Nigeria puts PIA on hold

Following tumult over the elimination of gasoline price subsidies, the Buhari administration delays full implementation of the country’s new petroleum law

WHAT: Nigeria’s federal government is proposing an 18-month postponement for full implementation of the new oil and gas law.

WHY: The suggestion comes in the wake of threatened protests over the pending removal of domestic gasoline price supports.

WHAT NEXT: The postponement could bolster the fortunes of Buhari’s political party ahead of the next presidential election.

According to the provisions of the Petroleum Industry Act (PIA), Nigeria’s federal government is legally obligated to eliminate the gasoline subsidy that has long kept domestic gasoline prices far below market level within six months of the law’s adoption.

That six-month deadline was due to fall next month, in February, and officials in Abuja began dropping strong hints last week that the administration of President Muhammadu Buhari was looking for a way to defer its duty. Senate President Ahmad Lawan took the lead on this front, emerging from a meeting with Buhari on January 18 to say he had conveyed voters’ concerns about the potential economic impact of a sudden rise in gasoline prices to the president.

According to Lawan, these statements struck a chord with Buhari. “I’m happy to inform Nigerians that Mr. President never told anyone that the petroleum subsidy should be removed,” he declared.

The Senate leader went on to say that he did not want to see ordinary citizens bear the financial burden of a policy change, but stopped short of making any explicit statements about what Abuja might do next beyond allocating additional budget funds to ensure that the subsidy continues to be paid for the remainder of 2022.

Earlier this week, though, the federal government made its intentions clear.

Following a meeting with Buhari on January 25, Minister of State for Petroleum Resources Timipre Sylva told reporters that the Buhari administration intended to propose an 18-month extension of the term for implementation of the PIA, pushing the start date back to August 2023. The government will reach out to the National Assembly on this front soon, he said.

Protests called off

The Buhari administration’s decision seems to have drawn a positive reaction in the short term.

More specifically, it convinced the country’s labour unions not to proceed with demonstrations and strikes. The Nigeria Labour Congress (NLC), for instance, said on January 25 that its National Executive Council (NEC) had decided to cancel nationwide demonstrations scheduled for January 27 and February 2 and had informed all of its affiliated union and partner civil society organisations (CSOs) of these cancellations.

Ayuba Wabba, NLC’s president, made an official announcement to this effect on the same day. “The leadership of the Congress has communicated this organ decision to our civil society allies, who have stood stoically behind Nigerian workers in our quest for social and economic justice for workers and the downtrodden people of our country,” he was quoted as saying by the Daily Trust. “Going forward, we will continue to engage with the government on the very critical issues of ensuring local refining of petroleum, creation of sustainable jobs and affordable price of petrol for Nigerian workers and people.”

Emergency subsidy funding

In the meantime, Buhari’s team has already taken action with respect to the fuel subsidy.

Finance Minister Zainab Ahmed, who had previously led the effort to eliminate gasoline price supports in line with the PIA, met with members of the National Assembly on January 24 and said that the government wanted to suspend the lifting of the subsidy indefinitely. “[After] the [2022] budget was passed, we had consultations with a number of stakeholders, and it became clear that the timing was problematic,” she said. “We discovered that practically, there is still heightened inflation and that the removal of [the] subsidy would further worsen the situation and impose more difficulties on the citizenry. Mr. President does not want to do that.”

The Buhari administration hopes that the launch of new domestic refining capacity will help solve problems in the domestic fuel market but still has to fill certain gaps in the meantime, she said. “What we are now doing is to continue with the ongoing discussions and consultations in terms of putting in place a number of measures,” she explained. “One of these measures includes the roll-out of refining capacities of existing refineries and the new ones, which would reduce the amount of products that would be imported into the country. We therefore need to return to the National Assembly now to amend the budget and make additional provision for a subsidy from July to whatever period that we agreed was suitable for the commencement of the total removal.”

Change, but only to a limited extent

In practical terms, this means that the extent of change in Nigeria’s domestic fuel sector will be limited over the next 18 months.

Certainly, there will be some change. There already has been, in that the state agencies that used to regulate the market – the Department of Petroleum Resources (DPR), the Petroleum Products Pricing Regulatory Agency (PPPRA), and the Petroleum Equalisation Fund (PEF) – no longer exist. They have been replaced with two new agencies – the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NPRA) and the Nigerian Upstream Regulatory Commission (NURC), and only the first of these has any jurisdiction over gasoline prices and sales.

Additionally, there will be change in that new refineries are slated to open. Dangote Industries is slated to launch the first phase of operations at its gigantic 650,000 barrel per day (bpd) oil-processing plant near Lagos before the end of 2022, and several independent companies are working to bring small modular refineries into production as well. Hopefully, these facilities will help increase the amount of gasoline available for purchase in Nigeria to the point where the price subsidies (and the burden the impose on the country’s budget) are no longer necessary.

But in the meantime, Nigerian consumers will continue to be able to buy gasoline cheaply, as they have been doing for years. Moreover, they will still be doing in February 2023, when the country is due to hold its next presidential election. Buhari will not be participating in that contest, as he is legally prohibited from seeking a third term in office. However, he appears to be rather keen to ensure that his party, the All Progressives Congress (APC), remains in power – and his odds of achieving this aim will certainly be higher if voters are not heading to the polls with fresh memories of demonstrations over gasoline price increases.

As such, Buhari’s administration is probably perfectly content to keep moving slowly towards full implementation of the PIA.