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The removal of kerosene subsidy

IT is apparent that the Federal Government has removed the subsidy on household kerosene (HHK), going by the latest pricing template of the product released by the Petroleum Products Pricing Regulatory Agency (PPPRA). According to the template, the official ex-depot price of the product is N73 per litre. This was further confirmed in a memo signed on behalf of the Managing Director of Petroleum Products Marketing Company (PPMC) by one L.N.S. Madubuike, which directed depots to sell kerosene at N73.37 per litre. This is a hike of N32.47, compared to the previous price of N40.90k.

This increase strikes at the heart of the subsidy debate. It answers the question of whether government can continue paying out huge sums of money as subsidy on the product or not. It also probably indicates the government’s readiness to earn more revenue from the product.

Now that government has cancelled kerosene subsidy, the expectation is that it will work harder to improve local refining of the product, to reduce our dependence on importation. Meanwhile, feelers suggest unease as the labour unions are said to be consulting and mobilizing their constituencies for a possible resistance and rejection of the new kerosene price.

This reaction is not totally unexpected as kerosene is a product that is dear to the heart of the common man. It is the product that is most widely used by the citizenry, especially the low income earners, for cooking, lighting and other domestic purposes.

Any increase in the price of the product is, therefore,   bound to cause ripples in the polity. There is also the fear that ordinary citizens who are unable to afford the new kerosene price may resort to firewood and charcoal as alternatives, with attendant implications for deforestation and environmental degradation.

The reality of the situation is that the product had hardly ever been sold at the previously regulated price of N50. The regulated price was, in fact, only on offer at a few urban filling stations owned or affiliated to the Nigerian National Petroleum Company (NNPC).  Majority of Nigerians obtained the product   elsewhere at prices ranging between N100 and N150 per litre.

What this means is that the people that the subsidy was intended to benefit did not enjoy it, yet government paid huge sums as subsidy at taxpayers’ expense. This, in practice, was double jeopardy, as it allowed product racketeers and their accomplices to smile to the banks with subsidy payments while the citizens grappled with the high cost of the product.

It is this understanding that may temper the people’s response to the seeming subsidy removal and subsequent price increase. There is no doubt, however, that the citizens expect government to facilitate the local refining of petroleum products including kerosene, to ensure lower prices and improve efficiency in the supply chain.

This is a logical expectation when the cost of freight and other importation logistics are calculated and subtracted from the PPPRA pricing template. Kerosene, like other petroleum products, can be delivered to the end user at far lower prices than currently obtains. We, therefore, hope that government will strive to ensure optimal local refining of petroleum products with value added for the export market.

Whether through a government – private sector partnership as has been successfully done in Saudi Arabia and presently being contemplated in Nigeria, or an outright sale of our four refineries, government must find a quick and lasting solution to the petroleum products supply conundrum and the hardship the citizenry have faced over the years in sourcing the products.

In the meantime, the minimum irreducible expectation of the people is that now that the price of kerosene has been deregulated, government would ensure its   unbroken supply to end users. It will be sad if the people, in addition to bearing the new price hike, also have to suffer shortages of the product on account of laxity in government’s regulation of the industry.

Ultimately, the lasting solution to the kerosene challenge is the availability and affordability of cooking gas for all classes of Nigerians.

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