Impact Of Fuel Subsidy Removal On Citizens
The issue of fuel crisis has become a common phenomenon in Nigeria that is richly endowed with large crude oil deposit and a greater exporter of the God-given commodity.
It is pathetic to observe that no other OPEC member or even country that does not produce oil, share similar ugly experience with Nigeria. Subsidy in economic sense exists when consumers of a given commodity are assisted by the government to pay less than the pump price per litre of petroleum product. On the other hand, fuel subsidy could be described as the difference between the actual market price of petroleum products per litre and what the final consumers are paying for the same products.
Today, the difference, which is borne by the government, is caused by eight imports – induced costs. The costs include:
[i] The freight, which is the cost of transporting petroleum products from North West Europe to West Africa.
[ii] The lithering expenses, incurred on the trans-shipment of imported petroleum products from the “mother” vessel into “daughter” vessel.
[iii] The Nigeria Port Authority (NPA) charge, which is the cargo due charged by the NPA for use of port facilities.
[iv] The stock finance cost, which is the cost of fund for the imported products. This includes the cargo financing based on the international London inter-bank
offered rates.
[v] The jetty depot, which is the tariff paid for use of facilities at the jetty by the marketers to move products to the storage depots.
[vi] The depot operations covering, this is a current charge per litre for depot operations covering storage charges and other services rendered by the depot owners.
[vii] The landing cost, which is the cost of imported products delivered into the jetty depots.
[viii] The last induced cost is the distribution margins, which has several components such as; retailers, transporters, dealers’ margin, Bridging fund, and administrative charges.
These costs have been discovered to be responsible for the high prices of petroleum products in present day Nigeria. Fuel subsidy was before the coming of the Jonathan administration, a policy of federal government meant to assist the people of Nigeria to cushion the effects of their economic hardship. Fuel subsidy seeks to enhance financial capacity but also to accept the implied financial losses by it in the spirit of its national responsibility to ensure the wellbeing of the populace.
The removal of fuel subsidies in Nigeria can have significant effects on its citizens. Fuel subsidies refer to the government’s practice of providing financial assistance to keep fuel prices artificially low for consumers. When these subsidies are removed, fuel prices typically increase to reflect the actual market value of petroleum products.
Here are some potential effects of removing fuel subsidies on Nigerian citizens:
Increase in transportation costs: Fuel price hikes directly impact the cost of transportation, as most vehicles in Nigeria rely on petrol or diesel. Higher fuel prices can lead to increased fares for buses, taxis, and other forms of public transportation.
This can burden the citizens, particularly those who depend on daily commutes for work or education.
Inflationary pressure: Fuel price increases can trigger inflationary pressures across the economy. As transportation costs rise, the prices of goods and services that require transportation for distribution, such as food and consumer products, may also increase. This can contribute to an overall rise in the cost of living, affecting the purchasing power of the citizens.
Economic challenges for businesses: Many businesses in Nigeria heavily rely on fuel for their operations, including transportation, manufacturing, and agriculture sectors. When fuel prices rise, the cost of production and transportation increases, leading to higher operational expenses. Small businesses, in particular, may struggle to absorb these additional costs, which could result in reduced profitability, potential job losses, or even business closures.
Socioeconomic disparities: The removal of fuel subsidies can exacerbate existing socioeconomic disparities in Nigeria. Low-income individuals and vulnerable populations, who spend a higher proportion of their income on essential commodities like fuel, will be disproportionately affected by rising fuel prices. This can further widen the gap between the rich and the poor, making it more challenging for the disadvantaged segments of society to meet their basic needs.
Public unrest and protests: Historically, the removal of fuel subsidies in Nigeria has triggered public unrest and protests. Citizens who perceive the removal as a burden or an unfair policy may take to the streets to voice their grievances. These protests can disrupt public order, result in clashes with security forces, and potentially lead to social and political instability.
It is important to note that the effects of removing fuel subsidies can vary depending on various factors such as the government’s mitigation measures, global oil prices, and the overall economic conditions in the country. Governments often face a difficult decision when considering the removal of fuel subsidies, as they aim to strike a balance between reducing fiscal burdens and ensuring the welfare of their citizens.
In other words, the so-called subsidy of the downstream oil sector will be removed instantly, should the importation of the petroleum products be stopped. Thus, resuscitating and revamping of the country’s ailing refineries is the answer to the problem of fuel crisis in Nigeria.
Disclaimer:
This report by Futureview Group is for information purposes only. While opinions and estimates therein have been carefully prepared, the company and its employees do not guarantee the complete accuracy of the information contained herewith as information was also gathered from various sources believed to be reliable and accurate at the time of this report. We do not take responsibility therefore, for any loss arising from the use of this information.
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