Nigeria: Subsidy Removal - Nigerians May Pay N700/Litre for Petrol From July

Lagos — Hard times await motorists as the cost of and other users of Premium Motor Spirit, (PMS), otherwise called petrol as the price may go up to as much as N700 per litre in the days ahead.

Newly sworn-in President Bola Tinubu, in the first policy directive of his administration yesterday, announced the removal of fuel subsidy.

He disclosed this in his inaugural speech as the new President of Nigeria.

According to President Tinubu, "subsidy can no longer justify its ever increasing costs in the wake of drying resources."

Reacting to the announcement while speaking to LEADERSHIP, general secretary of Petroleum Dealers Association of Nigeria, PEDAN, Ibrahim Yahaya, said though the President's subsidy removal announcement was still vague and not very clear, the truth is that pump price of petrol will go up.

Yahaya, said players and marketers would begin to engage with authorities to fully understand the aspect of the subsidy being removed.

Presently, he said the government pays equalisation cost which covers internal movement of petrol distribution and landing cost.

For example, he said from unverified data, landing cost is about N500 a litre while cost of bridging from Lagos to Abuja is N48 per litre.

"Now when you add these costs together and marketers margins it will go as high as N700 a litre.

However, until the government makes its statement clear the actual cost of petrol will not be determined" he said.

Meanwhile the Centre for the Promotion of Private Enterprise (CPPE) has calculated that the federal government can generate a minimum of N10 trillion annually from the removal of fuel subsidy as well as elimination of the Central Bank of Nigeria (CBN)-subsidised foreign exchange window.

CPPE, in its Economic Agenda for Incoming Administration signed by its chief executive, Dr Muda Yusuf, said there was a need for the incoming government to prioritise macroeconomic stability with emphasis on moderating inflationary pressures, stabilising the exchange rate and boosting economic growth.

According to the CPPE, elimination of fuel subsidy will save an estimated N7 trillion annually, just as the "elimination of foreign exchange subsidy will unlock a minimum of N3 trillion revenue annually from the sale of CBN forex to the official foreign exchange window."

CPPE also called for a foreign exchange policy reform to unlock inflows of capital into the economy, reduce arbitrage in the forex market and improve transparency in the forex allocation.

It further urged the incoming administration to: "Ensure a market reflective exchange rate to eliminate the distortions in the forex ecosystem; ensure level playing field in forex transactions; remove impediments to market mechanism in allocation of forex.

This will boost inflows from Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), Export Proceeds and Diaspora remittances."

However, in his calculation, former minister of state petroleum resources, Timipre Sylva, said that Nigeria would save over N1 trillion annually due to the removal of fuel subsidy.

The former minister noted that with the deregulation of the downstream sector of the oil sector, it would be easier to woo investors required to revitalise the nation's comatose refineries soon.

The minister contended that the sustenance of the fuel subsidy regime was no longer tenable as it had always provided the leeway for rich and unscrupulous Nigerians to steal and enrich themselves at the expense of the masses.

Listing the benefits inherent in the policy, he argued that, "What is deregulation going to do? It is going to free up a lot more money. At least from the very beginning, it will save us up to a trillion and more every year. Already, we have taken off the budgetary provision for subsidy which is about N500 billion in the budget.

"Also, we have taken off the excess forex price that was given to NNPC which also came at a cost. So, all the money that we used to defend the naira at that time to subsidise the dollar will now be freed up for development. And, I believe that going forward, we will begin to see a lot more development, a lot more money available to the government that will be put into critical infrastructure instead of being burnt in our cars.

"And, let us look at this subsidy critically. Who are the beneficiaries of subsidy? When a few years ago you had this subsidy scam all over the place, all the monies that were taken by all the subsidy thieves and so on, how many poor people were among those people? Subsidy only provides opportunity for rich and unscrupulous Nigerians to steal and enrich themselves at our expense, at your expense.

"So, deregulation is actually a policy direction that is good for the common Nigerian. It is going to produce a lot of opportunities. Before now, you would have asked: Why has the refining sector not developed? It is because no refinery can operate commercially in Nigeria with subsidy.

"If you have a refinery and you refine your product and you are expected to sell it at a subsidised rate, how is the refinery going to make profit and survive? So, nobody wanted to invest in refineries. And that is one of the reasons why our refineries became unsustainable as well because they were refining and selling at a loss. So, every time they came back to the government to ask for money.

"Anytime any part got bad they had to come back because they were not operating commercially. So, they don't have money to replace those parts. That was why we were refining and selling at a loss. With deregulation, it means that refineries can operate commercially.

"And then you can see a lot more investment in that sector and it is going to create a lot of opportunities and jobs for our people. With deregulation, it also means that marketers can import products by themselves and sell at market rates to Nigerians. It is going to create a lot more activities and opportunities.

"So, deregulation is going to really open up. You know what happened in the banking sector with deregulation. We had a few banks but today I cannot count the banks because that sector was deregulated. You see what deregulation did for the airline sector; we had only Nigeria Airways those days.

'When the sector was deregulated you see that the sector has become a major employer of Nigerians. Deregulation has always been good for sectors. Look at the deregulation of the telecom sector, look at the revolution that it has created for Nigeria and for Nigerians.

"So, why are we shying away from deregulating this sector that is going to provide a lot of opportunities if we do deregulate because we believe that once we deregulate there would be a lot of investment coming into Nigeria to build refineries because at that point it will become commercially viable for them to build refineries because all these issues we are talking about will not be there.

"Even the NNPC can easily find the funds to even fix their refineries because it will then be commercially viable because you are going to operate refineries commercially. Why are we running away from this thing? It is people who are political about it. They want to politicise everything that are saying all kinds of things about the policy direction that has been taken especially at this time

LEADERSHIP, recalls that the NNPCL said it spent N4.39 trillion ($9.7 billion) on a petrol subsidy last year.

The NNPCL did not remit funds to federal accounts last year, its data showed, leaving a hole in public finances at a time when the government has been warning that low revenues and large deficits left it unable to stimulate the economy.

Successive governments have tried and failed to remove or cut the subsidy, a politically sensitive issue in the country.

Nigeria imports nearly all its refined fuels because local refineries were shut due to years of neglect.

Oil production, which has started to recover, has been throttled by crude theft and pipeline vandalism, which means Nigeria is spending more on fuel imports than it is getting from crude oil production.

Former Finance minister, Zainab Ahmed said the country will keep its costly but popular petrol subsidy until mid-2023 and set aside 3.36 trillion naira ($7.5 bln) to spend on it.

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