Nigeria’s bumpy road to PIA implementation in 2022

Africa’s biggest oil producer is heading for a political traffic jam, thanks to a dispute over gasoline subsidies

WHAT: The president of Nigeria’s Senate has indicated that gasoline subsidies will not be eliminated as planned.

WHY: The price support places major strains on the country’s budget.

WHAT NEXT: Resolving the gasoline subsidy dispute is likely to slow implementation of the PIA.

To date, one of Nigerian President Muhammadu Buhari’s biggest accomplishments has been the adoption of the Petroleum Industry Act (PIA), a new law governing the oil and gas sector.

In contrast to the failed and drawn-out efforts of its predecessors, Buhari’s administration managed to submit draft legislation to the National Congress and then secure its passage through both houses of the legislature in less than a year. As a result, the president was able to sign the bill into law last August, clearing the way for the introduction of a new governance and operating regime for the industry that accounts for about 10% of the country’s GDP and more than 85% of its total export revenue.

Nigerian government officials have said they hope the adoption of the PIA will help attract foreign funding for oil and gas projects by resolving investors’ questions about the stability of taxation and regulatory regimes. They have also noted that the new law is designed to free up budget funding for infrastructure projects and domestic programmes by eliminating Nigeria’s long-standing subsidies for gasoline (known locally as premium motor spirit, or PMS).

Ahmed’s roadmap

There was never any reason to believe that Nigeria would accomplish the latter feat without any bumps, skids or swerves along the road.

The PIA lays out a very tight schedule for abandoning the subsidy, as it calls upon Abuja to stop providing artificial support to domestic gasoline prices within six months of its adoption. Five months have already passed since Buhari signed the bill, and it is far from clear that the government will meet this deadline.

Certainly, Finance Minister Zainab Ahmed has made a good-faith attempt to do so. Last autumn, she said Abuja intended to eliminate the gasoline subsidy completely as of mid-2022. Additionally, she stressed that the government would work to mitigate the impact of higher fuel prices for impoverished Nigerians.

Specifically, she stated that one of the measures being contemplated was the payment of a travel grant of NGN5,000 ($12.06) per month to the country’s 20-40mn poorest citizens for a period of up to 12 months, worth around $5.8bn. She also asserted that it was worthwhile to bear the cost of this temporary programme rather than continue to pay the subsidy, which was currently costing Abuja NGN243bn ($586mn) per month, or nearly NGN3 trillion ($7.23bn) per year.

At the time, Ahmed reported that the Nigerian government had drawn up this year’s spending plans with this agenda in mind. Under the 2022 budget, she explained, Abuja is only supposed to continue paying the subsidy during the first half of the new year.

Lawan’s directions from Buhari

Nevertheless, the government appears to be in the process of shifting its plan abruptly to the back burner.

After a closed-door meeting with Buhari on January 18, Ahmad Lawan, the president of Nigeria’s Senate, indicated that the PMS subsidy was likely to remain in place. He told reporters that he had discussed the matter with the president, expressing constituents’ concerns about the potential economic impact of a sudden rise in gasoline prices and recounting legislators’ worries about protests and public unrest.

Buhari responded by expressing his own thoughts on the matter, Lawan said. “I’m happy to inform Nigerians that Mr. President never told anyone that the petroleum subsidy should be removed,” he declared.

The Senate president acknowledged the cost of the gasoline price supports, but he also emphasised that Abuja did not want to make ordinary Nigerians bear the cost of policy changes. “I know and I agree that the subsidy is very heavy. But I think we must never transfer the burden to the citizens,” he said.

Rather than focusing on the subsidies, he suggested, the government’s best option might be to investigate the matter to determine whether its generosity is being taken advantage of by smugglers who buy gasoline cheaply in Nigeria and sell it for higher prices across the border. He referred to the gap between government data suggesting that the country consumes about 50mn litres per day of gasoline and data from the national oil company (NOC), Nigerian National Petroleum Corp. (NNPC), that shows the figure to be about twice as high.

“We need to look at this critically and see how we can find the truth because I am not convinced that within the boundaries of Nigeria we are consuming 100mn litres [per day]. Probably neighbouring countries may be benefiting from this. Can’t we do something about it? It is a failure on us if we are not able to control it, this particular aspect of smuggling of the petrol, and then in return push the burden to the ordinary citizen.”

Traffic jam ahead?

As of press time, it was not at all clear how the matter was likely to be resolved.

Within the Buhari administration, the president himself has remained silent, and Ahmed also has not responded publicly to Lawan’s statements. Some Nigerian analysts and observers have commented on the matter, in line with their own political leanings. However, Ahmed’s supporters at the World Bank and the International Monetary Fund (IMF), both of which have been pressing Abuja to eliminate the subsidy for years, on the grounds that it is burdensome and a drain on government revenues, have not spoken up yet, and it may take several days for them to do so.

Meanwhile, concerns are growing within Nigeria about the lack of political will to remove subsidies ahead of next year’s presidential elections, noted Ian Simm, principal advisor at consultancy IGM Energy. “This hot potato has been passed off between administrations, and with Buhari unable to run again next year, there appears to be more than a fair chance he won’t risk tarnishing his reputation by tackling subsidies,” he told NewsBase.

Simm pointed out that Buhari’s predecessor President Goodluck Jonathan had removed subsidies 10 years ago this month, more than doubling fuel prices, only to reinstate artificial pricing just two weeks later amid widespread civil unrest. “The trouble is, nobody will get voted in on a mandate of subsidy removal, and anyone who enacts such a move may not last long in office,” he commented.

All in all, this episode should serve as a reminder that the PIA per se is not going to be enough to remove all the obstacles to the smooth functioning of Nigeria’s oil and gas industry. The industry is going to encounter some bumps and potholes during its journey down this road, and it looks like one of its first major traffic jams may lie just ahead.