Oil and gas expert, Joe Uwakwe, has opposed any attempt to return Nigeria to the pre-2023 petrol subsidy regime, saying the country should instead adopt targeted and temporary interventions to cushion the impact of high energy costs on manufacturers and consumers.
Speaking in an interview with ARISE NEWS on Friday, Uwakwe said the removal of the subsidy was necessary, although the manner in which it was implemented created significant hardship for Nigerians.
“I think that we cannot reverse. That would not be my position. I think that when we talk about subsidies, we need to be very clear as to what that means.
“One, subsidies are necessary for sectors that are challenged to bring them back to optimal performance. So, looking at it, subsidies are not bad in themselves, but they have to be properly designed and implemented.
“So, the subsidy that was removed was, in my opinion, needed to be removed.
“Remember, this was put in place in the ’70s, and a lot has changed since then. It was almost, in my mind, irresponsible that it wasn’t removed for so many years. And ultimately, it was, which is a good thing, in my opinion.
“So, we should not reverse back to the pre-2023 situation.
“However, we need to recognise that our industrial competitiveness, our trade policy, all have to do with energy incentives and subsidies. Today, manufacturing is heavily dependent on diesel production.
“So, that means that if the price of diesel is at a level where it is uneconomic to produce, then it affects our industrial output.
“So, we need to be very, very clear that we may need subsidies at some point. We haven’t done the modelling to see at what price level, for instance, that manufacturing will need some help with diesel pricing.
“So, what I would recommend is that we do not go back to the poorly designed, poorly implemented, I dare say corrupt subsidy scheme that was run for so many years, but we can have a smart subsidy scheme for targeted intervention that will not violate the provisions of Section 205 of the PIA.
“I’ll give you an instance. If diesel prices go to N3,000 per litre today, are we suggesting, for instance, that manufacturing will cope? So, those are the questions that need to be answered.
“So, I would like a scheme that says, if things fall out of place, then the government has to intervene one way or the other to minimise the pain that will come to manufacturers and the consuming public.
“So, that would be my general comment on subsidies. Subsidies cannot be open-ended. They have to be properly designed and implemented.”
On incentives being offered to international oil companies to boost production, Uwakwe said subsidy programmes should be structured around measurable outcomes rather than activities.
“That’s a very good point you make. There are basic design principles that need to be observed. Subsidy should be targeted at outcomes, not activity.
“I think when we were doing the PIA, this came off. That’s where we moved from the old allowances to production bonuses. So, subsidies should be designed to reward outcome, not activity. So, that’s one point I would make.
“So, in designing a subsidy, for instance, for diesel or PMS, we need to, one, make sure that it is targeted. That means it addresses specific challenges that are prevalent to that specific sector, and that it has an automatic ramp-off.
“You cannot have an open-ended scheme. Otherwise, it’s really like putting somebody, a sick patient, on oxygen perpetually. I don’t think that makes sense.
“So, we need to design subsidies properly. Like I said, there’s nothing wrong with subsidies if we recognise that a sector or subsector is challenged.
“Government needs to intervene and provide support to that sector, but that support cannot be in perpetuity.”
Uwakwe also said the government had little choice but to remove the petrol subsidy, arguing that successive administrations had delayed taking action until the policy became unsustainable.
“I just read snippets of the explanation, if I may use that word, of where the subsidy savings had gone to. I need to make the point, and I think it was very well made prior, that the government had no choice at the point.
“So, it was a case of their backs were right at the wall. They had to pull the plug. It’s not the best way to do it.
“We had recommended prior to the previous government, before the current government, that they needed to come up with a plan to gradually wind down that subsidy regime.
“But I think we waited too late, and it became almost existential that they had to pull the plug the way they did.
“Now, having done that, I don’t think we should roll back. Like I said, it would not be advised that we do that.
“I think that we need to then find ways to minimise the pains of the surgery, if I may use that word. And the government has done a few things to try to reduce the pain that came with that decision.
“It’s a good decision. The way it was implemented may be very challenging. I really don’t think they had much of a choice to go that way.
“They’ve done that. So, now we have to face the consequences, which is the pain that the consumers face. We need to find means to minimise those pains.
“And we’ve already paid much of the price. So, reversing it now is very unhelpful.
“But going forward, government can invest more in things that can help minimise that pain.
“Today, I bought petrol. I think N1,300 per litre. Are there things that can be done to reduce that? Yes, there might be certain interventions, but it has to be properly designed.
“That’s my point. We must take the pace to design it properly so that it addresses the problems.”
Boluwatife Enome
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