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Subsidy: Nigerians may spend N8tn on petrol in six months

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Petrol consumers may pay about N8.4tn for Premium Motor Spirit, popularly called petrol, between July and December 2023 once the Federal Government stops subsidy on PMS in June, latest findings and industry data showed.

This represents about 250 per cent increase from the N2.4tn PMS consumers would spend during the period if the government chose to retain the subsidy regime.

Oil marketers explained that the average cost of petrol could rise to about N700/litre from July, should fuel subsidy be brought to an end in June as projected by the Federal Government.

The development means that the expense by Nigerians for fully deregulated petrol could rise by N6tn during the six month period, going by the insistence of the government that fuel subsidy would end in June.

The Group Chief Executive Officer, Nigerian National Petroleum Company Limited, Mele Kyari, in February, stated that over 66 million litres of PMS was pumped daily into the market by NNPC Limited to keep the country wet.

With a projected average cost of N700/litre once subsidy is removed, it implies that Nigerians would pay about N46.2bn daily for petrol, which translates to approximately N1.4tn monthly and N8.4tn in six months (July to December 2023).

“If the refineries are not working and we are going to depend on imports, then the price of petrol may rise even above the N700 or N750 that is being projected,” the President, Petroleum Products Retail Outlets Owners Association of Nigeria, Billy Gillis-Harry, told our correspondent.

He added, “This is because it is going to depend on the dollar rate and crude oil cost. When you check the landing cost, logistics, overhead, profit, etc, you might be looking at about N800, though the average is pegged at N700.

“And that is if we continue to depend on imports. Now, this calculation is based on when we get the product at the approved Central Bank of Nigeria dollar rate, and not at the over N740/$ black market price.

“If the dollar is accessed at the black market rate, then you can double that N700/litre average price once subsidy is removed. So you should be looking at between N1,400 to N1,700/litre. This is why we must get our refineries working.”

Buttressing the position of PETROAN, the Secretary, Independent Petroleum Marketers Association of Nigeria, Abuja-Suleja, Mohammed Shuaibu, explained that though it was vital to halt the subsidy regime, implementing this without functional refineries would definitely lead to high PMS price.

“Maybe the incoming government will have a proper way of stopping fuel subsidy. How can you stop subsidy when your refineries are not working? By the time they remove subsidy and the refineries are not working, Nigerians should be ready to buy fuel at N700 or N800/litre

“The sole importer of this product is NNPC and the demand is high. The price in some parts of the East currently is above N300/litre. By the time the subsidy is removed and there is full deregulation, the landing cost alone could hit over N400, and after all other things are added, Nigerians should be ready to pay about N700/litre.”

Subsidy controversy

About two weeks ago, the National Economic Council, in Abuja, asked the Federal Government to put the June deadline for petroleum subsidy removal on hold, pending the review of existing plans to provide palliatives for Nigerians.

The Minister of Finance, Budget and National Planning, Zainab Ahmed, disclosed this to State House correspondents shortly after the valedictory NEC meeting presided over by Vice President Yemi Osinbajo at the Council Chambers of the Presidential Villa, Abuja.

She also stated that there might be a need to send a supplementary budget to the National Assembly if the incoming administration aligned with the decision to extend subsidy removal.

But last week, it was reported that the Federal Government was proceeding with the planned removal of fuel subsidy by the end of June, contrary to reports that the exit date for the subsidy removal had been put on hold.

According to the report, the Federal Ministry of Finance, Budget and National Planning insisted that there had been “no change in the overall policy direction regarding the petrol subsidy envisaged by June 2023.”

The Special Adviser Media and Communications to the Minister of Finance, Budget and National Planning, Yunusa Abdullahi, was quoted in the report to have explained that what happened at the NEC was that the subsidy removal committee needed to be expanded to include teams from the incoming administration and the state governors.

“By the principles and letters of the 2023 Appropriation Act and the PIA laws, there is no provision for subsidy after June 2023,” Abdullahi reportedly stated.

He said that some members of the incoming government were “brought into the National Economic Council meeting so as to consolidate on that decision of fuel subsidy removal.”

Additional N6tn payment

Findings showed that Nigerians would pay an additional sum of about N6tn within the six-month period of July to December 2023, should petrol price hit an average of N700/litre once subsidy on the commodity stops in June.

The cost of subsidised petrol since January this year has been moving upwards despite the government’s insistence that it never approved any increase in the pump price of PMS.

The price moved from N165/litre in the fourth quarter of 2022 to N175 in the same year. It then rose to N185/litre in January this year. PMS currently sells at N194/litre in retail outlets operated by NNPC.

Other mega stations dispense the commodity at N195/litre, while the cost ranges from N200 to N300/litre in independent filling stations.

Oil marketers, however, put the average cost of petrol so far in 2023 at N200/litre, which implies that Nigerians would spend an estimate of N13.2bn daily by consuming 66 million litres of the subsidised commodity every day.

This translates to about N396bn in one month and about N2.38tn in the first six months of this year.

Hence, the difference between the costs of the product when subsidised in the first half of 2023 (N2.38tn), and when fully deregulated in the second half of this year (N8.4tn) is an estimated N6.02tn.

This means that Nigerians should brace up to pay an additional sum of about N6tn for petrol from July to December this year, should the incoming government halt the fuel subsidy regime.

Operators react

The debate around subsidy removal also elicited diverse reactions among oil marketers and economic experts. While some insisted that refineries must be functional before subsidy is removed, others argued that the policy must end now.

“We have all come together and written a law, which is the Petroleum Industry Act 2021, and it basically says petrol should be sold at market prices. Even if fuel subsidy was going to be temporary, we’ve been doing it for ages till this period.

“We have moved from a situation in which subsidy payment was in thousands, to when it was in millions per annum, to billions per annum, and now we are told that this year we are to spend about N6tn on subsidy.

“I am sure that in our hearts we all know that if we invested that N6tn in sustainable programmes that will grow the economy, it is a better way to go than to burn it in fuel subsidy. We all know this and so it must stop,” the Executive Secretary, Major Oil Marketers Association of Nigeria, Clement Isong, stated.

He said the “first thing that has to be done by the incoming government in the downstream oil sector, is the implementation of the PIA,” stressing that the PIA “is a law and the entire essence of putting our collective wisdom into law is so that people who want to invest can do so without fear.”

PENGASSAN speaks

Reacting to the issue, the Petroleum and Natural Gas Senior Staff Association of Nigeria maintained its position on why it was important to stop the subsidy regime.

In March, PENGASSAN called on the Federal Government to stop subsidising petrol, as well as ensure the speedy rehabilitation of Nigeria’s refineries.

PENGASSAN’s President, Festus Osifo, had made the call while speaking with journalists at the National Executive Council meeting of the association in Abuja.

Asked whether PENGASSAN was in support of fuel subsidy removal in the absence of any functional domestic refinery, Osifo had replied, “Yes!”

Osifo’s telephone was switched off when contacted based on the latest position of government, but the General Secretary, PENGASSAN, Lumumba Okugbawa, insisted that the association’s position on the matter had not changed.

When told about the decision of the Federal Government reached during the NEC last week, and asked for the reaction of PENGASSAN on the issue, Okugbawa said, “Actually there’s nothing to say about it, our position still remains the same.

“What the government is trying to do is that they don’t want to make decisions for the incoming administration that is taking over on May 29. And how many days do you have from that date to June? Is just two days apart.

“So I think it is just a political statement. So let the incoming administration settle down and then set the ball rolling. We know the impact of subsidy on this government, that it spends so much on subsidy.”

The PENGASSAN leader, however, stated that there might not be need for subsidy had it been Nigeria had enough local production of refined petroleum products.

“So whether you remove it or not, we should know that when it is removed, our people will have to brace up and face it. And if you don’t remove it, the government too will have to brace up and spend money,” Okugbawa stated.

Also speaking on the issue, the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria, Chief Ukadike Chinedu, said the issue of subsidy removal should be suspended.

“We are not saying that subsidy should not be removed. What we say is that issues concerning subsidy removal should be properly addressed. Those issues mentioned by oil and gas stakeholders including IPMAN, PENGASSAN, NUPENG, should be addressed.

“Some of them include having functional refineries in Nigeria and the establishment of modular refineries, so as to be able to cushion the effect of the dependency on the importation of petroleum products.”

Ukadike explained that if the country continued petroleum products imports, it would be a serious drain on the naira. “This is because a lot of naira will be pursuing the few dollars in the country and this will definitely lead to high inflation. The oil sector and petroleum products affect the prices of commodities.

“So we also want to charge the incoming government to critically look at the factors that inhibit subsidy removal, and ensure that they are addressed,” the IPMAN official stated.

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