BY ZAKA KHALIQ |
With the 2021 national budget failing to make provision for petrol subsidy payment and the continuous push for reintroduction of fuel subsidy by the labour unions, the federal government stands to lose about N70billion monthly if it ascents to the call, LEADERSHIP Sunday findings have revealed.
The N10.41trillion paid by the federal government in 14 years divided by 14 years translates to N744 billion per annum, while a further breakdown puts the average monthly subsidy payment being paid then at N62billion.
However, the volatility of the foreign exchange market and the fact that the dollar has gained more strength against the naira in recent times means the monthly subsidy payment will exceed the previous N62billion.
It is expected that government would be losing at least N70billion monthly as subsidy if it is reintroduced this time around.
“Currently, the federal government will have to cough out N70 to N80 billion monthly to pay subsidy, whereas such money could be deployed to fix our deplorable roads, electricity, education, among others. The fact that there is no subsidy provision in the budget this year means this cost, if introduced, would be passed back to the NNPC to pay. In the long run, it will affect the level of monthly revenue the government is expecting from the NNPC,” an expert who did not want his name in print said.
LEADERSHIP Sunday investigations showed that labour and some stakeholders in the oil and gas industry have been consistently calling for the reintroduction of petrol subsidy following the rapid increase in fuel pump price in recent times and had been engaging the federal government to shift ground.
The chairman of Trade Union Congress (TUC), Lagos State council, Comrade Gbenga Ekundayo, while speaking with LEADERSHIP Sunday yesterday, wondered why the federal government has not deemed it fit to fix and bring the country’s refineries into full production rather than depending on imported petroleum products that are being driven and controlled by prices in the international market.
He said, “In view of the present situation of things, there is no way an average Nigerian cannot feel the ripple effects of the burden of continuous increments from electricity to fuel price. In as much as Nigeria depends on importation of fuel which is controlled by international prices, the government should in the time being bring back fuel subsidy to cushion the effects of the increment would have on the masses.
“Government should remember that most Nigerians are finding it hard right now because of the coronavirus pandemic whereby many lost jobs and the cost of living has gone up.
“For the government to think of an increase in the price of fuel when most Nigerians are living below poverty level would not be a welcome development. So, subsidy should be brought back for the time being to save the masses from further hardship and pains of covid-19.”
The PPPRA had announced at the weekend that the pump price of petrol for the month of March 2021 would be increased from N162 to N212.61 per litre, although, the federal government refuted the increase, saying there was no fuel price increase until it holds discussions with labour and other critical stakeholders.
It was gathered that at the proposed meeting with the federal government later in the week, a section of the labour groups will push that oil subsidy be reintroduced temporarily until the country is totally out of recession and Nigerians are better off financially to cope with the increase.
However, investigations showed that if the subsidy is brought back, the payment would be pushed back to the NNPC as a form of under recovery arising from the price differential between landing the cost and pump price of petrol.
This, according to market observers, will create an extra financial burden running into about N820billion annually, which translates to N70billion monthly on the NNPC if subsidy is allowed to return.
They said it would also deplete the amount the corporation is expected to remit to the federation account.
The problem started in 2020 when the federal government alongside relevant stakeholders agreed to deregulate the downstream sub-sector of the petroleum sector, as the beneficiaries of the humongous petroleum subsidies put at over N10.41 trillion in 14 years, were kicking and protesting the government move.
These aggrieved stakeholders, LEADERSHIP Sunday learnt, are now persuading the labour unions to mount pressure on the government to recall the subsidy regime.
Although, crude oil price has so far risen above $61 per barrel, which is about $21 increase from the 2021 budget crude oil benchmark of $40, invariably translating to more income for the NNPC and the federation account by extension.
As of November 2020, the NNPC generated N222.34billion as oil revenue and remitted N88.95billion into the federation account, while in December, it remitted N72billion, having generated N183.72billion as oil revenue.
With the current rise in oil prices in the international market, Nigeria will gain more from selling its oil, as the federal government expects NNPC to remit N120billion monthly, for the duration of 2021.
However, with subsidy removal to be paid from the expected revenue from NNPC, it invariably means the corporation may only be remitting N50 billion monthly, which is far from expectations, hence, will make monthly revenue sharing between the three tiers of government(federal, state and LG) insufficient to command the right development the country wants.
While the government had earlier promised that the subsidy payment would be ploughed back into provision of the needed infrastructure in the country, reintroduction of subsidy, according to experts, will deny the nation of such development.
It would be recalled that the downstream sector deregulation was responsible for the increase in price of petrol from N121.50 to N123.50 per litre in June; N140.80 to N143.80 in July; N148 to N150 in August; N158 to N162 in September and rose to N163 in November, the price still being maintained.
Although the federal government had insisted on several occasions that the current status quo will remain, it may backtrack if the pressure continues to mount. However, experts have warned government never to go back to the subsidy regime, believing the benefits of subsidy removal far outweigh its demerits.
The group managing director of the NNPC, Mallam Mele Kyari, had disclosed that the federal government was able to save over $400 million following the removal of the fuel subsidy policy in 2020.
He said he did not expect that the policy which had over the years drained the country’s scarce resources would be returned even when crude oil price rebounds.
According to Kyari, the federal government will deploy the amount saved to the development of critical infrastructure in the country.
“My personal view is that subsidy should be removed, and the funds deployed to areas of the economy particularly road infrastructure and education that need funds. Fuel subsidy is a misallocation of resources and it benefits mainly people who don’t need it, the rich,” he said.
An economic expert, Bismarck Rewane, had earlier advised the federal government to invest revenue gained from the removal of petrol subsidy on healthcare, education and other critical sectors of the economy.
Rewane, who is the chief executive officer, Financial Derivatives Company Limited, while speaking in Lagos, noted that stopping subsidy on petrol was in the interest of the nation, adding that it was not sustainable for the country to continue to subsidise consumption.
“The question is what do you do with the increase in revenue that the government is getting as oil price increases and how do you utilise those proceeds? Deregulation is already a given whether we like it or not but how to make government spend the money judiciously is a different dimension altogether.
“No matter how the revenue increases, so long as it is not spent on education, health and other things that have a direct impact and reduces the cost of living, we are going nowhere,” he said.
People, he said, want investment in social infrastructure that will make life easier for them, especially in healthcare, education and transportation.
He urged Nigerians to hold the government accountable for the revenues it was collecting and demand that they are properly utilised for development programmes.
Moreover, the chairman of Major Oil Marketers Association of Nigeria (MOMAN), Adetunji Oyebanji, said fuel subsidy removal would give operators the opportunity to recover their costs, adding that it would in the long run, encourage investment and create jobs.
A stakeholder in the sector and an independent oil marketer, John Agidigan, said under a deregulated environment, prices are expected to rise and fall in response to the volatility of demand and supply.
According to him, the new deregulated regime would always ensure the availability of the product in the market at an affordable price based on the supply, adding that this regime was better than what obtained in the past when Nigerians had to contend with extreme scarcity and its attendant challenges such as long queues at fuel stations.
Another stakeholder in the downstream sector, Aggrey Koleijo, stated that the same market forces that brought about price reduction not long ago were still responsible for the hike and can still ensure a reduction, depending on the demand and supply activities within the industry.
Other experts said the current artificial fuel scarcity is being orchestrated by those marketers who were hell bent on bringing the government to its knees so as to accede to their request by either giving fuel marketers the free hand to decide the price they want to sell their products or reintroduce subsidy.
Although Nigerians by this development are currently paying more for fuel, market observers believe with time and as competition sets in, the PMS pump price would become competitive, hence, leading to gradual drop in the price in the long run.
They called on Nigerians to endure the pain of high fuel price for now, so that they can enjoy a multitude of gains of subsidy removal in the future. Apart from the fact that PMS pump price will drop in future, they said, if the government can effectively invest the subsidy cost in healthcare, road infrastructure, rail, electricity, among others, Nigerians will laugh last.