Spotlight on Nigeria’s corrupt fuel subsidy system

Celia Lebur and Joel Olatunde Agoi - Plunging oil prices and collapsing state revenues have seen Nigerian authorities vow an end to a controversial fuel subsidy scheme long criticised as a graft-ridden drain on public finances.

There are major doubts that Africa's most populous country is finally ready to wean itself off a system that has helped some in high places syphon billions from government coffers.

The fuel subsidy scheme has been described as a sprawling web of patronage and mismanagement that encapsulates the dysfunction plaguing the continental powerhouse.

Despite being Africa's largest oil producer, OPEC member Nigeria has limited refinery capacity and actually imports the bulk of its refined products, including fuel.

That fuel is then sold at a subsidised rate in an opaque system aimed at keeping average Nigerians happy, but it also left plenty of scope for corruption by officials and traders.

Market forces

The fall in global oil prices means that fuel coming in from outside no longer needs to be subsidised, just as Nigeria's state revenues have taken a major hit.

Taking advantage of the slump to save its much-needed reserves, the Nigerian authorities announced an end to the old system in April.

"There is no subsidy and it is zero forever," said Mele Kyari, the head of state-run Nigeria National Petroleum Corporation (NNPC). As from now on, the market will determine the cost at the pump.

Despite the insistence of the authorities that the subsidy system is over, many in the industry complain the government refuses to relinquish control. So far, the authorities have continued to set a pricing band that they say retailers must stick to.

"Nigerians shouldn't be overcharged, that's what we are saying," said Apollo Kimchi, spokesman for the state Petroleum Products Pricing Regulatory Agency.

"We advise marketers, if this is how you sell, you shouldn't go above this price because if you go above it, you will be exploiting people."

For Tunji Oyebanji, chairman of the Major Oil Marketers Association of Nigeria (MOMAN), official action has fallen well short of the pronouncements.

"We don't really understand what the government is up to," he told AFP. "Where are the market forces determining prices in this?"

His organisation which represents large filling station owners has long pushed for the government to let pump prices go free.

"We maintain that a full deregulation and liberalisation of the downstream sector is the solution," Oyebanji said.

Latest tussle

The current scrap over the fuel subsidy is just the latest tussle about change to a system that has helped some at the top grow seriously wealthy over the years.

International lenders like the World Bank and the International Monetary Fund have long decried a scheme that swallows up vast sums that should otherwise be spent on sectors such as health or education.

"Corruption has not disappeared under Buhari's administration, even if it is less rampant than under Goodluck Jonathan when traders became billionaires in five years," said Benjamin Auge, a researcher at the French Institute for International Relations.

Given the vast fortunes being made from the scheme many in the industry are sceptical that it can ever change.

"With the crisis, the price of a barrel fell so low that there was nothing left to benefit anymore from the subsidy system," said one operator on condition of anonymity. "But when prices go up again, won't they back off and restore the lucrative subsidies?"

Some are more hopeful that the current global turmoil will hasten an end to the subsidies once and for all. – Nampa/AFP