Why Nigerian govt won’t fiddle with fuel subsidy removal

fuel queue

In spite seeing crude oil prices drop to unprecedented levels since July 2014, the federal government is not contemplating removing fuel subsidy and deregulating the downstream sector of the petroleum industry, PREMIUM TIMES can confirm.

Removing fuel subsidy could save huge billions spent annually by government in subsidizing retail fuel price, while deregulation allow market forces determine fuel prices.

Investigations show that though all indices may be in favour of deregulation, the time appears to be not the best for government.

“The recent drop in crude oil price at the international market is the best time for government to deregulate, but the drop in price is coming at a wrong time when every issue is capable of being politicized,” a top government official in the Presidency said on Friday.

According to the official, who would not want to be identified, for fear of being victimized, government can only think about deregulation at this if it wants to commit “political suicide”.

When government attempted to deregulate in 2012, he recalled that there were lots of protests that threatened to shut-down the country and the economy.

“Government wants to deregulate. It’s a matter of time. But, this is the worst time for one to do anything that would trigger any strike. It’s suicidal for government to deregulate and remove subsidy now. If there was so much controversy following the recent price reduction from N97 to N87, what happens if government decides now to remove subsidy?” the official said.

For years, successive governments have toyed with the idea of abolishing the subsidy regime in the fuel supply arrangement, apparently with the attendant corruption in the last couple of years.

In 2011, though a provision of N240 billion was made in the budget for fuel subsidy, the Nigerian Extractive Industries Transparency Initiative fiscal allocation and statutory disbursement audit report said about N1.92 trillion was spent. The amount was later revised to N2.19trillion.

The Minister of Finance, Ngozi Okonjo-Iweala, said 40 per cent of the entire budget for the year was spent on subsidy. About N1.3 trillion was spent the previous year.

An attempt by the federal government to remove the subsidy and deregulate the sector in January 2012 sparked off massive protests that grounded the economy for days.

A Presidential Committee on Verification and Reconciliation of subsidy claims and payments led by Aigboje Aig-Imoukhuede, former CEO of Access Bank PLC, had indicted 21 oil marketing firms for fraudulent conducts under the scheme.

Since then, government had looked out for every opportunity to remove fuel subsidy. But the recent drop in global oil prices, which prompted government’s reduction in retail fuel price from N97 to N87 per litre, has presented the opportunity proponents of deregulation say is the best.

In recent times, demands for deregulation and subsidy removal have resurfaced, particularly after the Minister of Finance, Ngozi Okonjo-Iweala, while briefing the media shortly after presenting the 2015 budget, said that the Petroleum Products Pricing Regulatory had been directed to review the situation and proffer the advice to government on the issue.

At the end of the meeting with the Minister, fuel marketers and importers on Monday last week in Lagos, Executive Secretary of the Major Oil Marketers Association of Nigeria, Thomas Olawore, Olawore, said the N87 retail  fuel price was unsustainable.

“The on-going recovery of crude prices at the international market calls for complete deregulation of the downstream sector of the petroleum sector to permanently give the government, the marketers, Nigerians and all stakeholders the rest of mind,” Mr. Olawore said.

According to Mr. Olawore, when the recent devaluation of the Naira against the dollar and other international currencies are taken into consideration along with other indices, deregulation was the best way to go.

“The only way to end this recurring cycle of issue fuel supply disruption and price reviews is, complete deregulation of the downstream sector of the petroleum industry,” he insisted.

With deregulation, he said the country’s four refineries would be rehabilitated and made to refine petroleum products locally to replace the current arrangement where the bulk of the fuel consumed in the country are imported.

Besides, Mr. Olawore reiterated the call on the National Assembly to pass the Petroleum Industry Bill, which has been pending before the lawmakers for approval.

If the lawmakers think the PIB should be perfect before it is passed, he pointed out that the country may not get anywhere,

Though he acknowledged that the problems delaying the passage of the PIB were more about the upstream industry, Mr. Olawore said the downstream sector of the industry, which has minimal problems, was ready for the new law.

The Executive Secretary, PPPRA, Farouk Ahmed, did not say whether government was contemplating removing fuel subsidy when he was contacted for this story.

“Well I don’t know about removal of fuel subsidy by government. When crude oil price dropped to $47 and subsidy dropped to minus N10 on January 16, the price range was between N8 and N14.

“The subsidy level was still averaging N13 per litre when CBN, on January 18, adjusted its exchange rate, which was $171.36 (that is $168 plus banking administrative charges by commercial banks of 2 per cent). It later changed it to $199.

“That affected the price and a jump in subsidy level, from N14 to N31. The difference in the exchange rate between $171 and $199 is what government has to pay as subsidy per litre,” Mr. Farouk said.


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