Why Fuel Subsidies Are Illegal And Unconstitutional

By Abubakar D.Sani, Esq

For the following reasons, I believe that no attempt at ending
the costly fuel subsidy programme in Nigeria will succeed unless it
is 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, 6^th
edition, page 1194. No law imposes such an obligation on
the Government. The relevant extant laws are the following:

1. The Petroleum Act, 1969, Section 6(1);
2. The Price Control Act, 1977;

• The Petroleum Equalization Fund;

1. The Petroleum Products Pricing Regulatory Agency Act
   2003;
2. The provision for subsidies in the annual Appropriation
   Acts or Budget;
3. 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 consistent 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 of the 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 which are 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
reasonably implied or included. I submit that this excludes
Section 6 of the Petroleum Act which, after all,
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 market or 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 19^th day of March, 2013 in Suit No.
FHC/ABJ/CS/591/09 between Bamidele Aturu and Hon Minister
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 of the 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 Act would 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 to fix 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.

Written By Abubakar D.Sani, Esq

By Abubakar D.Sani, Esq

For the following reasons, I believe that no attempt at ending
the costly fuel subsidy programme in Nigeria will succeed unless it
is 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, 6^th
edition, page 1194. No law imposes such an obligation on
the Government. The relevant extant laws are the following:

1. The Petroleum Act, 1969, Section 6(1);
2. The Price Control Act, 1977;

• The Petroleum Equalization Fund;

1. The Petroleum Products Pricing Regulatory Agency Act
   2003;
2. The provision for subsidies in the annual Appropriation
   Acts or Budget;
3. 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 consistent 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 of the 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 which are 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
reasonably implied or included. I submit that this excludes
Section 6 of the Petroleum Act which, after all,
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 market or 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 19^th day of March, 2013 in Suit No.
FHC/ABJ/CS/591/09 between Bamidele Aturu and Hon Minister
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 of the 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 Act would 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 to fix 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.

Written By Abubakar D.Sani, Esq