Tension as FG concludes N6.7trn fuel subsidy removal
By Seun Ibiyemi
As the Federal Government prepares to completely deregulate the downstream sector of the Nigerian oil and gas industry this month, stakeholders in the sector have told Nigerians to be ready to pay as much as N750 per litre of petrol at filling stations.
This is even as stakeholders in Nigeria’s midstream and downstream petroleum sectors have urged the Federal Government to outline strategies for a sustainable future in the downstream sector.
The Nigerian National Petroleum Company Ltd. (NNPCL) had disclosed that the amount being spent as subsidy on Premium Motor Spirit (PMS), popularly called petrol, had crossed N400 billion monthly.
Recall that the Minister of Finance, Budget and National Planning, Zainab Ahmed, later explained that the subsidy removal was delayed by the 2023 general election and the planned population census.
The Minister of State for Budget and National Planning, Clement Agba, had, after the Federal Executive Council meeting held on March 15, said no conclusion had been reached on how to lessen the likely impacts of the proposed petrol subsidy removal on the citizens.
He said although a committee headed by Vice-President Yemi Osinbajo had been working for about a year, nothing definite had been agreed upon.
Meanwhile NNPCL’s Group Chief Executive Officer, Malam Mele Kyari disclosed in Abuja at the recent Final Conversion to NNPC Ltd., from being a corporation.
Kyari explained that NNPCL was spending about N202 as subsidy on every litre of petrol consumed across the country.
He added that about 65 million litres of PMS was pumped daily into the market by the NNPCL to keep the country wet.
Kyari said the oil company would continue to meet its obligations by providing PMS for Nigeria, adding that the over N400 billion monthly subsidy had been a severe strain on NNPCL’s cash flow.
According to him, NNPCL is the sole importer of petrol into Nigeria and has continued to play this role for several years running, bearing the huge cost of fuel subsidy.
He said other private oil marketers stopped importing petrol into Nigeria due to the difficulty encountered in accessing the United States dollars, required for the imports of PMS.
“Today, by law and the provisions of the Appropriation Act, there is subsidy on the supply of petroleum products, particularly PMS into our country. In current data terms, three days ago the landing cost was around N315/litre.
“Our customers are here, we are transferring to each of them at N113 per litre.
“That means there is a difference of close to N202 for every litre of PMS we import into this country. In computation, N202 multiplied by 66.5 million litres, multiplied by 30 will give you over N400 billion of subsidy every month,” he said.
Reacting on the development the National President of the Nigerian Association of Road Transport Owners (NARTO), Alhaji Othman Yusuf warned that the full deregulation of the downstream sector and complete removal of petrol subsidy would bring about opportunities and challenges.
The National President, Independent Petroleum Marketers Association of Nigeria (IPMAN), Elder Chinedu Okoronkwo, revealed that the marketers are in full support of the government’s plan to embark on full deregulation of the downstream sector.
Okoronkwo, who was represented by Mr Mike Osatuyi, IPMAN’s National Operations Controller, warned Nigerians to prepare to pay up to N750 for every litre of petrol after the removal of subsidy.
He added that the pump price is likely to drop to around N500 if the Government encourages the Central Bank of Nigeria (CBN) to provide forex to marketers at the official rate.
Okoronkwo also urged the government to channel savings from subsidy provisions to provide palliatives to the masses, adding that government must be sensitive to resentment from Nigerians.
Also in a swift response, the Chief Executive Officer of the Centre for the Promotion of Private Enterprises, Muda Yusuf said fuel subsidy removal has enormous potential benefits.
“First, there is the revenue effect. The removal would unlock about N7 trillion into the federation account. This would reduce fiscal deficit, and ultimately ease the burden of mounting debt.
“Secondly, is the investment effect, currently It is extremely difficult to attract private investment into our petroleum downstream sector because of the unsustainable subsidy regime and the stifling regulatory environment.
“The subsidy removal will eliminate the distortions and stimulate investment. We would see more private investments in petroleum refineries, petrochemicals and fertiliser plants. Post subsidy regime would also unlock investments in pipelines, storage facilities, transportation and retail outlets.
“We would see the export of refined petroleum products petrochemicals and fertiliser as private capital comes into the space. Quality jobs will be created.
“There is a foreign exchange effect. This would result from the import substitution as petroleum products importation progressively decline. This would conserve foreign exchange and boost our external reserves.
“Increase in investment would translate into more jobs in the petroleum downstream sector;
“Smuggling of petroleum products across the borders will come to an end with a market pricing of refined products.”
He added that there must be palliatives, this should be segmented into immediate, short term and medium term deliverables.
Immediate and short-term options include wage review in public service, electronic cash transfers to the vulnerable groups in our society, designation of few retail outlets [maybe 10 per cent of the outlets] as subsidy stations while all others will sell at deregulated prices for a transition period of one year; introduction of subsidized public transportation schemes across the country and reduction in import duties on intermediate products for food related production to moderate food inflation.
In the medium to long-term, there should be accelerated efforts to upscale domestic refining capacity, driven by private investments; accelerated investments in rail transportation by government to ease logistics of fuel distribution across the country as well as domestic freight costs.
