The Nation Newspaper

Tag: Subsidy

  • ‘Fertiliser blending plants’ll save $200m in forex, N60b in subsidy’

    The revival of abandoned  fertiliser blending plants will save Nigeria about $200 million in Foreign Exchange (forex) and over N60 billion in subsidy. It will also create thousands of jobs.

    President Muhammadu Buhari, who made this known during the 2017 budget presentation at the National Assembly, said that these will come on the strength of an ambitious agreement Nigeria signed with Morocco on December 2, 2016 to revive the plants.

    He said that the agreement focuses on optimising local materials while only importing items that are not available locally.

    “This programme has already commenced and we expect that in the first quarter of 2017, it will create thousands of jobs and save Nigeria US$200 million of foreign exchange and over N60 billion in subsidy,” Buhari said.

    Nigeria has great potentials in chemical and organic fertiliser consumption and usage, using 20 kilogrammes per hectare (kg/ha) of fertiliser on the average. This lags behind in some countries in Africa, such as South Africa and Egypt where average fertiliser usage is 100kg/ha.

    As a result of low production in Nigeria, most fertiliser is imported. Thus overdependence on imported fertiliser results in drain on foreign reserve. It also leads to more demands on fertiliser importation and high prices.

    However, efforts to cut imports through local production of fertiliser have so far failed. And all attempts to turn around Nigeria’s two big fertiliser production manufacturers-the Federal Super Phosphate Fertiliser Company (FSFC) set up in 1976 and the National Fertiliser Company of Nigeria (NAFCON) established in 1988 for the production of urea failed.

    Finally, the Federal Government sold them to private entrepreneurs. Since then, more than 30 fertiliser companies are said to have been established with different production capacity in different states in Nigeria, including the abandoned Fertiliser Blending Plant in Bokkos Local Government Area of Plateau State.

    The Bokkos Fertilizer Blending Plant was constructed by the Joshua Dariye administration, but was abandoned by the immediate past administration of Jonah David Jang. Incumbent Governor Lalong has, however, pledged his commitment to complete all abandoned projects including the fertiliser blending plant as resources available to him permit.

    However, with the Nigeria-Morocco fertiliser deal, a new dawn may be in the offing for Nigeria’s abandoned fertiliser plans. And Buhari’s commitment to economic diversification, underscored by Federal Government’s decision to vote N92 billion as budgetary allocation to the agric sector for the year 2017 underscored this fact.

    “Agriculture remains at the heart of our efforts to diversify the economy and the proposed allocation to the sector this year is at a historic high of N92 billion,” the President said, adding that the budget was primed to focus on economic recovery and growth strategy.

    Buhari also said N92 billion will complement the existing efforts by the Federal Ministry of Agriculture and Central Bank of Nigeria (CBN) to boost agricultural productivity through increased intervention funding at single digit interest rate under the Anchor Borrowers Programme, commercial agricultural credit scheme and the Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending.

    The President indicated that provision of and access to inputs, pursuing a conducive commodity market to ease exchanges and plugging waste through proper storage would be key areas.

    “Accordingly, our agricultural policy will focus on the integrated development of the agricultural sector by facilitating access to inputs, improving market access, providing equipment and storage as well as supporting the development of commodity exchanges,” he stated.

  • Fed Govt saves N1.4tr from fuel subsidy payments, says Osinbajo

    Fed Govt saves N1.4tr from fuel subsidy payments, says Osinbajo

    The Vice President, Prof. Yemi Osibanjo yesterday in Kano said the Federal Government has saved N1.4 trillion which would have been spent on fuel subsidy.

    The Vice President who spoke during the third day of the 15th Joint Planning Board and National Council on Development Planning (NCDP) meeting in Kano yesterday, urged Nigerians to restore confidence on President  Muhammadu Buhari’s administration, promising that  the current econmic challenges facing the country will soon become a thing of the past.

    He also assured Nigerians that very soon, the foreign exchange market will stabilise going by some policies already introduced by the Central Bank of Nigeria (CBN).

    He said: “With the deregulation of the downstream petroleum sector, there has been a significant increase in the availability of petrol throughout the country and the saving of N1.4 trillion on subsidy payments alone.

    “Also, with a more flexible exchange rate regime, we will have to decrease the pressure on the external reserve. In the short run of course, there should be consequences for inflation. We expect that with the greater priority we have seen in the implementation of the policy by the CBN, the foreign exchange market will stabilise and confidence will be restored.

    “The adoption of SDGs (Sustainable Development Goals) in September 2015 was intended to place our world on the part of sustainable development by the year 2030. The 17 SDGs, which combined economic, social and environmental objectives are intended to be universal unlike the Millennium Development Goals (MDGs) which were made solely for developing countries.

    “The universal application of the SDGs and their 169 targets show that they are a menu of options, this allows the implementation to take count of different national realities, capacities, policies and priorities.”

    According to the Vice President, in the Nigerian context, some of the issues that must engage government’s attention will lead to economic diversification, sustain economic growth, eradicate extreme poverty, promote social inclusion, create jobs, address environmental degradation, including climate change.

    He argued that empirical evidence from across the globe has shown that national strategic planning is very critical for attaining structural transformation and sustainable development, adding that the countries of East Asia have proved this convincingly, even though their development was private-sector driven.

    “Strategic plans largely  provide direction, coherence and coordination and they are a veritable framework for guiding the activities of all stakeholders towards achieving a common goal, planning specifics such as goals, target and indicators which embody the SDGs, also enables tracking, monitoring and evaluation. Successful implementation of strategic plans and attainment of the SDGs entails partnership.

  • Kachikwu: Govt ‘ll save N1.4t yearly from subsidy removal

    Kachikwu: Govt ‘ll save N1.4t yearly from subsidy removal

    •’NNPC’s monthly losses drop to N3b’ 

    The Federal Government will save over N1.4 trillion yearly from the removal of oil subsidy, Minister of State for Petroleum Resources Dr. Ibe Kachikwu,has said.

    He spoke when he visited the headquarters of the Nigerian Content Development and Monitoring Board (NCDMB) in Yenagoa, the Bayelsa State capital.

    Kachikwu said the deregulation policy had reawakened the downstream sector and would help the nation become a net exporter of petroleum products in a few years.

    “We have a lot of people interested in investing in our refineries and building more refineries and we will remain committed to the goal which is to reduce importation of petroleum products by 60 per cent by the end of 2018 and become a net exporter of petroleum products by 2019,” he said.

    He described NCDMB as a critical agency in the petroleum industry and expressed delight that the Board had the right personnel to deliver on its mandate. He recalled the Board’s lofty achievements in the last six years of existence, noting that every Nigerian appreciated the good work that it has achieved. He further pledged to provide the right support and encouragement for the Board to deliver on its targets.

    With the fall in crude oil prices and reduced investment in the sector, the Minister charged the NCDMB to restrategise and transit from its role of just propagating local content and local participation to one of finding commonality with industry stakeholders to encourage investment.

    The new focus of the Board, he said, “affects how quickly you process things, it affects the rigidity of some of the terms you ask for as people enter into transactions and the need for increased collaborative relationships”.

    Kachikwu also stated that the corporate restructuring initiated in the Nigerian National Petroleum Corporation (NNPC) has reduced the average monthly loss recorded by the corporation from N40billion in the recent past to N3billion while efforts remained on target to achieve profitability before the end of the year, a feat that had not been recorded in 20 years. He said the achievements were being recorded by staff of the NNPC who had previously given up hope in the system.

    Responding to comments from staff of the NCDMB, the Minister hailed the contributions of various trade unions in the oil and gas industry to the introduction of the deregulation policy, stressing that “the success of the policy was only possible because of the unity that was provided by PENGASSAN, NUPENG, NARTO and every active participant in the oil sector. My role was to be the professor, explaining why we had to do it.”

    He also announced plans to carry out infrastructural re-graphing of Nigeria’s petroleum sector, adding that plans were afoot to review Nigeria’s aging pipelines, depots and gas infrastructure and begin the process of replacing them.

    With regards to gas flaring, the Minister stated that the new thinking was to move away from a penalty based gas regulation which had largely failed over the years to a zero tolerance gas flaring regulation with year 2020 as the new target deadline.

    Admitting that the entire spectrum of petroleum industry required strategic intervention, Kachikwu harped on the need to see the challenges as opportunities to transform the sub sectors into income earners for the populace. According to him, “anywhere you look, you see that the oil and gas sector is populated by a need. We have to translate those needs to economic models that are beneficial to the citizenry. The drop in oil price should motivate us into going into parallel income streams.”

  • Oshiomhole seeks varsity fee subsidy for indigent students

    Governor Adams Oshiomhole of Edo State has called on the Federal Government to review its policy on university education with a view to subsidising tuition fees for indigent students while children of the rich would pay proportionately.

    Oshiomhole, who spoke at the maiden matriculation for pioneer students of the Edo University, Iyamho, last Saturday, said parents of the rich should be made to pay for quality university education for their children while the government should support children of the poor to access education of same quality.

    The governor said the present situation in which government subsidises fees for all undergraduates is unsustainable.

    He said: “Right now, Nigeria is running a system which is highly deceptive and is not sustainable – a system that I like to describe as a generalised system of suffering, a system that subsidises the children of the rich just as they subsidise the children of the poor.

    “For God’s sake, my dear friend who works in an oil sector, why should his son or his daughter go to the university and enjoy subsidy when they can afford to pay $20,000 or $30,000 for his son in Canada or in the UK or in the US? But if they are here in Nigerian universities, they pay N40,000 or N50,000, and we know that is not sustainable.

    “I think the way to go is to have the courage to find a way to identify students whose parents can afford to pay school fees to pay economic fees for their university degrees. But the ones who cannot afford, but have what it takes for university education, those ones can also be identified and granted government scholarship so that they are not denied access to quality education.”

    Oshiomhole said he has set the process in motion at the university to identify indigent students for support.

    “I have already encouraged the management to set up a panel to identify such students, if there are, among the current students, and to make sure that it does not involve any influence or corruption. We have carefully selected a panel to include a man that we all respect, Bishop Dunia as a member of that panel,” he said.

    In his speech, Vice Chancellor of the university, Prof Aluyor praised Oshiomhole for establishing the institution.

    “Like every human venture, there are challenges, but you have provided a broad shoulder to lean on. Therefore, we are confident that we will succeed,” he said.

    The Vice-Chancellor said the university has been accredited by the Nigerian Universities Commission (NUC) to run degree programmes in arts, social sciences and management sciences.  It began academic activities in April 2016 with the admission of 91 students.

    He said the first session of the university will end on 18th November while a new 2016/2017 academic session is expected to start with the admission of new students in November 2016.

    Dignitaries at the event included the Chief Judge of the State, Justice Cromwell Idahosa, Service Chiefs, members of the State Executive Council, royal fathers from Edo North, the Esogban of Benin Kingdom, Chief David Edebiri, Governorship aspirant of the All Progressives Congress, Maj.-Gen Charles Airhiavbere, among others.

  • Subsidy: What is the truth?

    SIR: No one seems to know the truth.  Is it deregulation of the downstream sector of the Petroleum Industry?  Is it subsidy removal? Is it just simple increase or hike of the price of the premium motor spirit (petrol)?  Is it that the country is broke and the government desperately wants to raise fund to keep the economy running?  Is the hike in the price of petrol the only lifeline that the government could use to bring the economy back on the path of recovery?  Whatever it is, the impact of jacking up the price of petrol is far reaching to the ordinary Nigeria who is going to get bruised.

    As it stands now, it appears to be victory for the government but not one to celebrate because it is a pyrrhic victory.  The people gave in because they are fed up with the tired argument fuel subsidy removal since the 1980s.  President Muhammadu Buhari enjoys tremendous goodwill because of his avowed commitment to tackle headlong the deep-seated corruption and graft in government.  However, with the sudden hike of the price of petrol which has multiplier effect on the economy and life of the people, it would seem that the honeymoon is over.

    To APC leadership, it is a moral burden that they have to carry for so long because they were at the fore front in the grand ‘Occupy Nigeria’ campaign against the removal or hike in fuel price in 2012.  To the Nigeria Labour Congress (NLC), the strike that it called in protest against the hike has exposed it as a spent force and understandably so because of its antecedent in having blacklegs and fourth columnists in its ranks.  We saw a labour union that is divided against itself and the treachery of one of the factions which obviously is composed of opportunists and blacklegs who could not make distinction between their selfish personal interest and the larger interest of the general public.

    For the People Democratic Party (PDP) that is still inebriated and smarting from the defeat of the last election, it failed to make a strong statement that would have positioned it as indeed a formidable opposition that has the interest of the masses at heart.

    I am not in the least persuaded by the economics of subsidy removal.  I am not even persuaded by its logic if there is one.  The politics of it is agony and pain to the ordinary Nigerian.   The government is always quick to carry knife to the oil industry especially petrol whenever it is short of fund.  Is petrol the only mineral that can bring revenue to the government?

    Assuming that we do not have oil or that the oil dries up, then what happens?   When I hear that the government is taking the decision because of a cabal then the whole argument comes crashing because, no cabal can be greater than the state and its coercive machinery.  Certainly not with a Buhari government who we know has the gut to take on any perceived enemy of the state and with the people behind him.   If the government cannot manage a simple trading outfit as the NNPC and the oil industry, it is obvious it cannot manage a complex machinery as Nigeria.  Today, Nigerians are paying and subsidizing the ineptitude of government and their inability to bring to book those who are behind the subsidy scam where they exist.

    Labour talks about palliatives and salary increment.  This is a dumb argument because only an infinitesimal microcosm of the population is in employment in government establishment and other paid jobs.  What happens to the rural dwellers who are trying to eke out a living; what about the army of unemployed and artisans?   The hike in price of petrol is inflicting punishment on ordinary Nigerians.  The difference between the present APC led government and the opposition PDP has turned out to be like half-a-dozen and six.

     

    • Mike Kebonkwu Esq.

    Abuja.

  • Benefits of subsidy removal

    SIR: By now we should all be very conversant with the figures being bandied around from both the protagonists and antagonists of the subsidy removal. We have been inundated with economic arguments and saturated with socio-economic postulations and realities of the subsidy removal from both sides of the divide.

    Rather than add to the library of figures or roar of voices, I want to point out what I consider the biggest benefit of the subsidy removal.

    The biggest benefit is an enriched political education.

    In 2012 I supported the removal of fuel subsidy. In 2016 fuel subsidy was removed. So am I supposed to be happy? Yes – but no. No, I’m not sad. I’m not happy. But I’m amused in a fulfilled way.

    My befuddled amusement is borne out of the fact that those who have implemented and are defending the subsidy removal today are those who fought it to a standstill in 2012. See how they are struggling to defend it.

    In 2012 I knew the fight against subsidy removal was merely politics but the masses were hoodwinked to support the fight. This is what you get when a large portion of the led lacks political, economy and governmental education. They get easily swayed in tandem with the whims and caprices of the politicians. Most people who joined the politicians to kick against the subsidy removal in 2012 didn’t do enough study to find out that subsidy is the biggest scam on the people. Those who should know turned the truth upside down to mislead the gullible masses.

    Increasing the price of anything by the government will always be an unpopular decision anywhere, anytime but enlightened masses will always know when to support its government to take unpopular decisions that will benefit the same masses in the long run. Politics is always about popularity but governance is not a popularity contest. A nation that knows this is on its way to prosperity.

    So now that the APC-led Federal Government has put away politics to implement the subsidy removal policy, I say well done. The times are tough, but I believe wholeheartedly that it will turn out for the good in the long run.

    As for the masses, I will ask, are you learning? Learn the difference between politics and governance. Learn the difference between campaign promises and policy statements. Learn the difference between propaganda and information. Learn the difference between passion and logic. Learn the difference between party fanaticism and facts. 2019 will soon be here, they will come again, what you learn is what you will use to choose.

    To whom brain is given, commonsense is expected.

     

    • First Baba Isa (FBI),

    Abuja.

  • Cleaning the subsidy removal muddle

    Cleaning the subsidy removal muddle

    Let us begin with some knowns. First, Nigeria, a giant of OPEC, does not produce enough fossil fuel for the needs of the populace. Second, while the crude oil it produces is dwindling by the day due to sabotage on many fronts, it lacks the facilities to refine the little. Therefore, it has to outsource to more expensive refinery locations. Third, it thus has to rely on importation of refined products with predictable hardship for its poor masses. Fourth, NNPC, the national oil company, does not have adequate resources for importation. Therefore, it relies on oil marketers as contractors. Due to foreign exchange scarcity, the government has had to subsidise the pump price. This much we know.

    Next, to the public at least, there are a few unknowns. First, the pricing of petroleum products by a government agency is arguably a misery. What is the formula? Kerosene, a household product that is used by the poor and needy, has been deregulated, but not petrol. Second, there is confusion in what government has just recently announced through the office of the Minister of State for Petroleum Resources. Is it removal of subsidy? Is it price hike? Is it deregulation? All of the above? A few weeks ago, we were informed that subsidy had been removed and savings were recorded. And as Labour rightly asked, if the market has now been deregulated, why is government fixing price?

    The significance of the unknowns is that they play dangerously into a narrative of confusion that appeared to have characterised the conduct of the petroleum sector since the inception of the new administration.

    No doubt there are real challenges, including the inherited near collapse of the oil sector due to falling crude price and foreign exchange crisis, leading marketers to abandon ship and a consequent scarcity of fuel and long frustrating queues at gas stations nationwide. Though Nigerians are long-suffering, Minister Kachikwu appeared to have drained their reserve of patience with his unguarded “I am no magician” remark. He learned a good lesson in the ethics of servant leadership, and forgiving Nigerians moved on.

    But the challenge of fuel scarcity persisted and appeared to be worsening with the unstable and unpredictable foreign exchange regime. This has certainly led to the decision of the federal government to deregulate and have private entities import and supply fuel to meet the demand of Nigerians. If the decision is to let the market decide, why is that a problem? We saw the effect of the market decision regarding communication. Why are we apprehensive of the market in the case of oil?

    The analogy is not a perfect one. It is commonly believed by Nigerians that oil is our heritage, a common patrimony of sort, a divine endowment that must serve the collective interest of all Nigerians. On the other hand, our mobile devices are privately initiated and the outcome of private investment, deserving to be market-driven in order to reward initiative. What can we really enjoy as the chosen of God with Eden-like provisions if we still pay for oil through the nose?

    It is a good question and those citizens who have called out the administration on the matter are in part coming from a mindset that informs the question. The other part of their concern is their interpretation of government action as “insensitive and untimely”, with “unbearable negative consequences” on the masses. The critics are as ideologically opposite as fire and water. And the reactions are a mix of drama and realism.

    Dino Melaye, a distinguished Senator, member of the President’s party and loyalist of the Senate President gave his party a seven-day ultimatum to reverse the change or he will mobilise for “the mother of all protests.” Shehu Sani, another distinguished Senator of APC, more concerned about the reaction of the administration to Labour’s threat of strike, accused the government of hypocrisy on the grounds that the party supported Labour once when it protested the removal of subsidy and urged the government to stop its “campaign of calumny and blackmail.” These are harsh words from a party man.

    Femi Falana, SAN, a consistent human rights icon, wondered aloud why the need for subsidy removal again within just one month of government announcement that it had removed subsidy and saved $2 billion; had repaired refineries, and pipelines were being put to good use. Beside, Falana argued that increasing fuel price was illegal and unconstitutional because the body legally charged with the regulation of fuel price had not been reconstituted. For him, and for a host of critics, price increase only benefits marketers who also profit from subsidy. The remedy is the full functioning of oil refineries.

    The one body that has unswervingly taken on the role of the solicitor and advocate of the masses is the Nigeria Labour Congress (NLC). It is, therefore, no surprise that the organisation was among the first to pick up the fight. But it is also an unpleasant surprise that the labour union has turned out to be a divided house that can’t stand. The first sign of the Tower of Babel scenario was the approval of the increase in oil price by NUPENG and PENGASSAN, two oil sector union members of NLC. Then, of course, the administration deftly exploited the internal crisis within NLC that resulted in its division into two factions. And that appeared enough to kill the proposed strike, leading major media houses to declare the NLC strike proposal as “dead on arrival.”

    Should the strike fail, there is no doubt that it will permanently damage the reputation of NLC and it will hopefully learn a great lesson in organisational solidarity.

    Yet, while government may thus have its way, it also must pay attention to relevant lessons from its actions and policies. First, a progressive party and the government that it leads must treat Labour with respect and courtesy. Labour is the foremost ally of any progressive administration because both are for the masses and the downtrodden. Therefore, they should be partners. It is not expected that every policy of a progressive government will be acceptable to Labour. Nonetheless, mutual respect demands that government dialogues with Labour before the implementation of policies that may affect its members.

    Second, even if it serves a short term interest of government, it is not in its long term interest to alienate Labour or exploit any internal conflicts within its fold. Third, government must not give room for accusations of flip-flopping in policy decisions. The way that the fuel crisis was handled, especially since the beginning of this calendar year, leaves much to be desired. Transparency is the hallmark of a progressive government, which has nothing to hide from its citizens. Therefore, it is important that government levels with the people all the way, no matter what the situation. Claiming to have removed subsidy almost a month before it was actually removed is, to say the least, rather strange.

    Fourth, while the removal of subsidy may not have been avoidable, its timing could have been more smartly planned. Many thoughtful observers have wondered why government did not tarry a bit, release some budget allocations, especially those targeting the poor, and allow the impact to be felt by them before implementing the full weight of subsidy removal. Hindsight, they say, is always 20/20. But now, even after the fact, it is still important that the budgetary palliatives be implemented effectively and monitored efficiently so that the negative effect of fuel price increase does not suppress the positive impact of the palliatives.

    Finally, the faction of the labour union that is in accord with government must have something to show for its “reasonableness” and/or “loyalty” to the “national interest.” Surely, government cannot now reverse itself on subsidy removal. But Labour has proposed a review of the minimum wage, and while government will be hard put to support a minimum wage of N90, 000 or even N56, 000 in the present state of the economy, it cannot deny Labour the right to negotiate on this matter. Fortunately, Comrade Governor Oshiomhole has a track record of successful negotiations.

  • Facts and fallacies of fuel subsidy

    Facts and fallacies of fuel subsidy

    Umana Okon Umana, an economist, is the former governorship candidate of the All Progressives Congress (APC) in Akwa Ibom State. In this piece, he highlights the fallacies associated with the fuel subsidy and what can be done to guarantee regular fuel supply for domestic consumption.

    Many boisterous and healthy debates have broken out on social media platforms and, indeed, other fora on the recently adjusted price of petrol. But quite unexpectedly, some of the arguments are grounded in myths. Here are a few and my attempt to burst them.

    The first myth is that subsidy does not exist.

    There is a subsidy when the pump price of petrol is below the effective cost. The effective cost is the landing cost plus the distribution cost plus margin. Subsidy is the difference between effective cost and the pump price of fuel. Landing cost for a litre of refined petroleum depends on the price per barrel of crude oil. When government fixes the pump price of fuel below the effective cost, distortions are created.

    In elementary Economics, when a price is fixed below the equilibrium price, there will be a shortage and a black market will be created. The government in Nigeria was paying for the difference between the effective cost and the pump price. Government was therefore subsidizing the cost of fuel. Nigeria spent over $35 billion between 2010 and 2014 to subsidise petroleum products.

    The second myth is that subsidy favours mostly the poor.

    This is not true. By paying fuel subsidies, we were subsidizing the consumption of imported petroleum products. We were therefore supporting production abroad and creating jobs abroad at the expense of Nigerians. Besides, outside Lagos and Abuja and other major cities where the controlled price of N86 was enforced, fuel was sold at between N150 and N180 in the rural communities.The government guaranteed price of N86 was therefore a myth as the poor people outside Lagos and Abuja had always paid N150 or more for a litre of fuel.

    The reality is that it is the rich and not the poor who benefit the most from Nigeria’s fuel subsidy. Findings by the IMF show that globally, the bottom 20% of households take only 7% of fuel subsidy while the richest 20% take 43%. Nigeria’s fuel subsidy at some point accounted for 30% of total expenditure of the Federal Government and 118% of the capital budget. It also accounted for over 90% of annual oil revenues.

    Payment of oil subsidies was not only not sustainable, it crowded out spending on core infrastructure projects such as roads, railways and power with grave consequences for the standard of living of Nigerians. Besides, the artificially low and government guaranteed and subsidized price of fuel was a disincentive to private investment in the oil sector.

    It is not surprising that although the Federal Government approved over 20 refinery licenses to private investors many years ago, not one refinery has been built. I must however commend Aliko Dangote for his entrepreneurial acumen in this regard. His new refinery being built in Lagos and scheduled to becompleted late 2018 will enhance local refining capacity.Rather than subsidizing the consumption of imported petroleum products we should support the private sector to build new refineries.

    Fuel subsidy also took a disproportionate share of dwindling foreign exchange allocated based on official rate. There was therefore an imperative need to free the resources deployed for the payment of fuel subsidies. Thankfully, government has made meaningful appropriations in the 2016 capital budget to upgrade infrastructure in the areas of roads, railways, agriculture, education, and provide support for small businesses.

    The third myth is that at N86 per litre, Nigerians were already paying too much for fuel.

    The facts do not support this position. The Table below shows that at N145 per litre, the petrol price in Nigeria is about the lowest in West Africa. It is now clear why, at the old price of N86, the opportunities existed for arbitrage and corruption as fuel for which Nigeria already paid subsidy was smuggled to Niger, Cameroon, Ghana, etc, where there is no subsidy regime. Ghana, Cameroon, Mali, Senegal and Mauritania have petrol pump prices of N185, N218.9, N228.85, N234.82 and N256.71, respectively.

    Removing fuel subsidy will fuel inflation is the fourth and the commonest of the myths.

    While it is true that the upward adjustment in the price of fuel will affect some components of the Consumer Price Index, the overall impact on prices will be cushioned by activities in other sectors of the economy, upgrade in public transportation and improved fiscal discipline. Over time, the efficiency of the market will drive down prices.

    The fifth myth is also a fallacy. It states that if other oil-producing countries like Saudi Arabia and Kuwait are paying fuel subsidies, why can’t Nigeria pay?

    Saudi Arabia pays out of a huge surplus after meeting the expenditure needs of the country. Nigeria’s revenue is not enough to cover basic expenditure requirements. We cannot continue to run a country that spends more on subsidies than on the total capital budget. Other countries like Malaysia, Indonesia, Ghana and Angola already took the bold step to remove subsidies on fuel prices. We should commend President Muhammadu Buhari for taking a decisive action to deregulate the downstream petroleum sector in the face of dwindling oil revenues and the pressure on the Naira.

  • Is it oil subsidy removal, or price hike?

    Is it oil subsidy removal, or price hike?

    I started writing this article at the weekend, believing that the federal government had, at long last, decided to do away with the long standing and costly oil subsidy. Whatever its attractions, it is no longer financially sustainable. Worse still, it has led to long queues recently at the petrol stations right across the country. I was going to commend President Muhammadu Buhari for his courageous decision to remove the oil subsidy. But half way through the article, my eyes caught some newspaper headlines that the federal government may not have dropped the oil subsidy after all. Both the Minister of State, Petroleum, Dr. Emmanuel Ibe Kachikwu, and the National Chairman of the All Progressives Congress (APC), the ruling party, Chief John Odigie-Oyegun, were simultaneously reported by the media in the course of the week as declaring that the wasteful and fraud ridden oil subsidy had indeed been removed. Not so, says the Vice President, Professor Yemi Osinbajo, who personally issued a press statement that there was no removal of the oil subsidy, but only an oil price hike to reflect the downward trend in the exchange rate of the naira. This is as a result of the falling dollar reserves and increasing pressure on the naira exchange rate. Demand for it is long, but supply is short. The independent marketers are now obliged to source their foreign exchange needs from the secondary market at a premium.

    Obviously, there is some confusion and contradiction in senior official circles over this grave matter, with the ‘realists’ in the government urging President Buhari to remove the so-called oil subsidy once and for all, and the ‘romantics’ insisting on maintaining some form of oil subsidy, or the other. The government is being pulled in different directions on the issue by its top economic advisers. But I prefer to believe the Vice President on this matter as he heads the economic team of the government, of which neither Kachikwu, nor Oyegun, are members. He is in a better position to know exactly whether or not the federal government has finally taken a decision to bite the painful economic bullet by removing the oil subsidy once and for all. President Buhari has not been categorical about this. But then, if the oil subsidy had indeed been finally removed, there would have been no need for the federal government to fix the new price of N145 per litre for oil sales. In a fully deregulated and free market, prices are determined by market forces. Fixing the price of oil will seem to suggest that there is still some official subsidy on oil imports and sales. But then there does not appear to be any provision for oil subsidy in this year’s budget. Or is the price of N145 per litre merely a guide which the importers may, or may not, comply with? Either way, the public is entitled to know whether the subsidy stays, or not. Full deregulation, which is what a removal of the oil subsidy implies, means that market forces will determine the pump price of petroleum, and that the government will have little or nothing to do with price fixing, except in a regulatory sense.

    If this is the case, that the oil subsidy stays, I think it is a pity that the Buhari government has again lost the opportunity to bring to an end the sordid state of affairs in our oil sector by not fully deregulating it. It should abandon the oil subsidy in response to compelling financial and economic considerations in our country. Ex-President Goodluck Jonathan made the same mistake in 2012 when, in the face of some domestic opposition, he abandoned his plan to end the oil subsidy. Had he done so then, it would by now have saved the nation about N6 trillion, about the size of this year’s federal budget. In fact, this time, the reaction of the public to the news that the oil subsidy was being removed was overwhelmingly favourable, despite the pains involved. Even oil workers, including NUPENG and PENGASAN, agreed that it was time for the oil subsidy to go. This positive response to the media reports that the oil subsidy was being removed cut across all sections of our economy, including the industrial sector and independent marketers. The reason is that the scarcity of oil supplies in the market was beginning to hurt the economy badly. Consumers were already being forced to pay up to N150 per litre, or more, for oil in the parallel market. Better to have the oil at a higher price and keep business going than close it down because of oil scarcity. It is a function of economic survival. No matter how acute the pain is, it is still far better than outright death. Businesses were beginning to close down right across the country because there was no fuel to run them. The NLC and the TUC should reconsider their plans to go on strike on this matter. They should think more carefully about embarking on a strike for which there is little public support. This is not to say that their anger about the awful mismanagement of the economy is not justified. But a general strike now will harm our country even more. It will lead to more job losses, as employers will be forced to shut down their businesses.

    It was never going to be an easy decision for the federal government to abandon the oil subsidy. When he came to power last year, President Buhari was not keen at all to increase the pump price of oil. A senior adviser of the government with whom I brought up the matter told me bluntly that President Buhari was totally against dropping the oil subsidy. He rejected all advice that he should do so. For him, the removal of the long standing oil subsidy was both an emotional and sentimental issue. He believed that doing so would hurt the poor more, in a situation of mass poverty. But as the IMF has pointed out, only seven per cent of the poorest 20 per cent in our country derive any benefit from the existing oil subsidy. In fact, President Buhari first tried the option of giving the NNPC, which accounts for some 50 per cent of total oil imports, a monopoly on oil imports to reduce the vast corruption in the sector. But this did not work out as planned, due partly to the fabled inefficiency of the NNPC, its abject lack of the needed logistics and infrastructure, and the determination of the oil majors and independent marketer not to offer the NNPC their cooperation. This led to a supply gap and the long queues in the filling stations.

    The NNPC had to admit that it could not perform as expected without the support of the big oil marketers. This was what persuaded President Buhari to bring the independent oil marketers back. The alternative option, a price hike, is indeed courageous as it could have political costs. In the short run, it could make the government unpopular. .

    Yes, the full removal of the oil subsidy will definitely hurt the poor, at least in the short term, as it will increase the cost of living, and this will worsen the prevailing mass poverty in our country.  But the government’s options on subsidy for oil imports were limited. This subsidy accounts for over 20 per cent of the entire federal government budget. It was clear that it could no longer be sustained with falling oil revenues. Savings from the removal of the oil subsidy will be substantial and will fill some of the gaps in our huge budget deficits. More financial resources will be released to meet our huge infrastructure deficits and more jobs will be created as the economy adjusts to a deregulated oil sector.

    The oil subsidy was first introduced at a time when there was a surge in oil revenues. This surge has not been consistent leading to volatility in oil revenues and a heavy and unsustainable burden on the finances of the federal government. Subsidies can in the long run only be met by budgetary surpluses, not deficits. This year, the federal government will be looking to borrowing internally and externally some N2 trillion to balance its budget. Half of this borrowing is expected to be from external sources. But it is unlikely that it can successfully tap external sources for this huge borrowing, not for investment, but for budgetary support. If the subsidy is dropped, the government will be able to save nearly N1.5 trillion, or more, this year. This will reduce its huge budgetary deficits and the need to borrow abroad by nearly half. In fact, with more prudent management of its finances, including the introduction of practical measures to reduce the cost of governance, the federal government can easily balance its budget next year. Oil prices are beginning to rise again and this trend will, if sustained, lead to higher oil revenues. But this favourable trend should not be frittered away again on the wasteful oil subsidy.

    In fact, the federal government should avail itself of this opportunity to undertake a comprehensive review of its entire subsidy programme and strategy. As it is now, it is totally confusing, inconsistent and ad hoc. It must be based on clearer, more coherent and more consistent principles and objectives. That is not the case now. The focus and target of any future financial bailouts and subsidies should be more on production and less on consumption. Financial subsidies on consumption cannot be sustained when the national revenue and economic growth rate are both declining. This year, our growth rate will fall from six per cent to less than three per cent. The oil subsidy is a subsidy on consumption, not production. And there is really no evidence to support the view that it promotes economic growth in our country.

    For most of the time, oil was being sold to the public at a price exceeding the subsidised price. In fact, as we have seen in recent years from the scandals in the oil industry, the so-called oil  subsidy was largely a mirage, a big scam from which the oil barons and importers made scandalously high profits. Next to the huge scam in defence expenditures, most of which as we now know, actually ended up in private pockets, the biggest source of public corruption in our country is in the oil sector, where the fall in global oil prices are not reflected in local prices of imported fuel, and where some fictitious oil importers are paid for oil that was not actually imported. A deregulated oil sector will end all that.

    Now is the right time to address the problem squarely. President Buhari should go the whole hog now by ending the wasteful oil subsidy. The advantages in the long run should make the short term costs and pains more bearable.

  • ‘Fuel subsidy removal good for Nigerians’

    ‘Fuel subsidy removal good for Nigerians’

    Nigerians are coming to terms with the realities of the times. For the first time, fuel subsidy removal and the attendant price increase got widespread backing from all stakeholders, including labour and civil society groups. Aside a little resistance from the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC), the support could have been total. This is a step in the right direction,if the nation is to attain its aspiration of becoming an industrial giant and member of the league of developed nations. EMEKA UGWUANYI reports.

    After over a decade of advocacy for the deregulation of the downstream sector of the petroleum industry, and removal of all forms of fuel subsidy by the Federal Government, Nigerians at last have accepted that the continued support of fuel subsidy is a mere postponement of the evil day.

    This understanding made last week’s subsidy removal seamless, even in the face of the anticipated consequences and hardship the citizenry knew they would go through in the short-term. But because the fact speaks for itself, the factors adduced by the government for removing the subsidy were faultless. The real sector operators, and their counterparts in the oil and gas industry, including the labour groups – Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) – as well as the majority of the public, gave their unreserved support to the decision.

    Subsidy over the years had encouraged corruption in the downstream operation and some unscrupulous marketers took undue advantage of the gaps in the subsidy programme to immensely rip-off the government and nation. There were all manners of sharp practices – diversion of subsidised imported fuel to neighbouring countries where pump prices are higher, and round-tripping of cargoes, which made government pay double shipments.

    When the pump price of petrol was N86.50 per litre, Nigeria’s fuel was the fourth cheapest in the world after Saudi Arabia ($0.23) per litre, Algeria ($0.30), and Malaysia ($0.44). Even at N145 per litre, which is ($0.73), Nigeria’s fuel is still cheaper than those of its neighbours. For instance, Ghana sells $0.92 per litre, Cameroon ($1.11), Chad ($0.79), Togo ($0.83) and Niger ($0.93), which made diversion a booming and lucrative business. Although Nigeria’s fuel is still cheaper compared to its neighbours, the disparity has been bridged considerably.

    It is also for this reason that some analysts urge the government to remove all forms of bridging provision for fuel to any part of the country to discourage diversion. According to them, as long as any form of subsidy exists, Nigeria will continue to subsidise neighbouring countries whose pump prices are higher because marketers will continue to divert products. They noted that in the United States, gasoline (petrol) is cheapest in Texas because it produces and refines oil. Similarly, products will be cheaper in oil producing and refining states of Nigeria, and in case of importation, fuel will be cheaper at areas closest to the ports.

    They noted that if a marketer takes a truck from Lagos to Jigawa, Maiduguri or Enugu State, after factoring in the cost of bridging, it would make no sense to divert it, but with the current bridging cost of about N18 per litre, diversion will still be lucrative.

     Why government stopped subsidy

    According to data from the Ministry of Petroleum Resources and its arms, despite the huge imports, which cost the country N16.4billion monthly, petrol prices remained high as marketers disregarded compliance with the Petroleum Products Pricing Regulatory Agency (PPPRA) ceiling price of N86.50k per litre. The document said pricing trend in the past one year demonstrates that citizens in areas other than Lagos and Abuja have consistently paid 20-50 per cent more for fuel purchased at the pumps, adding that survey by National Bureau of Statistics (NBS) indicates that apart from the Federal capital and Lagos, citizens continue to pay for fuel at an average price of N150 per litre.

    The survey established that subsidy benefits only a few urban- metropolitan and few higher income groups, as opposed to the larger citizenry. Expectedly, market trend indicates that the pump price of N86.50 per litre for petrol does not assure marketers of over-recovery if crude oil price continues to trade above $40 per barrel, which makes the price template unrealistic in view of market realities.

    It said: “Currently, 80 per cent of the downstream operators are still unable to carry out their business due to unavailability of foreign exchange (forex) at the prescribed Central Bank of Nigeria’s (CBN) rate. PPPRA’s pricing template, as approved, only recognises prevailing CBN interbank rate which averages N197 to a dollar in this year’s first and second quarter import allocations.  Investigations revealed that the alternative source of forex available to marketers is the autonomous market rate, which averages N285 to a dollar in 2016.

    “Therefore, to explain the prevailing high prices in certain states, marketers who source forex independently of CBN in order to carry on participation in premium motor spirit (PMS) supply will continue to sell at prices that enable them achieve full cost recovery. As such, the false assumption that the current ceiling price adequately covers cost needs to be addressed by providing marketers, an alternative to the primary forex market (CBN). The consequence of disregarding this solution will lead to the unsustainable development of NNPC maintaining the role of sole supplier to the detriment of federation revenues.

    “For a Corporation known to be inefficient and unprofitable, NNPC maintains 100 per cent responsibility for fuel importation at subsidised pricing using crude oil as a means of exchange. Estimated loss to NNPC is approximately N12.5billion per month. To sustain supply, NNPC extended its crude source for products importation from outside the traditional refinery requirement of 445 barrels per day for petroleum products imports, to the use of federation cargoes further reducing the ability of the government to earn forex,” petroleum ministry sources said.

    Besides, at an import bill of $600million per month for PMS, CBN’s liquidity to support the importation of PMS is challenged in the face of dwindling crude oil for exports. The limited crude oil output caused by renewed vandalism and sabotage of oil infrastructure in the Niger Delta leading to loss of 420,000 barrels per day, and increased participation of NNPC in products supply continue to imply limited ability to earn forex for the federation and potential crippling of the economy. The solution is immediate reduction of this crude to products control by NNPC in order to free up crude for federation revenue. Also the movement of marketers to the autonomous forex market will make available approximately $600 million of forex via CBN to be used in other sectors of the economy.

    At the last count, the government was subsidising a litre of petrol with N13.79, partly why some states fail in their fiscal responsibilities. Besides the fact that subsidy was growing as crude price goes up and there was no provision for subsidy payment in the 2016 budget, the only way out is to end subsidy.

    The sourcing of forex from the primary market (CBN) was responsible for the unavailability of forex marketers and their inability to open letter of credit, a situation that compelled them to stop product importation, thereby imposing over 90 per cent supply on NNPC since October 2015 as against the past where NNPC supplied 48 per cent of the national requirement. But with the dwindling revenues for the government on account of low oil price, NNPC does not have the resources for and is not designed to meet this increase in supply, the situation resulted in the over 60 days fuel scarcity witnessed before subsidy removal.

    Renewed insurgency and pipeline vandalism in the Niger Delta didn’t help matters as it drastically reduced national crude oil production to 1.65 million barrels per day from 2.2 million barrels per day planned in the 2016 budget, further reducing income to the Federation Account. “In the absence of available forex lines or crude volumes to continue massive importation of PMS, it is clear that unless immediate action is taken to liberalise the petroleum supply and distribution, the queues will persist, diversion will worsen and the current prices will spiral out of control.

    “Subsidy removal will free out private marketers and any Nigerian entity willing to supply PMS to source for their Forex exchange and import PMS to ensure availability of products in all locations of the country.  All products will be sold within the recommended PPPRA price band to be reviewed periodically and PPPRA and DPR will be further empowered to ensure level playing ground, strict compliance with market rules by all stakeholders and consumers,” the document said.

    Last year, N1 trillion was spent on subsidy and between April and last week when government announced the removal, N16.5billion has been spent. With the removal of subsidy, these funds will be directed to other sectors, and proceeds from the 445,000bpd will be judiciously used.

    There will also be adequate availability of fuel across the country as hoarding, smuggling and diversion  will  be drastically reduced or eliminated. Investors will be encouraged to come and invest in building of refineries and retail outlets. Estimated $2 to $3 billion investments are expected in the refineries and retails this year with the removal of subsidy.The exercise will create about  200,000 new jobs and prevent potential loss of about 400,000 jobs in existing investments.

    It will enable government to provide funds for the construction of social and infrastructural facilities such as power generation, security, education, and healthcare, among others needed in the country.

    Organised private sector’s position

    The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, said government’s decision to liberalise the petroleum downstream sector was inevitable given the acute resource constraint that the country is currently facing. “The overregulation of the sector and the subsidy regime had put enormous pressure on government finances and on our foreign reserves. It was evident that the policy choice was not sustainable. The review is in the long term interest of the economy and the people.”

    Yusuf said petroleum subsidy management has been characterised by serious transparency issues for several decades. According to him, there are two components of the subsidy phenomenon. The first is the actual subsidy, which is the differential between the pump price and the landing and other costs of fuel. The second, which is  more disturbing, is the blatant corruption inherent in the fuel subsidy regime.

    “For several years, the Nigerian economy suffered severe bleeding from this phenomenon; with subsidy payments in the one trillion naira threshold, and even more. In an economy with huge deficit in economic and social infrastructure, it was simply scandalous. It is in the overall interest of the economy and citizens for it to be discontinued.

    “One of the positive spin-offs, will be the free up of resources for investment in critical infrastructure such as power, roads, the rail systems, health sector, education sector, among others,” he added.

    The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) said it was pertinent to note that deregulation with the influence of government in pricing is not good for the economy. NACCIMA in a statement signed by its National President, Chief Bassey Edem, said: “We therefore, counsel that government should allow market forces to determine price instead of fixing a ceiling of N145 per litre. Accordingly, we counsel that the DPR and PPPRA be restructured and merged into one regulatory body for better monitoring and efficient service provision.”