Why Fuel Subsidies Are Illegal and Unconstitutional By Abubakar D.Sani

For the following reasons, I believe that no attempt at ending the costly fuel subsidy programme in Nigeria will succeed unless itis situated within the context of the law.

To start with,no law backs the practice of subsidizing petroleum products in Nigeria. Before reviewing the various extant legislations on the subject, it is essential to understand what a subsidy means. A subsidy is simply an amount of money paid by the Government or an organization to reduce the cost of producing a product in order to keep its price low. See the Oxford Advanced Learner’s Dictionary, 6th edition, page 1194. No law imposes such an obligation on the Government. The relevant extant laws are the following:

i.             The Petroleum Act, 1969, Section 6(1);

ii.           The Price Control Act, 1977;

iii.          The Petroleum Equalization Fund;

iv.          The Petroleum Products Pricing Regulatory Agency Act 2003;

v.           The provision for subsidies in the annual Appropriation Acts or Budget;

vi.          Item 62(e) of the Exclusive Legislative List in Schedule Two of the 1999 Constitution of the Federal Republic of Nigeria.

By virtue of this last enactment, i.e., Item 62(e) of the Exclusive Legislative list of the Constitution, only the National Assembly has the power to control the prices of any product in Nigeria. This power is, however, not at large, but is to be exercised only in respect of essential products and commodities as designated by the Assembly. To the best of my knowledge, with the exception of drugs, the National Assembly has designated no product as essential. To that extent, the aforesaid statutes are all ultra vires the Assembly, invalid, null and void: see Section 1(1)&(3) of the Constitution.

 It follows that the practice of the Federal Government - through the NNPC, the Federal Ministry of Finance, the PPPRA, etc. - of subsidizing the price of petroleum products is also unconstitutional, invalid, null and void.It is important to stress that what Item 62(e) of the Exclusive Legislative List of the Constitution recognizes is price control and not subsidization; the two are not the same, for, whilst a subsidy is a means of controlling prices, not all price control measures involve subsidies, as it depends on the modalities, if any, applicable in any given case.

I submit that the express terms of the relevant one in this case, i.e., the Price Control Act, leave no room for conjecture that the National Assembly intended to   subsidize petroleum products. Accordingly, the annual practice of appropriating funds in the Budget for fuel subsidy payments is illegal because, it is inconsistent with the Price Control Act- even assuming, without conceding - that the National Assembly has designated petroleum products as essential commodities. We shall now examine the Price Control Act.

The First Schedule to the Act lists nine different products as being subject to price control at the discretion of the Minister of Commerce; petroleum products are Item 7 on that list. The Act is not silent on the parameters to be applied in are contained in fixing the open market price of any product. Those parameters are contained in Section 5 of the Act, which recognizes two different scenarios- a basic price (Sec. 5(1) (a)) and a permitted variation to the basic price (Sec. 5(1)(b)). By virtue of Sec. 1(1) of the Act,is the sole body responsible for fixing the basic and the variation permitted thereto for the whole country. This, the Board does by notice published in the Federal Gazette.

With regard to the basic price, Sec. 5(2) of the Act differentiates between locally produced goods, and goods imported into Nigeria. In respect of the first, i.e. goods produced (or fuel refined) in Nigeria, the basic price is “the price which, in the opinion ofthe Board, properly represents the cost of production of the commodity, plus the manufacturer’s profit” -Sec. 5(2)(a). In the second case, i.e., imported goods, the basic price is “the duty-paid landed cost in Nigeria plus the importer’s profit” - Section 5(2)(b). Sec. 5(3) of the Act permits a variation to the basic price, being an amount which, in the opinion of the Price Control Board,“represents the transport and other costs plus the distributor’s profit, which ought properly to be added to the basic price in order to represent a fair controlled price, wholesale or retail, in any State” This provision is the subject matter of an entire statute, the Petroleum Equalization Fund (Management Board, etc.) Act, 1975

It can be seen that the two, i.e.the basic price and the permitted variation, constitute the controlled price of the commodities listed in the First Schedule to the Act. Sec. 4 of the Act is peremptory in its mandate that “price control shall continue to be imposed in accordance with this Act on any goods whichare of the kind specified in the First Schedule to this Act”(emphasis supplied). This means that the prices of the goods listed in the Act should be controlled exclusively in accordance with the provisions of the Act, the maxim being expressio unius est exclusio alterius- the express mention of one thing in a statute suggests the exclusion of other which otherwise might be reasonablyimplied or included. I submit that this excludes Section 6 of the Petroleum Act which, afterall, merely empowers the Minister of Petroleum Resources to fix the prices of petroleum products. In any event, neither statute requires the government to absorb part of the cost of the importer or local producer of petroleum products in order to reduce their open marketor controlled prices. In other words, none of them requires the government to subsidize petroleum products.

Both the Price Control Act and the Petroleum Act were given judicial consideration by the Federal High Court, Abuja in a judgment delivered by Honourable Justice Adamu Bello(now retired) on the 19th day of March, 2013 in Suit No. FHC/ABJ/CS/591/09between Bamidele Aturu and HonMinister of Petroleum Resources, the Hon. Minister of Commerce & Tourism and the Attorney-General of the Federation. In it, the court ordered the government to “fix the prices of petroleum products as mandatorily required by the Petroleum Act and the Price Control Act.” It is important to note that the court merely ordered the government to fix– not to subsidize – fuel prices.

This judgment is currently on appeal at the instance of the government. But it subsists and has not been set aside. Until then, it is clear that the government would be remiss to not ‘fix’ the prices of petroleum products as provided by the Price Control Act and the Petroleum Act. Given that neither of those statutes requires the government to subsidize petroleum products (but merely to fix their prices - which don’t mean the same thing, as aforesaid), It is obvious that complying with the terms ofthe judgment would actually enable the government to end the current regime of subsidies in the petroleum sector, albeit fortuitously.

This is because, applying the parameters in Section 5 of the Price Control Actwould mean passing the entire costs of production, refining and importation of fuel to the consumer at the fuel pump(in the open market) - with the Government under no legal obligation whatsoever to absorb any part of those costs. It bears repeating that in Bamidele’s case the court ordered the government tofix the prices of petroleum products in accordance with the Price Control Act: no one in his right senses will blame the government for complying with a court order. 

The question now is: what would it take? A campaign of sensitization and awareness of the Nigerian public, in my view, particularly critical stakeholders such as the labour movement, petroleum marketers, transporters etc. – as well as the constitution/composition of the Price Control Board as provided by Sec. 1(1) of the Price Control Act. By way of mitigation, the Government can waive the custom duty required to be paid on imported fuel. I submit that the only component of the Price Control Act which is open to negotiation is the profit margin of the marketers; to expect the government to do more, in my view, would be asking it to bend the law to breaking point.


Abubakar D.Sani,October, 2013

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