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Tag: Subsidy removal

  • If subsidy is removed petrol price could jump to N800/litre – Oil marketers

    If subsidy is removed petrol price could jump to N800/litre – Oil marketers

    The oil marketers in the country have hinted that the price of Premium of Motor Spirit (PMS) could hit N800 a litre if the subsidy on the product is totally  removed.

    Recall that there has been a scarcity of PMS for the past few months and it has caused many filling stations to either hoard the product or increase the price.

    Many different filling stations now sell between 200 and 270 depending on the franchise and area its situated with fuel attendants also charging between 200 and 500 on the product depending on the volume being bought.

    Industry operators had repeatedly stated that the high cost of subsidy on petrol was a burden on the Nigerian National Petroleum Company Limited and was contributory to the prolonged crisis in the downstream oil sector. NNPC is the sole importer of petrol into Nigeria.

    Similarly, the Minister of Finance, Budget and National Planning, Zainab Ahmed, recently hinted that government will hands off subsidy completely on the product, saying that by June 2023 government would hands off completely.

    However,  oil marketers simply known as Shuaibu  hinted newsmen  that while it could be advisable to remove subsidy, Nigerians should know that the cost of petrol could cross N800/litre once the commodity was no longer subsidised.

    They urged the Federal Government to ensure that all the necessary measures and infrastructure to ensure a less stressful subsidy removal regime were put in place before implementing the decision.

    “If the government fails to take the appropriate measures, and they say they want to remove fuel subsidy, the situation will be worse than this, the masses will suffer. How can you remove subsidy and you don’t have this product (petrol),” the Secretary, Independent Petroleum Marketers Association of Nigeria, Abuja-Suleja, Mohammed Shuaibu, stated.

    He added, “If the government removes subsidy, where is the product? If you are removing subsidy, maybe by that time, the way diesel is sold at between N800 – N900/litre, we could be buying petrol at N800/litre, if not more than that.

    “This is because the product will be scarce, even from the government cycle. So the government should tell Nigerians the truth about this fuel supply crisis. It is not a problem caused by marketers.”

    Shuaibu said oil marketers were ready to sell, stressing that when marketers got products a few weeks ago, the queues disappeared.

    “But as it is today, you have black marketers everywhere selling with jerrycans and you will ask, where are the security agencies and the regulators?” he asked.

    The IPMAN official added, “By tomorrow they will claim that it is the fault of the marketers. How? We are businessmen and every businessman wants to make a profit. You know the law of supply and demand. When the product is scarce, prices will rise, and vice versa.”

    He explained that the downstream sector was not structured for adequate competition, adding that this could also pose challenges when subsidy was eventually removed.

    He said, “By the time you are removing subsidy, you should know that the market is not properly opened and there is no competition. They always tell you about Dangote Refinery. We must understand that Dangote is a privately owned company.

    “The pipelines of that facility were not even designed to run in any Nigerian state, rather it was designed to run to neighbouring countries, and maybe that one in Lekki there, that is all.

    “So, more or less, that refinery might still exploit us, because when there is no competition, the only supplier calls the shots. For had it been that as Dangote is producing in Lagos, another person is producing in Warri, while one refinery is pumping in Abuja, then there will be competition.”

    He continued, “We can see, for instance, the competition in the telecommunications sector today. But the government will continue to deceive us that Dangote Refinery will come on stream, when we know that it cannot really solve the problem.”

    He argued that most of the pipes of the refinery were laid to neighbouring countries to supply them gas, stressing that Nigeria should not completely rely on the facility.

    “They should not continue to be singing it as if it is what will solve our fuel supply problems,” the IPMAN official stated.

     

  • INVESTIGATION: Nigerians could pay over N460 per litre of petrol from July 2023

    INVESTIGATION: Nigerians could pay over N460 per litre of petrol from July 2023

    Nigeria’s President Muhammadu Buhari will present the 2023 appropriation bill before the National Assembly in September, and the country’s projection to spend nearly N7 trillion naira on petrol subsidy is already unsettling lawmakers.

    Nigeria, the largest oil producer in Africa, is unable to benefit from the global surge in oil prices caused by the Russia-Ukraine war because of petrol subsidy payments which now cost the country N18.69 billion daily, according to the Minister of Finance Zainab Ahmed.

    Fuel subsidy is the difference between the landing cost of imported refined petrol estimated at N448 per litre and the official pump price pegged at N165 per litre. As of April 2021, the landing cost was N216 per litre, indicating over a 100 per cent increase within 17 months. The government initially projected to spend N3 trillion on fuel subsidy in 2022 but later revised it to N4 trillion and the World Bank has predicted the cost could go as high as N5 trillion.

    Appearing before the House of Representatives ad-hoc committee investigating the subsidy regime from 2013 to 2021 last week, Ahmed said that based on information provided by the Nigeria National Petroleum Company (NNPC), the country projects the average daily truck out in 2023 would be 64.9 million litres per day.

    She presented two scenarios to the lawmakers – one involving the continuation of petrol subsidy payment throughout the year 2023 and the second where subsidy payment is phased out after the first half of the year.

    “Scenario 1 – the Business-As-Usual scenario: This assumes that the subsidy on PMS, estimated at N6.72 trillion for the full year 2023, will remain and be fully provided for. Scenario 2 – the Reform scenario: This assumes that petrol subsidy will remain up to mid-2023 based on the 18-month extension announced in early 2021, in which case only N3.36 trillion will be provided for,” the finance minister said quoting the 2023-2035 medium-term expenditure framework and fiscal strategy paper (MTEF&FSP).

    “The cost is unsustainable, but an election in early 2023 has sharpened the government’s resolve to continue with price regulation,” analysts at the Economist Intelligence Unit said in a report, adding that it expects subsidy for petrol to end in 2023.

    However, at an estimated landing cost of N448 per litre of petrol which is subject to rising inflation, Nigerians could buy a litre of fuel for over N460 per litre if the plan to remove subsidy is sustained and it is not yet clear what measures the federal government would announce to cushion the effect on the citizens in a country where food inflation is already at 22.02 per cent.

    Nigeria’s over four decades of fuel subsidy management

    Fuel subsidy in Nigeria is an old practice that dates back to 1977 after the promulgation of the Price Control Act which made it illegal for some products (including petrol) to be sold above the regulated price. This law was designed to cushion the effects of the global “Great Inflation” era of the 1970s, caused by a worldwide increase in energy prices, but the subsidy payments have always generated controversies.

    Since the 1970s, 11 out of 12 Nigerian leaders have attempted to reform fuel subsidies with no long-term success.  According to the Petroleum Products Pricing Regulatory Agency (PPPRA), Nigeria spent a total of N8.94 trillion on oil subsidies between 2006 and 2015. From records, there was no subsidy payment in 2016 as a result of the removal of subsidy on petroleum products which hiked the pump price of petrol from N89 to N143, but subsidy was reintroduced in 2017 and although the government has not been transparent about the exact amount spent since then, the indications are that the cost of making petrol cheaper for Nigerians has continued to rise.

    In 2020, the NNPC, which is the sole importer of petrol into the country in recent times, announced it had recorded zero-subsidy payments in the months of April and May, after recording an under-recovery of N101.7 billion in the first quarter of the year. However, the zero-subsidy payment success was short-lived after failing to get the support of major stakeholders, particularly the labour unions. The federal government later decided to reintroduce the subsidy until July 2022, to buy it more time to engage with relevant stakeholders.

    In a decisive move to overhaul the petroleum sector and ensure speedy removal subsidy, the Nigerian Petroleum Industry Act was introduced in August 2021, which indicated that all petroleum products would be deregulated. Again, the plan to remove the subsidy a year later was suspended after it became clear that the timing was problematic, mainly due to heightened inflation.

    The International Monetary Fund (IMF) and other stakeholders have consistently advised the federal government to urgently remove subsidies as its rising cost had become unsustainable. The Minister of finance has also admitted that petrol subsidy is “hurting the nation” and limiting the federal government’s ability to service debt. But the labour unions are worried that the removal would increase the poverty rate and worsen inflation which is already 19.64 per cent.

    Subsidy payment controversies

    A federal lawmaker representing Esan North and South East constituency in Edo state Sergius Ogun, recently accused the NNPC of purchasing 445,000 barrels of crude oil per day in 2002, at a time when the installed capacity of Nigeria’s local refineries was 445,000 barrels per day. He alleged that due to inefficiency and corruption of critical stakeholders in the value chain, the capacity utilisation of local refineries began to decline in order to justify the export of domestic crude, in exchange for refined petroleum products.

    There have also been controversies over the quantity of PMS imported per day in relation to the country’s consumption rate. Last year June, NNPC’s Group Managing Director Mele Kyari, said the daily consumption of PMS reached 103 million litres in May, as a result of smuggling across the borders, but as of April 2022, 74 million litres was declared the average daily consumption. However, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) said using truck out from depots as a yardstick, the average daily consumption of the product was 60 million litres per day.

    The Nigeria custom service (NCS) puts the total volume of PMS imported into the country between 2015 and June 2022 at about 2.4 trillion metric tonnes in 3, 703 vessels, while about 876 billion metric tonnes of PMS was exported within the same period in 1, 296 vessels. The House of Representatives is investigating subsidy payments as it says there is evidence that the amounts were being duplicated.

    The House Committee investigating the subsidy payment between 2017 and 2021, published a list of 23 unregistered oil companies which participated in the fuel subsidy regime during the period under review. The companies are Emadeb Consortium; Britania-U Nig. Limited; Totsa Total Oil Tradings SA; Petroleum Trading Nigeria Limited; Mocoh S.A; Socar Worldwide; Calson Bermuda Ltd; Hyson; Litasco S.A; Mercuria Energy; Cepsa Lubricant; Trafigura Pte; Vitol S.A; Ocanbed Trading Limited; Bonno Energy; West Africa Gas Limited; Petrogas; Matrix; Masters Energy; Amg; Barbedos; Hindustan and Patermina.

    The Chairman of the ad hoc committee Ibrahim Aliyu, the projection that the sum of N6.7 trillion would be required for subsidy in 2023 was worrying, especially against the background that the country had resorted to borrowing to finance some of its previous budgets and Nigeria’s Accountant General of the Federation has been invited to respond to some of the issues raised in a hearing expected to hold this week.

  • Labour rejects proposed fuel hike as Senate says no budgetary allocation for N5000 stipend for 40m poor Nigerians

    Labour rejects proposed fuel hike as Senate says no budgetary allocation for N5000 stipend for 40m poor Nigerians

    The Nigeria Labour Congress has rejected the proposed hike in pump price of fuel to N340 per litre from 2022.

    It warned that an increase in the price of petrol will lead to hyper-inflation and an astronomical rise in the cost of goods and services.

    Besides, the trade union said talks over petrol subsidy with the government was inconclusive.

    The NLC in a statement by its President Ayuba Wabba, restated its rejection of deregulation based on an import-driven model.

    The statement reads in part: “The response of the Nigeria Labour Congress is that what we are hearing is the conversation of the Federal government with neo-liberal international monetary institutions.

    “The conversation between the government and the people of Nigeria, especially workers under the auspices of the trade union movement on the matter of fuel subsidy, was adjourned sine die so many months ago.

    “Given the nationwide panic that has trailed the disclosure of the monologue within the corridors of government and foreign interests, the Nigeria Labour Congress wishes to posit that it continues to maintain its rejection of deregulation based on import driven model.

    “It is difficult to convince Nigerian workers why our dear country is the only country among the OPEC member countries that cannot produce its own refined petroleum products and thus adopts the neo-liberal import production model of refined petroleum products.

    “We wish to reiterate our persuasion that the only benefit of deregulation based on the import-driven model is that Nigerian consumers will infinitely continue to pay high prices for refined petroleum products.

    “This situation will definitely be compounded by the astronomical devaluation of the naira, which currently goes for N560 to 1US$ in the parallel market.”

    NLC believes that any attempt to compare the price of petrol in Nigeria to other countries would be set on a faulty premise.

    It said such a comparison would be akin to comparing apples to mangoes.

    NLC added: “The contemplation by the government to increase the price of petrol by more than 200 per cent is a perfect recipe for an aggravated pile of hyper-inflation and astronomical increase in the price of goods and services.

    “This will open a wide door to unintended social consequences such as degeneration of the current insecurity crises and possibly citizens’ revolt. This is not an outcome that any sane Nigeria wishes for.

    “The argument that the complete surrender of the price of petrol to market forces would normalise the curve of demand and supply as is being wrongly attributed to the current market realities with cooking gas, diesel and kerosene is very obtuse.

    “The truth is that these commodities which Nigeria can easily produce have been priced out of the reach of most Nigerian families with the majority of our people resorting to tree felling and charcoal for their energy needs.

    “Finally, we wish to warn that the bait by the government to pay 40 million Nigerians N5000 as a palliative to cushion the effect of the astronomical increase in the price of petrol is comical, to say the least.

    “The total amount involved in this queer initiative is far more than the money government claims to spend currently on fuel subsidy.

    “Apart from our concerns on the transparency of the disbursement given previous experiences with such schemes, we are wondering if the government is not trying to rob Nigerians to pay Nigerians? Why pay me N5000 and then subject me to perpetual suffering?”

    According to the Congress, the government’s decision to remove the petrol subsidy is “cloudy”.

    “Clearly, government thoughts on the so-called removal of fuel subsidy is cloudy and appears to be a ‘penny wise-pound foolish’ gamble.

    “It is clear that the palliative offered by the government will not cure the cancer that will befall the mass of our people who suffer the double jeopardy of hype-inflation while their salaries remain fixed.

    “As we had done several times, we call on the Federal Government to consider various options that can help Nigeria navigate out of the quagmire constructed by the failure of successive governments to embrace developmental governance and accountable leadership. Some of the viable options that can help include:

    “Insulate the domestic consumers from the market pressure brought about by the free fall of the naira by arranging with contiguous refineries not far from Nigeria to swap crude oil with refined petroleum products;

    “Accelerate work on the rehabilitation of Nigeria’s four major refineries which are all currently operating at near-zero installed capacity; and

    “Establish empirical data on the quantity of refined petroleum products consumed daily by Nigerians.

    “It is unfortunate that this record remains a myth and a huge crater for all manner of official sleaze and leakages in the downstream petroleum sub-sector of Nigeria’s oil and gas industry.”

     

    No budgetary allocation for N5000 stipend for 40m poor Nigerians – Senate

    Meanwhile, the Senate Committee on Finance has said there is no provision for monthly N5000 transport grant to 40 million poor Nigerians in the 2022 budget currently being considered by the National Assembly.

    Chairman of the Senate Committee on Finance, Adeola Olamilekan Solomon, said the 2022 budget proposal contains fuel subsidy, but no provision for the proposed N5000 transport grant, which amounts to N2.4 trillion annually.

    Solomon stated this while speaking with newsmen after presenting his panel’s report on 2022 budget to the Appropriations Committee. He said before the executive could embark on such intervention, a proposal to that effect must be sent to the National Assembly for approval.

    “The Minister of Finance, Budget and National Planning was quoted to have said that 40 million Nigerians would be paid N5000 as transportation allowance in lieu of the fuel subsidy.

    I don’t want to go into details for now. I believe that if such proposal is to come to pass, a document to that effect must be sent to National Assembly for us to see how possible it is and how do we identify the 40 million Nigerians that are going to benefit.

    There are still a lot of issues to be deliberated upon and looked into if eventually this will come to pass. How do we raise this money to pay these 40 million Nigerians because I know that even the federal government revenues are from this so-called oil and other sources.

    We don’t have anywhere in the budget where 40 million Nigerians will collect N5000 monthly as transportation allowance totaling N2.4 trillion.

    I know that there must be a budgetary provison for this for us (National Assembly) to consider. That is why I said it is still a news out there until it is formally sent to the National Assembly for either a virement to the budget or reordering of the budget.”