We're still taking a very close look at how best to achieve subsidy removal - FG


Barely six weeks to the inauguration of a new government at the centre, conflicting positions of major stakeholders in the oil and gas sector are making it unclear whether or not the country will exit the fuel subsidy regime as planned.

On Thursday, the Federal Government said the amount spent on subsidising Premium Motor Spirit (PMS), popularly called petrol, between 2005 and 2021 was N13tn, adding that the country lost N16.3tn to oil theft from 2009 to 2020.

This was disclosed in Abuja through the Nigeria Extractive Industries Transparency Initiative (NEITI) at a policy dialogue on oil swap, co-hosted by NEITI and Policy Alert, an indigenous civil society organisation, with support from the Opening Extractives.

In a presentation by NEITI’s Executive Secretary, Orji Ogbonnaya-Orji, he said there was an urgent need to make decision on the agitation for the removal of fuel subsidies.

He stressed that the full deregulation of the petroleum sector would permanently lay to rest the conversation around oil swaps, adding that latest findings by NEITI showed the humongous amount spent on subsidising fuel by the government.

“NEITI’s latest policy brief titled, ‘The cost of fuel subsidy: A case for policy review,’ revealed that Nigeria expended over N13tn ($74bn) on fuel subsidies between 2005 and 2021.

“The figure in relative terms is equivalent to Nigeria’s entire budget for health, education, agriculture, and defence in the last five years, and almost the capital expenditure for 10 years between 2011 2020. It is also important to note other economic opportunity costs of fuel subsidy, which include slashing allocations for the health, education, and technology infrastructure sectors.

“Others include the deterioration of the downstream sector with the declining performance of Nigeria’s refineries and recording zero production in 2020; disincentivised private sector investment in the down and mid-stream petroleum sector.
Other effects are the slow generation since the refining process is done outside the shores of Nigeria; worsening national debt; declining balance of payment, forex pressures and depreciation of the naira and of course product losses, inefficient supply arrangements, scarcity and its attendant queues, etc,” Orji stated.

Enduring subsidy

The Nigerian government has for decades subsidised fuel and fixed retail prices of petroleum products. But in November 2021, the Federal Government announced its plan to remove the fuel subsidy and replace it with a monthly N5,000 transport grant for poor Nigerians.

Later in the month, the government suspended its planned removal of subsidy after the Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) threatened to embark on mass protests. The government said it will retain fuel subsidy indefinitely and will work on amending the 2022 budget to provide funds for that purpose. It added that it would spend N3 trillion on subsidies in 2022.

In February, the Minister of Finance, Budget and National Planning, Zainab Ahmed, said that it would be more appropriate for the government to begin the implementation of its fuel subsidy policy in the second quarter of the year. The minister noted that the country needs to exit the fuel subsidy regime because it is a very significant contributory factor to revenue loss.
.In the last three years, fuel subsidy has gone from N134bn in 2020 to N1.43tn in 2021, N4.39tn in 2022 and a projected N3.63tn by June of 2023. This led to a total of N5.83tn in subsidy payments, excluding the figures for 2023.

Last week, Ahmed disclosed that Nigeria had borrowed $800m from World Bank for the purpose of palliatives for Nigerians ahead of fuel subsidy removal.


However, there are fears that the removal of fuel subsidy might be drastic for the populace as the countdown to the June 2023 date for subsidy removal inches closer.

Nigeria Union of Petroleum and Natural Gas Workers, (NUPENG)  warned the Federal Government not to contemplate the removal of the subsidy on petrol without local refining capacity, in view of its socio-economic implications on businesses and ordinary Nigerians.

This is contained in a communiqué  by NUPENG leaders at the end of the Union’s National Executive Council, NEC, meeting in Lagos, which deliberated on the state of the nation, especially after the conduct of the 2023 general elections and the increasing statements from Nigerians on the intention of the Federal Government to end the PMS subsidy regime, among others.

The communiqué by President and General Secretary of NUPENP, Prince Williams Akporeha, and Afolabi Olawale,  said: “NEC-in-Council also examined the recurrent discussions for the removal of subsidy from the PMS, and expresses deep concerns over the failure of the Federal Government to do the needful as severally advised by organised labour that deregulation of the PMS should not be predicated on importation of the product because of all the obvious negative impacts on the socio-economic life of the people and nation in general.

“The Council-in-session expressed disappointment over the failure of government to deliver on its promises of making the three national refineries work before contemplating the removal of the subsidy on this very important economic item in view of the enormous implication and the impact on the economic activities and considering the socio-economic importance of PMS to ordinary Nigerians.

“The NEC-in-session reaffirms that in as much as our union is not averse to the removal of PMS subsidy, the Federal Government must ensure that our local refineries are put into full operation before such major policy decision is taken in the interest of the generality of Nigerians.”

However, the International Monetary Fund (IMF) has remained consistent in urging the Federal Government to deliver on its commitment to remove fuel subsidy by mid-2023. According to the Fund, government need to make bold fiscal reforms to create the needed policy space, secure public debt, and reduce vulnerabilities.

The Washington-based lender in a report titled ‘IMF Executive Board Concludes 2022 Article IV Consultation with Nigeria’ published on its website, explained that despite rising oil prices, the nation’s fiscal deficit was estimated to have widened further in 2022, mainly due to high fuel subsidy costs. It added that while the current account might have improved in 2022, foreign currency reserves declined because of capital outflow pressures.

According to the report, Nigeria has missed out on the opportunity to reap the benefits from higher global oil prices in 2022. It said the government needs to take decisive fiscal and monetary tightening to secure macroeconomic stability, combined with structural reforms to improve governance, strengthen the agricultural sector, and boost inclusive, sustainable growth.
The IMF said, “Directors highlighted the need for bold fiscal reforms to create needed policy space, put public debt on sound footing, and reduce vulnerabilities.’’

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