Fuel subsidy removal will heighten inflation — FG


…Cancels proposed removal plan

…APC welcomes FG’s decision.

…It portends grave political cost to government, ruling party — Yusuf

…NLC, TUC misplace aggression by consistently opposing fuel subsidy removal — Fawibe

By Uthman Salami, Ariemu Ogaga and Matthew Dennis

The Federal governgment has attributed the high rate of Inflation and economic hardship as some of the reasons why the decision to implement the earlier proposed removal of Petroleum subsidy by June this year was abruptly jettisoned.

The Minister of Finance, Budget, and National Planning, Mrs Zainab Ahmed made this known after a meeting with the President of the Senate, Ahmed Lawan, Minister of State for Petroleum Resources, Timipre Sylva and representatives of oil companies at the National Assembly Complex in Abuja after a flurry of controversies over the removal of fuel subsidy by the government.

Meanwhile, economic experts and labour unionists who spoke with Nigerian NewsDirect have continued to share their thoughts on the suspension of the planned fuel subsidy removal.

According to the Minister on Monday, the Federal government had perfected plans to make additional provisions for fuel subsidy in the 2022 budget.

While explaining the rationale behind the sudden suspension, the Minister explained that the government had to reconsider its decision on the planned removal of fuel subsidy after the 2022 budget was passed by the National Assembly.

Ahmed further maintained that payment for the 2022 budget was expected to run from January till June, noting that after consultations with stakeholders and in view of the high inflation and economic hardship, additional provisions would be made beyond the initially outlined period.

She also noted that the decision was wrongly timed and will also be problematic considering the high inflation currently being witnessed in the country.

She said removal during the current economic dispensation would worsen the condition of Nigerians, especially those struggling to make ends meet.

In her words, “Provision was made in the 2022 budget for subsidy payment from January till June. That suggested that from July, there would be no subsidy.

“The provision was made sequel to the passage of the Petroleum Industry Act which indicated that all petroleum products would be deregulated.

“Sequel to the passage of the PIA, we went back to amend the fiscal framework to incorporate the subsidy removal.

“However, after the budget was passed, we had consultations with a number of stakeholders and it became clear that the timing was problematic.

“We discovered that practically, there is still heightened inflation and that the removal of subsidy would further worsen the situation and impose more difficulties on the citizenry.

“Mr. President (Muhammadu Buhari), does not want to do that. What we are now doing is to continue with the ongoing discussions and consultations in terms of putting in place a number of measures.

“One of these include the roll out of the refining capacities of the existing refineries and the new ones which would reduce amount of products that would be imported into the country.

“We therefore need to return to the National Assembly to now amend the budget and make additional provision for subsidy from July 22 to whatever period that we agreed was suitable for the commencement of the total removal.”

The Minister of State for Petroleum resources, Timipre Sylva, on his part, aligned himself with the position of the finance minister, stressing that removing fuel subsidy this period is bad timing, politically and economically.

Also speaking on the issue, the President of the Senate appealed to the leadership of the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) to forgo their planned Nationwide strike since there has been suspension of the policy.

It portends political cost to government, ruling party — Muda Yusuf

Reacting to this development, Former Director General, Lagos State Chambers of Commerce and Industries (LCCI) and  Chief Executive Officer, Centre for Promotion of Private Enterprise (CPPE),  Dr. Muda Yusuf said the decision to remove fuel subsidy portends grave political cost to government as well as the ruling political party.

He said, “The capitulation on the subsidy removal did not come as a surprise,” noting that there were too many odds against the move.

He stressed that, “There were worries about the social cost given the excruciating poverty in the country. There was also the waning goodwill required by government to enlist the support of the people.”

According to him, the whole subsidy story became a political economy matter, and that it moved from the realm of economics and investment to the political realm, thus, making the outcome predictable, especially with impending general elections next year.

He said, “But the economic cost of the capitulation is equally weighty.  The truth is that you cannot eat your cake and have it. We should expect the cost of funding the subsidy to be much higher this year because of the surge in crude oil price.

“If the oil price remains high for most part of the year,  the subsidy cost could go as high as N2.5 trillion or even more by the end of the year. This would surely affect funding for critical infrastructures such as roads, railways,  healthcare  education,  and even security.

“The petroleum products smugglers, beneficiaries of the fiscal leakages in the fuel subsidy ecosystem and their collaborators will continue to smile to the banks for the next one and half years.

“Some states would struggle to pay salaries, especially states that are heavily dependent on federal allocation.  Some may have to layoff some of their work force. Many will struggle to meet their financial obligations as subnationals.

“Macroeconomic risks would become elevated as fiscal deficit and borrowing significantly surpasses projections in the 2022 budget.”

Dr Yusuf emphasised that the CBN may have to continue to cover financing gaps through ways and means.  This, of course, has serious inflationary implications.  The macroeconomic outcomes would adversely impact on the exchange rate, leading to further depreciation of the currency.

“Meanwhile, prospective investors in the downstream oil sector would withhold their investments until the policy environment becomes conducive.

“Additionally,  a major crisis has been created around the Petroleum industry Act as a result of this capitulation. These are the price we would have to pay as a country for the policy reversal,” he added.

Also speaking, the National President of Almagamated Union of Public Corporations Civil Service Technical and Recreational Services Employee  (AUPCTRE), Mr Benjamin Anthony said “The Nigeria Labour Congress (NLC) wrote them officially.

“I see it as side talk the way the action was communicated to them they should do same. Their response is timely.”

However, Energy Expert who is also the  Chairman and Chief Executive Officer (CEO), International Energy Services Limited, Dr. Diran Fawibe, in a telephone chat with Nigerian NewsDirect, condemned Labour Union for consistently opposing subsidy removal on Premium Motor Spirit (PMS) popularly known as petrol, describing the action as misplaced aggression.

He explained that the effect of the Federal Government’s funds on petrol subsidy is that, the money that would have be used to finance the construction of roads, infrastructures and other social amenities would be diverted to fund fuel subsidy

According to him, “It is not totally unexpected that Federal government backtracked on the planned subsidy removal of petrol, judging from the anticidence of opponent of subsidy removal, Nigeria Labour Congress(NLC), Trade Union Congress (TUC). Many people had suspected that the government does not have the political courage to damn the consequences or to dare the Labour Union by the removal of fuel subsidy.

“Over the past 20 years that Labour Unions have been resisting appropriate pricing of petrol, they have not changed their positions. And the fact that masses they are fighting for are not the actual beneficiaries of fuel subsidy, but rather, the elite who have two to three cars. Labour Union is having misplaced aggression by consistently opposing the removal of fuel subsidy.

“The effect of this is that Government will have to bear the brunt, the financial resources that would have been spent on other social services, infrastructures and so on will be diverted to paying for subsidy.

“High percentage of the foreign exchange being earned is now being devoted to importing petrol into Nigeria, which is a very sad thing at the same time. It is business as usual, regrettably, oil production in Nigeria is not as buoyant as it used to be.

“I used to say that if we are paying the outrageous amount on subsidy on petrol and we are making money from crude oil exportation as result of high level of production, maybe it will be a question of one balancing the other but now it is an open secret that Nigeria is underperforming when it comes to crude production. Which means that we do not have any leverage to take money from increased oil revenue as a result increase in oil price in the world market.”

On his part, an Oil and Gas Expert, Mr Zakka Bala in an chat with our correspondent said Federal government needs sincere technocrats to solve the challenges facing the sector.

According to him, “I knew all along that our leaders have been using unprincipled technocrats to achieve their visionless economic deceptions.

“All the technocrats that have been sycophanting and allowed themselves to be used as political praise singers, should bury their heads in shame.

“Our leaders should swallow their pride/deception and look for sincere, objective technocrats to support and guide them,” he said.

While reacting to the suspension, an oil and gas expert, Barr. Madaki Ameh said it was absurd that the government despite its cash crunch would still continue to fund fuel subsidy.

According to him, “The government has been kicking the can down the road on the issue of subsidy on petroleum products, without the necessary political will to do what is right, which is to stop subsidising the bogus and ostentatious lifestyles of the rich at the expense of the poor.

“It is absurd that the Nigerian Government, cash strapped as it is, continued to pay people for putting petrol into their cars, which is what subsidy is all about.

“Having said that, it is also a well known fact that the current subsidy claims are a fraud and a scam. The government can stop paying a single dime to anybody as subsidy without any increase in the pump prices of petroleum products, PMS inclusive, by applying the proper principles of petroleum economics.

“The prices would actually drop to between N100 per liter and N130 per litre for all petroleum products dispensed at the pump, which includes PMS, AGO, and DPK. This knowledge exists and all that is required on the part of the Government is to have the political and financial wisdom to seek it.

“Otherwise, the Nigerian economy will continue to nose dive and Nigerians will be worse off for it!.”

Also speaking with our correspondent, the Executive Director of Nigerian Workforce and Enlightenment Centre (NIWOSEC), Comrade David Kayode Ehindero said, “The removal of subsidy has never been a welcome idea. The populace will be more impoverished, it is therefore wise to halt the plan until necessary things are in proper shape, like making local production of petroleum possible.

“We wouldn’t have to struggle with subsidising and dollarisation of petrol. We know by the new Petroleum act, subsidy will have to go and Nigerians may eventually at long-run be the beneficiary.”

APC backs suspension of petrol subsidy removal

Meanwhile the  All Progressives Congress (APC) has backed  the Federal Government’s suspension of the planned removal of subsidy on petroleum products.

In a statement by the National Secretary  APC Caretaker/Extraordinary Convention Planning Committee (CECPC), Sen. John James Akpanudoedehe said commendably, the Federal Government took into consideration the fact that the removal of subsidy at this time will heighten inflation and cause undue hardship on the citizenry.

“Programmes and policies of government are meant to benefit the people. So if the timing of the planned subsidy removal would cause hardship on citizens, then a review was necessary. We commend President Muhammadu Buhari for always putting the welfare and well being of Nigerians first as he has serially displayed in the implementation of programmes and policies of this administration.

“In line with the new Petroleum Industry Act (PIA), the Federal Government is already putting in place measures, particulary boosting our local refining capacities to reduce the country’s reliance on expensive import of refined petroleum products. This will in due course usher in the eventual and full deregulation of the country’s petroleum sector.

“Finally, the APC commends the cordial and healthy relations between the Executive and the 9th National Assembly which has ensured good governance. Nigerians have been the ultimate beneficiaries as displayed in the positive outcomes of the meeting between Minister of Finance, Budget and National Planning, Dr. Zainab Ahmed and the Senate President, Ahmad Lawan on the suspension of the planned subsidy removal.”