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2O22 BUDGET: Zero Allocation For Fuel Subsidy Raises Fear Of Price Increase

Market forces to determine fuel pricing | Not making provision for subsidy is symbolic – Experts

by Nse Anthony-Uko and Chika Izuora
7 months ago
in COVER STORIES, FEATURED, NEWS
Reading Time: 3 mins read
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Nigerians will have to brace up for an expected increase in the pump rice of premium motor spirit (PMS) next year after the federal government, again, did not make budgetary provision for fuel subsidy in the 2022 appropriation bill sent to the National Assembly for consideration.

LEADERSHIP recalls that there was no provision for fuel subsidy in the 2021 budget, yet the Nigerian National Petroleum Corporation (NNPC) said it has spent no less than N714.79 billion on fuel subsidy, which it calls under-recovery of Premium Motor Spirit (PMS) in its monthly report.

The NNPC had since February 2021 been making direct deductions from the Federation Accounts Allocation Committee (FAAC) funds to offset petrol subsidy.

Associate professor, Department of Private and Commercial Law, Babcock University, Dr Temitayo Bello, said that not making provision for fuel subsidy in the budget is symbolic. The government is subtly telling Nigerians that from next year they are going to pay the market value for petrol, so they should prepare.

Dr Bello, who spoke with LEADERSHIP by telephone, said that in any case, the Petroleum Industry Act (PIA) had already expunged payment of subsidy.

He described the issue of fuel subsidy as political and not one that makes economic sense.

“You don’t ask a dying person to donate blood,” he said, adding that the payment of fuel subsidy was killing the economy and, therefore, cannot be sustained.

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  • Despite PIA, FG To Make Provision For Fuel Subsidy In 2022 – NNPC

He noted that removing subsidy would not double the current prices of goods and services, adding that most of the payment is used to subsidize neighbouring countries’ fuel consumption.

According to him, Nigeria’s fuel consumption cannot be more than 30 to 35 million litres per day. However, the consumption figure of over 100 million per day has been reported in some months.

LEADERSHIP reports that fuel subsidy has constituted a major drain on government revenues as the sum of N10.413 trillion had been spent on the subsidy regime in the last 14 years.

While there was no subsidy spent in January, NNPC spent N25.37 billion in February, a figure that rose by more than 100 per cent in March to N60.396 billion. The corporation then spent N61.966 billion in April which more than doubled to N126.298 billion in May, following reported hike in the landing cost of imported petrol.

The national oil company further incurred a higher cost in petrol subsidy of N164.337 billion in June but it declined to N103.286 billion by July. However, by August, the gain was reversed when subsidy cost rose to N173.132 billion, the highest figure published so far.

Analysts had expected to see fuel subsidy provided for in the 2022 budget to put an end to the extra-budgetary spendings the corporation had been engaging in, especially since the federal government said fuel subsidy would remain despite the signing of the Petroleum Industry Act (PIA).

The group managing director of the NNPC, Mele Kyari, said earlier in September that the federal government was projecting N900 billion for fuel subsidy for 2022 as he said subsidy would remain until the unresolved issues between the federal government and the organised labour on the implementation of the full deregulation of the downstream sector of the oil industry were ironed out.

The government had in March 2020 announced an end to fuel subsidy regime and the immediate deregulation of the downstream sector of the petroleum industry amid a global oil price crash. The process was later suspended earlier this year to allow for consultation with stakeholders and organised labour.

 

Petroleum Subsidy Removal Will Galvanize Economy, Drive Investment – Economists, Marketers

Key petroleum marketers in Nigeria have said that Nigerians would begin to witness economic growth across key sectors of the economy with the planned removal of subsidy payment for petrol.

They argue that the subsidy regime had left the national economy bleeding as scarce foreign exchange is frittered away through fraudulent subsidy regime.

National president of the Petroleum Outlets Owners Association of Nigeria (PETROAN), Prince Billy Harry, in his reaction said the subsidy payment had significantly under-developed the country.

Harry said the removal will spur investment in the sector as huge expenditure on the subsidy payment will be deployed to develop other industries and entrench transparency in the system.

“Why do we encourage a system that benefits only a few. Go to rural communities and petrol which government is spending so much to subsidise is sold much higher than what is sells in urban areas. If we remove subsidy, it will galvanise the economy, create opportunities that will bring about growth, generate employment and support infrastructure development across critical sectors of the economy,” he said.

On his part, the national president of the Independent Petroleum Marketers Association of Nigeria, IPMAN, Chinedu Okoronkwo, said the marketers are eagerly awaiting such opportunities to make investments.

“We are just asking government to provide a level playing field so that players in the sector will consider making investment with those opportunities capable of advancing our economy,” said Okoronkwo.

According to him, investors are holding back their money because the regulated regime is not attractive.

He allayed fear of possible skyrocketing of pump price.

“When government frees the market, marketers will begin to import and the country will witness sustained products importation and distribution,” he said.

Okoronkwo, however, expressed reservation as to whether the PIA implementation committee would recommend the immediate removal of subsidy at this point.

“I will advise we wait for the committee’s recommendation in the first place,” the IPMAN president added.

In his submission Goke Dele, chief executive officer, Quest Oil & Engineering Services Limited, stated that the removal of petroleum subsidy will mark a turnaround for the downstream oil and gas sector. Dele said that apart from enhancing investment, it will provide an enabling environment for the market forces to determine prices.

“On the possible impact of this on the final consumer, contrary to the fear of many people, this development will increase competition, and this means that consumers can buy from where the prices are cheaper.

“We must give government kudos for having the will to do the right thing. However, they now need to provide the enabling infrastructure that will accelerate gas usage to cushion the effect of the deregulation.”

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