neighbouring West African nations. They point out that fuel prices have been increased in other nations. They deny that they are pursuing an IMF policy of subsidy removal. They insist that the fuel subsidy bill is unsustainable.

All the arguments of the federal government are false. They only present limited information that fit their narrative. We will present all the facts about the fuel price hike and show that it is an IMF-inspired policy that increases the poverty of the Nigerian masses and under-develops the Nigerian economy.

The federal government argues that low PMS prices benefit only the rich and does not benefit the poor. This is not true. Patrick Moynihan once said: “Everyone is entitled to his own opinion but not his facts.” Facts do matter. The current fuel price hike will increase the poverty and suffering of the common Nigerian. Nigeria has a population of 206 million with 52% living in urban areas and 48% in rural areas.

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In 2019, the National Bureau of Statistics estimated that 82.9 million people (about 40.2 % of the population) live in poverty. A poor person was defined as a person living on N377 per day or N13,7430 per year.  At a street market exchange rate of N460/$1, a person living on $0.82/day in Nigeria is considered poor. Nigerian children and youths between 0-18 years old made up 50.9% of the population (104.85 million). Thus, out of the remaining 101 million Nigerians above 18 years old, 82.9 million or 82.2% were poor and lived on less than N377/day or N11,310/month.

How does each of these 83 million poor Nigerians survive on less than N377/day? They spend 56.65% (about N214/day) on food, 11.5% (N43/day) on transport and fuel, 12.3% (N46/day) on health and education, 12.7% (N48/day) on rent, household goods and clothing and the rest 6.85% (N26/day) on services and water.

It is important to be very concrete and have the empathy to imagine spending only N200/day on your food and using only N50/day for your transport. The 83 million poor Nigerians and their children only use road and marine transportation to go to their offices, schools, markets and farms. They do not use railway or airplanes. There are 195,000 km of road network in Nigeria. Rural roads make up 68% of the road network while state and federal roads make up 16% each.  Only 55% of the road are surfaced. Most of the roads are poorly maintained and are in poor shape. Poor Nigerians use these roads daily, traveling by public/private transport, buses, tricycles, motorcycles, etc.

All the daily mobile transportation done by 83 million poor Nigerians is PMS dependent. A PMS price hike therefore affects the price of transport and all commodities transported by road. For instance, when the federal government increases the PMS price by 11.7%, the prices of transportation increases by more than 50% and the price of food goes up by almost 100%. The price of a bag of rice has gone up from N22,000 to N40,000 since the fuel price hike was announced.

The price of health, education, rent and all other services also increase as transportation increases. Household goods and clothing cost more. The federal government has already increased the electric tariffs. People cannot pay the discos for their electricity or run their small generators. Small businesses collapse due to high energy costs. Yet the daily disposable income of N377 remains constant. Thus, education, health, household goods, clothing and any other purchases that can be sacrificed are eliminated from the household expenditures, thereby increasing general suffering and poverty. This is how the fuel price hike policy under-develops the masses of Nigerian people.

In the real world, fuel-induced prices are sticky downwards, and free market supply-demand equilibrium prices do not exist. Since June 2020, PMS prices have increased for four straight months, rising from N121.50–N123.50 per litre in June 2020 to N140.80-N143.80 in July 2020, N148-N150 in August 2020 and N158-N162 in September 2020. The price of many basic commodities and services has increased as a result of the fuel price hike.

Thus, the argument that the poor will benefit when the fuel price is low and only suffer when the fuel price is high is wrong. The reality is that fuel price modulation in a market where prices are sticky downwards results in the permanent transfer of fund from the poor masses to government. It is, from a development point of view, a corruption/mismanagement tax on the poor. Apart from this, PMS has a fairly inelastic demand in Nigeria. Large changes in prices lead to very small changes in demand. There are very few alternatives to road transport in the movement of goods and persons. Walking is not a viable economic option.

According to the IMF; “The impact of increasing domestic fuel prices on the welfare of households arises through two channels. First, households face the direct impact of higher prices for fuels consumed for cooking, heating, lighting, and personal transport. Second, an indirect impact is felt through higher prices for other goods and services consumed by households as higher fuel costs are reflected in increased production costs and consumer prices.”

So, the IMF advised that governments should “implement targeted mitigating measures to mitigate the impact of energy price increases on the poor”. The federal government has not provided any such mitigating measures.

In the past, such mitigating measures like the Subsidy Reinvestment and Empowerment Programme (SURE-P) have failed due to mismanagement and corruption. Thus, the fuel price hike has made the poor Nigerian masses poorer with no safety net. Unemployment for the second quarter of 2020 was 27.1% and the underemployed made up another 28.6% of the labour force. People have just come out of a lockdown where they received no palliatives. They have lost their jobs, used up their savings and seen their mini-businesses in the informal sector collapse.

The federal government argues that this suffering and pain is a temporary condition imposed on the nation by market forces of supply and demand in the petroleum products’ market. But, unlike the theoretical supply-demand model taught in freshman economic classes, in the real world, real markets are not free and prices are sticky downwards.

In May 2015, when this government took over the reins of power, WTI crude oil prices were $60/bbl and PMS sold for N97/litre. In May 2016, when WTI crude oil prices were $46.71/bbl, the federal government increased the prices from N97/litre to N145/litre in order to raise revenue and met IMF expectations of subsidy removal. In March 2020, when WTI prices were $29.21/bbl, government reduced PMS prices to N125/litre. The prices of food, electricity, health, education, rent and all other services did not come down.

The Minister of State for Petroleum, Timipre Sylva, explained: “In March, when we announced the deregulation, the prices were low, so, we brought down the price of petrol. The unfortunate thing is that when we brought down the price of petrol, nobody reacted in the market place. The prices were the same. Nobody reduced their prices because price of petrol had reduced. Even bus fares, taxi fares were the same. It did not go down when we reduced the pump price of petrol. We thought that those people in the market; the transport drivers and transport owners would reduce their prices. But nobody reduced their prices. But anytime there is even a kobo increase in the pump price of product, you see that people will increase their prices triple fold and four-fold.”

In the real world, fuel-induced prices are sticky downwards, and free market supply-demand equilibrium prices do not exist. Since June 2020, PMS prices have increased for four straight months, rising from N121.50–N123.50 per litre in June 2020 to N140.80-N143.80 in July 2020, N148-N150 in August 2020 and N158-N162 in September 2020. The price of many basic commodities and services has increased as a result of the fuel price hike.

Thus, the argument that the poor will benefit when the fuel price is low and only suffer when the fuel price is high is wrong. The reality is that fuel price modulation in a market where prices are sticky downwards results in the permanent transfer of fund from the poor masses to government. It is, from a development point of view, a corruption/mismanagement tax on the poor. Apart from this, PMS has a fairly inelastic demand in Nigeria. Large changes in prices lead to very small changes in demand. There are very few alternatives to road transport in the movement of goods and persons. Walking is not a viable economic option.

The federal government promotes the argument that the subsidised fuel prices in Nigeria encouraged smuggling across the border to the neighbouring nations of Niger, Chad, Cameroon, Togo and Benin. The IMF even did a study to promote the idea (“IMF WP/15/17 Unintended Consequences: Spillovers from Nigeria’s Fuel Pricing Policies to its Neighbors”). A simple input output volume balance of petroleum products in the region shows that this argument is not supported by facts.

For example, Niger’s Zinder refinery has a-20,000 barrels per day (bpd) capacity. There are presently plans to build a private refinery in Katsina that will refine crude oil from Niger Republic. In 2015, the country produced 15,280 bpd of petroleum products and imported 3,799 bpd for an input volume of 19,079 bpd. The country consumed 14,000 bpd and exported 5,422 bpd into Mali, Burkina Faso and Nigeria for an output volume of 19,422 bpd. Niger therefore had a net output of 343 bpd.

Chad produced 0 bpd of petroleum products and imported 2,285 bpd for an input volume of 2,285 bpd. It consumed 2,300 bpd and exported 143 bpd for an output volume of 2,443 bpd. It had a net output of 158 bpd. Cameroon produced 39,080 bpd of petroleum products and imported 14,090 bpd for an input volume of 53,170 bpd. It consumed 45,000 bpd and exported 8,545 bpd for an output volume of 53,545 bpd. It had a net output of 375 bpd.

Togo produced 0 bpd of petroleum products and imported 13,100 bpd for an input volume of 13,100 bpd. It consumed 15,000 bpd and exported 0 bpd for an output volume of 15,000 bpd. It had a net output of 1,900 bpd.

Benin produced 0 bpd of petroleum products and imported 38,040 bpd for an input volume of 38,040 bpd. It consumed 38,000 bpd and exported 1,514 bpd for an output volume of 39,514 bpd. It had a net output of 1,474 bpd. The total net output of surrounding nations in the region is 4,250 bpd.

In 2015, Nigeria produced 35,010 bpd of petroleum products and imported 322,400 bpd for an input volume of 327,332 bpd. Let us assume that the net regional output of 4,250 bpd was smuggled across the Nigerian borders, this makes up only 1.3% of net input volume which does not justify a fuel price increase. However, Nigeria consumed 325,000 bpd and exported 2,332 bpd for an output volume of 258,410 bpd in 2015. There was therefore an estimated net output of 68,922 bpd which was never imported into the country and captures some of the subsidy corruption that usually occurs during an election year as Nigeria’s PMS import figures get inflated to mask the theft of public funds for electoral purposes.

The federal government promotes the argument that the subsidised fuel prices in Nigeria encouraged smuggling across the border to the neighbouring nations of Niger, Chad, Cameroon, Togo and Benin. The IMF even did a study to promote the idea (“IMF WP/15/17 Unintended Consequences: Spillovers from Nigeria’s Fuel Pricing Policies to its Neighbors”). A simple input output volume balance of petroleum products in the region shows that this argument is not supported by facts.

For example, in October 2019, Nigeria was reported to have consumed 57.2 million litres per day (359,777 bpd) of PMS. This was so outrageous that the federal government set up the automated Downstream Operations and Financial Monitoring Centre (DOFMC) through the NNPC to help determine the actual national PMS daily consumption.

In February 2020, DPR put the national demand at 38.2 million litres per day (240,270 bpd). It is clear that the volume of PMS imported for election years 2011, 2015 and 2019 were grossly inflated to corruptly subsidise private and electoral interests. This was shown by the 2012 Farouk Lawan House of Representatives Ad-Hoc Committee investigation and report. None of the persons and companies identified for corrupt practices by the Ad-Hoc committee has been brought to justice. None of the persons accused of diverting SURE-P funds to personal use has been convicted or served a day in jail.

The federal government is caught up in an IMF propaganda web spin. It insists that the PMS prices are now determined by market forces. The Ministry of Petroleum Resources, NNPC and PPMC have all denied that they set fuel prices. Even the PPPRA (Petroleum Products Pricing Regulatory Agency) that used to set fuel prices and publish the monthly PMS price template now insist that the fuel prices are determined by market forces.

The Minister of State for Petroleum Resources, Timipre Sylva, said: “Government stood back from the business of fuel importation. Government would only protect the consumer so that no one profiteers on consumers. We are no longer fixing prices; we have stepped back and allow market forces to determine prices.” However, this is not true.

In March 2020, the federal government set up a Price Review Committee (PRC), whose duty is to meet once a month to review prevailing price of petrol for each month. The PRC began work in April 2020. The Executive Secretary of PPPRA, Abdulkadir Saidu, explained the new function of the PPPRA, when he said: “The agency no longer fixes prices but rather provides a guiding price band within which the operators are expected to operate. This takes into account prevailing market conditions by monitoring petroleum products prices daily, using the average price of the previous month and other components like foreign exchange rates to determine prices for the following month, while ensuring reasonable returns to Oil Marketing Companies (OMCs)”.

Thus, the Price Review Committee decided that fuel prices should increase from N148 per litre to N162 per litre. This decision was approved by the PPPRA, the Ministry of Petroleum Resources and the federal government. The current PMS price of N162/litre was not decided by market forces. Rather, it was a bureaucratic government decision.

The Minister of Information and Culture, Lai Mohammed, defended the fuel price hike by comparing Nigerian PMS prices to that of nations in the West/Central African sub-regions. This is like comparing apples and oranges. The comparison should have been to PMS prices in other OPEC nations or oil producing nations like Iran, Kuwait, Malaysia and Venezuela.

Somewhere at the end of his comparison, Lai Mohammed noted that petrol sells for “168 Naira per litre in Saudi Arabia.” The PMS price in Saudi Arabia on September 7, 2020 was SAR 1.63 ($0.427/litre or N162.3/litre at a N380/S1.0 exchange rate). Saudi Arabia does not agree that it is “subsidising” PMS. Rather, the kingdom insists that it is selling its PMS at an “internal price” above production costs. It wants the word “subsidy” to be removed from expert briefing during the November 2020 G20 countries summit in Riyadh. The poverty rate in Saudi Arabia (below $5.50/day or N2,090/day) is 0%.

In an oil producing nation like Malaysia, the current price of PMS (RON95) is RM1.71 per litre ($0.41/litre) compared to N162 per litre ($0.42/litre) in Nigeria. However, there is a petrol subsidy programme in Malaysia. Under this programme, car owners on Bantuan Sara Hidup (BSH) will receive RM120 (N1,1256) every four months. Motorcycle owners will receive RM48 (N4,502). The subsidies only apply to cars with an engine capacity of 1,600cc; unless they are over 10 years old.

Similarly, the motorcycle subsidy only applies to engine capacities below 150cc unless the vehicle is over seven years old. Malaysia’s new poverty level is RM2208/month (N207,105/month) and only 7.6% of households live on less than this.

In Kawait, fuel prices are to increase in September 2020. The price of low-octane petrol will rise by 41% to KD0.085 ($0.28) per litre compared to N162 per litre ($0.42/litre) in Nigeria. Kuwait’s poverty rate (below $5.50/day or N2,090/day) is 0%. The Kuwaiti government expects resistance from the labour unions who had publicly expressed their rejection the planned fuel price increase in August 2020. It is not surprising that neither the federal government nor the fuel price hike proponents have dwelled on the expected grassroots pushback and resistance that fuel price hikes have met in many nations.

Malcolm X teaches us that if we have a problem and we want to solve it, we should look at how other people around the world solved similar problems. Given the negative impact of subsidy removal or fuel price hike on ordinary working people and farmers, it is imperative that we examine the struggles of the grassroots in some countries against the imposition of fuel price hike by their government and the IMF. This will tell us how best to react to the present fuel price hike. A few examples since our fuel subsidy struggles in 2012 would suffice.

In Indonesia, the government decided to increase fuel prices by 44% in June 2013. Thousands of protesters rallied against the planned increase. More than 3,000 demonstrators protested in front of the national parliament waving banners and burning tyres. The fuel price hike caused the price of everyday goods to rise. More fuel price increases came in October 2014 when the PMS prices were raised by 30% to IDR 8,620/litre ($0.58/litre). More protests took place. In 2018, the President, Joko Widodo, asked his energy minister to scrap another fuel price hike a few hours after it was announced. He froze fuel prices for the next 2 years by increasing subsidies. The fuel price freeze is still in place. The current price of a litre of PMS is IDR 9,125/litre ($0.614/litre).

In Sudan, fuel prices were increased by 60% on September 23, 2013. The removal of petrol subsidies was met with 2 weeks of daily demonstrations by the populace. Newspapers and media outlets were censored and suspended. More than 170 people were killed and thousands arrested. Although, the grassroots resistance was crushed by the Omar al-Bashir’s regime, it showed the people that the regime was not invincible.

In Yemen, the IMF offered the government a $560 million loan that was conditioned on a removal of petroleum products subsidy. In August 2014, the government increased PMS price by 52% from YER125/litre ($0.50/litre) to YER190/litre ($0.76/litre). More than 55% of Yemen’s population of 30 million live under the poverty line. The grassroots resistance was fierce as demonstrations broke out in numerous cities. The resistance continued for many weeks and contributed to more insecurity in the country.

Dr. Agbon, former HOD, Department of Petroleum Engineering, University of Ibadan, presented this paper, originally titled; “Fuel Price Hike: The Fact of the Matter” at the Nigeria Labour Congress Round Table on Deregulation of the Oil and Gas Downstream Petroleum sub-sector in 2016. In the wake of the recent increment in the price of petrol, he reviewed it to further reflect current trends in the industry.

Dr Agbon, now a consultant, lives in the United States of America, and can be reached via: Izielenagbon@yahoo.com, or Twitter: @izielenagbon

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