Still on Fuel Subsidy Removal

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Thursday, January 20, 2022 / 12:14 PM / by CSL Research / Header Image Credit: Government of Nigeria

 

Recently, the Senate President, Ahmed Lawan, in a press conference after a closed-door meeting with President Muhammadu Buhari on Tuesday, assured Nigerians that subsidy on Premium Motor Spirit (PMS) will not be removed for now as being reported by some social and conventional media. According to him, the President has authorised nobody to remove fuel subsidy as speculated in some quarters. He noted that even though the subsidy on PMS is heavy, the burden cannot be transferred to ordinary citizens.

 

The Nigerian Petroleum Industry Act (PIA) was enacted into law in August 2021. The act provides for the complete deregulation of the downstream sector. Contrary to the provisions of the act, the FG has continued to subsidize the pump price of PMS. The Minister of Finance, Budget and National Planning, Zainab Ahmed, noted that the government will end its subsidy regime by July 2022, which will be replaced by a N5,000 monthly transportation grant. According to the minister, the allowance would last for 12 months. The Senate, however, noted that the 2022 appropriation bill does not make provision for the N5, 000 monthly transportation stipend for 40 million Nigerians nor fuel subsidy. N5,000 monthly transportation grant for 40million Nigerians comes to about N2.4trn for the year. As of September 2021, the government was reported to have spent about N864 billion on subsidy payments.

 

In 2020, opportunely, a steep decline in global crude prices triggered by the pandemic completely wiped out the subsidy via significantly lower landing costs, paving the way for a reduction in the pump price of petrol in mid-March and talks of deregulation once again. The recovery in global crude oil prices has once again brought the subsidy conversation to the forefront, and the PPRA revised the pump price of petrol higher several times between June and November 2020. In 2021, crude oil prices continued to rise, implying an increase in the landing cost of PMS. Undoubtedly, another attempt to revise the price to suit current realities will be strongly resisted by the populace who have been hard hit by two recessions and a pandemic in the last 5 years amid rising food and utility costs. Agitations have already begun since the announcement was made.

 

In our view, the plan to provide a monthly grant of N5,000 will not in any way provide the needed cushion compared with the expected increase in petrol price and the increase in prices of other goods and services that will ultimately result from it. Also, it appears almost impossible to effectively execute the plan given Nigeria's poor population data and we believe it will probably go the way of the SURE-Project created by the then President Goodluck Ebele Jonathan, to reinvest whatever the federal government will get from the partial subsidy removal into programmes and activities that will be beneficial to the masses. However, after a few years of the programme, no meaningful results were seen. That said, we reiterate our view that the July 2022 commencement date for the full subsidy removal might not come to fruition in a pre-election year when the government needs to be in the good books of the populace.


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