Nigeria: Fuel Subsidy Gulped N10.4trn in 14 Years - Govt

Fuel pump.
8 September 2020

Abuja — The federal government yesterday maintained that there was no going back on removal of subsidy, stating that in the last 14 years the sum of N10.413 trillion had been spent on the subsidy regime.

It said any form of subsidy that had been draining government coffers has been stopped, including tariff on electricity which also hit N1.7trillion.

The federal government also alleged that opportunistic opposition and their allies were playing dirty politics with the issue of petrol pricing and electricity tariff in the country.

Minister of Information and Culture, Alhaji Lai Mohammed, who gave government's position during a news conference in Abuja noted that the naysayers did not complain when the price adjustment led to lower petrol prices on at least two occasions since March.

Mohammed stressed that subsidising fuel was no longer feasible, especially under the prevailing economic conditions in the country.

He said the country can no longer afford fuel subsidy, as revenues and foreign exchange earnings have fallen by almost 60 per cent due to the downturn in the fortunes of the oil sector.

He urged Nigerians to renounce those who have latched onto the issues of petrol pricing and electricity tariff review to throw the country into chaos.

Mohammed stressed that the timing of the two necessary adjustments in the petroleum and power sectors which has raised some concerns among Nigerians was a mere coincidence.

The deregulation of PMS prices was announced on March 18, 2020, and the price modulation that took place at the beginning of the month was just part of the ongoing monthly adjustments to global crude oil prices.

To this effect, the Information minister said that the government had to sustain expenditures, especially on salaries and capital projects.

Mohammed noted that even though the federal government acted to mitigate the effect of the economic slowdown by adopting an economic sustainability plan, it also had to make some difficult decisions to stop unsustainable practices that were weighing the economy down.

He, however, said angry reactions that greeted the latest price of Premium Motor Spirit (PMS) were unnecessary and totally mischievous.

He recalled that the price of fuel then dropped from 145 to 125 Naira per litre, and then to between 121.50 and 123.50 Naira per litre in May.

The minister stated: "With the low price of crude oil then, the cost of petrol, which is a derivative of crude oil, fell, and the lower pump price was passed on to the consumers to enjoy. With the price of crude inching up, the price of petrol locally is also bound to increase, hence the latest price of 162 Naira per litre.

"If, perchance, the price of crude drops again, the price of petrol will also drop, and the benefits will also be passed on to the consumers. The angry reactions that have greeted the latest prices of Premium Motor Spirit (PMS) are therefore unnecessary and totally mischievous.

Mohammed said the truth of the matter is that subsidizing fuel was no longer feasible, especially under the prevailing economic conditions in the country.

He noted: "The government has had to sustain expenditures, especially on salaries and capital projects. Even though we have acted to mitigate the effect of the economic slowdown by adopting an Economic Sustainability Plan, we have also had to make some difficult decisions to stop unsustainable practices that were weighing the economy down.

"One of such difficult decisions, which we took at the beginning of the COVID-19 pandemic in March - when oil prices collapsed at the height of the global lockdown - was the deregulation of the prices of PMS. As I said earlier, the benefit of lower prices at that time was passed to consumers. Everyone welcomed the lower fuel price then.

"Again, the effect of deregulation is that PMS prices will change with changes in global oil prices. This means quite regrettably that as oil prices recover, there will be some increases in PMS prices. This is what has happened now".

Mohammed said the government can no longer afford to subsidise petrol prices because of its many negative consequences.

Listing the consequences to include a return to the costly subsidy regime, the minister said with 60 per cent less revenues today, we cannot afford the cost.

He noted that the second danger was the potential return of fuel queues, which he said has thankfully, become a thing of the past under this administration.

He continued: "The days in which Nigerians queue for hours and days just to buy petrol, often at very high prices, are gone for good. Of course, there is also no provision for fuel subsidy in the revised 2020 budget, because we just cannot afford it.

"The cost of fuel subsidy is too high and unsustainable. From 2006 to 2019, fuel subsidy gulped 10.413 Trillion Naira. That is an average of N743.8 billion per annum. According to figures provided by the NNPC, the breakdown of the 14-year subsidy is as follows: In 2006 Subsidy was 257 billion, in 2007 Subsidy was 272 billion, in 2008 subsidy was 631 billion, in 2009 469 billion, in 2010 667 billion.

"In 2011 2.105 trillion, in 2012 1.355 trillion, in 2013 it was 1.316 trillion, in 2014 1.217 trillion, in 2015 654 billion, in 2016 figure not available, in 2017 subsidy was 144.3 billion, in 2018 730.86 billion and in 2019 Subsidy was 595 billion."

He further said the federal government was not unmindful of the pains associated with higher fuel prices at this time.

The minister said that is why the government will continue to seek ways to cushion the pains, especially for the most vulnerable Nigerians.

He stated: "The government is providing cheaper and more efficient fuel in the form of autogas. Also, the government, through the PPPRA, will ensure that marketers do not exploit citizens through arbitrarily hiking pump prices. And that is why the PPPRA announced the range of prices that must not be exceeded by marketers.

"In spite of the recent increase in the price of fuel to 162 Naira per litre, petrol prices in Nigeria remain the lowest in the West/Central African sub-regions. Below is a comparative analysis of petrol prices in the sub-regions (Naira equivalent per litre); Nigeria - 162 Naira per litre; Ghana - 332 Naira per litre; Benin - 359 Naira per litre; Togo - 300 Naira per litre; Niger - 346 Naira per litre; Chad - 366 Naira per litre; Cameroon - 449 Naira per litre; Burkina Faso - 433 Naira per Litre; Mali - 476 Naira per litre; Liberia - 257 Naira per litre; Sierra Leone - 281 Naira per litre; Guinea - 363 Naira per litre; Senegal - 549 Naira per litre

"Outside the sub-region, petrol sells for 211 Naira per litre in Egypt and 168 Naira per litre in Saudi Arabia. You can now see that even with the removal of subsidy, fuel price in Nigeria remains among the cheapest in Africa".

On the recent service-based electricity tariff adjustment by the Distribution Companies or DISCOS, he said due to the problems with the largely-privatized electricity industry, the government has been supporting the industry.

He said to keep the industry going the government has so far spent almost N1.7 trillion, especially by way of supplementing tariffs shortfalls.

The minister explained that the government no longer has the resources to continue along that path, adding that to borrow just to subsidise generation and distribution, which are both privatized, will be grossly irresponsible.

He stated: "But in order to protect the large majority of Nigerians who cannot afford to pay cost-reflective tariffs from increases, the industry regulator, NERC, has approved that tariff adjustments had to be made but only on the basis of guaranteed improvement in service.

"Under this new arrangement, only customers with a guaranteed minimum of 12 hours of electricity can have their tariffs adjusted. Those who get less than 12 hours of supply will experience no increase. This is the largest group of customers".

He said the government has also noted the complaints about arbitrary estimated billing.

Accordingly, he said a mass metering programme is being undertaken to provide meters for over five million Nigerians, largely driven by preferred procurement from local manufacturers, and creating thousands of jobs in the process.

He added that NERC will also strictly enforce the capping regulation to ensure that unmetered customers are not charged beyond the metered customers in their neighbourhood.

Noting that there will be no more estimated billings, Mohammed said, "The government is also taking steps to connect those Nigerians who are not even connected to electricity at all. As you are aware, under its Economic Sustainability Plan, the government is providing solar power to five million Nigerian households in the next 12 months.

"This alone will produce 250,000 jobs and impact up to 25 million beneficiaries through the installation, thus ensuring that more Nigerians will have access to electricity via a reliable and sustainable solar system".

The minister noted that despite the recent service-based tariff review, the cost of electricity in Nigeria was still cheaper or compares favourably with that of many countries in Africa.

He gave the cost in Naira per kWh in some African countries as follows: Nigeria 49.75; Senegal 71.17; Guinea 41.36; Sierra Leone 106.02; Liberia 206.01; Niger 59.28; Mali 88.23; Burkina Faso 85.09 and Togo 79.88.

He said, "Also, the review of service-based electricity tariffs was scheduled to start at the beginning of July 2020 but was put on hold so that further studies and proper arrangements can be made. Like Mr. President said today, at the opening of the Ministerial Retreat, this government is not insensitive to the current economic difficulties our people are going through and the very tough economic situation we face as a nation. We certainly will not inflict hardship on our people.

"But we are convinced that if we stay focused on our plans, brighter and more prosperous days will come soon. The opportunistic opposition and their allies are playing dirty politics with the issue of petrol pricing and electricity tariff.

"Please note that these naysayers did not complain when the price adjustment led to lower petrol prices on at least two occasions since March. Nigerians must therefore renounce those who have latched onto the issue of petrol pricing and electricity tariff review to throw the country into chaos".

Hike Painful But Necessary, Timing Mere Coincidence - PMB

Meanwhile, President Muhammadu Buhari said yesterday that the recent increase in the price of fuel and electricity tariff was painful but necessary.

Speaking at the First-year Ministerial Performance Review Retreat at the presidential villa, Buhari warned of several negative consequences if the government should resume the business of fixing or subsidizing PMS prices.

Represented by Vice President Yemi Osinbajo at the event, the president explained that the COVID-19 pandemic, which affected economies globally, has compelled the administration to make some far-reaching adjustments that may cause some initial pain, but which is necessary for long-term gains.

He recalled that when oil prices collapsed at the height of the global lockdown, the government deregulated the price of premium motor spirit (PMS) such that the benefit of lower prices was passed to consumers.

Stating that this was welcomed by all and sundry, Buhari added that the effect of regulation was that PMS prices will change with changes in global oil prices.

He said it is quite regrettable that as oil prices recover, Nigerians would see some increases in PMS prices.

His words: "There are several negative consequences if the government should resume the business of fixing or subsidizing PMS prices. First of all, it would mean a return to the costly subsidy regime.

"Today we have 60 per cent less revenues, we just cannot afford the cost. The second danger is the potential return of fuel queues - which has, thankfully, become a thing of the past under this administration.

"Nigerians no longer have to endure long queues just to buy petrol, often at highly inflated prices. Also, as I hinted earlier, there is no provision for fuel subsidy in the revised 2020 budget, simply because we are not able to afford it, if reasonable provisions must be made for health, education and other social services. We now have no choice.

"Nevertheless, I want to assure our compatriots that the government will remain alert to its responsibilities. The role of government now is to prevent marketers from raising prices arbitrarily or exploiting citizens.

"This was why the PPRA made the announcement a few days ago setting the range of price that must not be exceeded by marketers. The advantage we now have is that anyone can bring in petroleum products and compete with marketers, that way the price of petrol will keep coming down".

President Buhari further explained that the other painful adjustment that the government had to make in recent days was a review of the electricity tariff regime.

He stated that if there is one thing that they have heard over and over again, it is that Nigerians want consistent and reliable power supply.

Stating that the power sector remains a critical priority for the administration, the president added that protecting the poor and vulnerable, while ensuring improved service in the power sector, was also a major priority for the government.

He noted: "Our policies, like the social investment programmes and other socio-economic schemes to benefit Nigerians, show that we remain focused on improving the welfare of the common man.

"The recent service-based tariff adjustment by the Discos has been a source of concern for many of us. Let me say frankly that like many Nigerians I have been very unhappy about the quality of service given by the Discos.

"That is why we have directed that tariff adjustments be made only on the basis of guaranteed improvement in service. Under this new arrangement, only customers who are guaranteed a minimum of 12hours of power and above can have their tariffs adjusted.

"Those who get less than 12 hours supply (Band D and E Customers) will not see any tariff adjustment. The poor and underprivileged who were on R1 lifeline tariffs in the old structure will be maintained on

lifeline tariffs, meaning that they will experience no increase.

"Government has also taken notice of the complaints about arbitrary estimated billing. Accordingly, a mass metering program is being undertaken to provide meters for over 5 million Nigerians, largely driven by preferred procurement from local manufacturers - creating thousands of jobs in the process".

He also disclosed that NERC has also been instructed to strictly enforce the capping regulation which will ensure that unmetered customers are not charged beyond the metered customers in their neighbourhood.

He continued: "In addressing the power problems we must not forget that most Nigerians are not even connected to electricity at all. So, as part of the Economic Sustainability Plan, we are providing Solar home systems to 5 million Nigerian households (impacting up to 25 million individual Nigerians) in the next 12 months.

"We have already begun the process of providing financing support through the CBN for manufacturers and retailers of Off-Grid Solar Home Systems and Mini-Grids who are to provide the systems".

President Buhari explained that the five million systems under the ESP's Solar Power Strategy will produce 250,000 jobs and impact up to 25 million beneficiaries through the installation.

He said this means that more Nigerians will have access to electricity via a reliable and sustainable solar system.

"The support to Solar Home System manufacturers and the bulk procurement of local meters will create over 300,000 local jobs while ensuring that we set Nigeria on a path to full electrification.

Buhari explained that the tariff review is not about the increase, which will only affect the top electricity consumers, but establishing a system that will definitely lead to improved service for all at a fair and reasonable price".

Buhari also disclosed that there has been some concern expressed about the timing of these two necessary adjustments.

He said, "It is important to stress that it is a mere coincidence in the sense that the deregulation of PMS prices happened quite some time ago, it was announced on 18 March, 2020 and the price moderation that took place at the beginning of this month was just part of the on-going monthly adjustments to global crude oil prices.

"Similarly, the review of service-based electricity tariffs was scheduled to start at the beginning of July but was put on hold to enable further studies and proper arrangements to be made.

"This government is not insensitive to the condition of our people and the very difficult economic situation and we will not inflict hardship on our people".

The president also directed ministers and senior officials to ensure the vigorous and prompt implementation of the ESP programmes to give succour to Nigerians at this difficult time.

In this regard, Buhari said the Central Bank of Nigeria (CBN) has created credit facilities (of up to N100B) for the Healthcare (N100 Billion) and Manufacturing (N1 Trillion) sectors.

He noted: "From January 2020 to date, over N191.87B has already been disbursed for 76 real sector projects under the N1 Trillion Real Sector Scheme; while 34 Healthcare projects have been funded to the tune of N37.159B under the Healthcare Sector Intervention Facility.

"The facilities are meant to address some of the infrastructural gaps in the healthcare and manufacturing sector as a fall out to the COVID-19 pandemic and to facilitate the attainment of the governors 5-year strategic plan".

To address the current economic challenges and consolidate its achievements over the past year, President Buhari said the retreat has been designed to review the performance of each Minister in delivering the priority mandates, including programmes and projects assigned to them upon their appointment in 2019.

On his part, the secretary to the government of the federation (SGF), Boss Mustapha, acknowledged that the government has been unable to effectively track and monitor FEC approved policies, projects and programmes as earlier envisaged due to the lockdown arising from the COVID-19 pandemic.

"I assure you that the process will be accelerated by our Delivery Unit in the coming months," he added.

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