Dwindling Oil Revenues: PPPRA union demands introduction of fuel tax

NNPC station
NNPC station

The Petroleum Products Pricing Regulatory Agency, PPPRA, branch of the Petroleum and Natural Gas Senior Staff Association of Nigeria, has called for the adjustment of the current fuel pump price to accommodate fuel tax.

Consequently, the association has proposed the adjustment of the cost component of the pricing template to accommodate a N1.50 fuel tax.

To ensure the introduction of the tax without changing the current retail pump price of N87 per litre, PPPRA branch chairman of the association, Victor Ononokpono, called for consultation among the various industry operators to review the N13.20 per litre cost components in the template as distribution margins for fuel marketers.

Fuel tax, which is a component of the fuel pricing template in most advanced economies, is a special tax imposed by government on fuel consumption by citizens.

However, the union said on Tuesday that introducing fuel tax in the country’s fuel pricing template would help replace the subsidy elements in the current template.

The proposal, they said, could also help generate revenues from the sale of petroleum products to be channelled into key sectors of the economy, especially for the execution of social programmes, like road construction and maintenance, health care delivery and education.

In the face of dwindling earnings in recent times as a result of the sharp drop in global crude oil prices, the Federal Government has proposed a number of measures to shore up national income.

Mr. Ononokpono who said that fuel tax could provide alternative revenue source for critical services, noted that Nigeria was one of the few countries without a tax component in the local pump price.

“It is an anomaly to allow petroleum marketers profit from the available margins without considering the social function of a very vital economic product like petrol and other white products,” Mr. Ononokpono said.

According to him, fuel tax, like highway maintenance and consumption tax in most advanced countries, has the overall objectives of revenue generation, social infrastructure, investment and servicing efficient fuel usage.

The union, which also called for improved funding for the petroleum products pricing agency, said the challenge of monitoring and regulating the country’s petroleum industry was overwhelming without adequate funding.
Introducing fuel tax in the current pricing template, the association said, could serve as a buffer fund to help meet the country’s several developmental needs.

The association said it was a major tragedy for a key sector like Works to have its annual allocation for capital projects in the 2015 budget cut by about 89 percent, from the initial proposal of N150 billion to only N11 billion.

Consequently, the association urged petroleum marketers and other stakeholders in the oil and gas industry to come together to draw a blueprint that would compel the industry to adopt economic policies for the reconstruction of the country’s badly affected foreign earnings.

The dwindling oil revenues, the workers noted, had put severe pressure on the country’s economy, as the external reserves last week dropped to $29.9 billion, below the level capable of supporting a minimum of four months import bill.

The decline, the association said, came with last week’s withdrawals by government to meet foreign exchange demands for petroleum products imports.

Acceptable international standard for healthy reserves for most countries is six months import cover. For Nigeria to be comfortable with its foreign reserves, the country must have a minimum of about $48 billion in the reserve.

The pressure on the country’s reserves worsened in the fourth quarter of 2014 with the decision of the Central Bank of Nigeria to devalue the Naira from N155 to N168 to the dollar, and later to the current N199 to the dollar.

The proposal by the oil worker followed a similar demand by the Executive Secretary of the Major Oil Marketers Association of Nigeria, Thomas Lawore, who called for the immediate introduction of full deregulation of the downstream sector of the petroleum industry as a way of ending the negative cycle of fuel scarcity and huge subsidy payments by government.

An attempt by the Federal Government to introduce fuel tax in the country in 2003, when retail fuel price was N42 per litre, resulted in a national protest that forced the then Obasanjo administration to reverse the decision.

Editor’s Note: An earlier version of this report portrayed the PPPRA union as demanding a fuel price increase. The union’s position is for a fuel tax to be part of the current N87 rate. The error is regretted.

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