How N900bn subsidy may scuttle 2022 FG budget

• As stakeholders canvass total deregulation

Nigerians have expressed fears that if the governent implements the subsidy regime, it may lead to hyper-inflation in the country.


Emeka Okoroanyanwu and Babajide Okeowo

Fears have been raised that the N16.39trillion budget proposed by the Federal government in 2022 may be scuttled if the government goes ahead to spend a whooping N900 billion on subsidizing local consumption of premium motor spirit PMS, popularly known as petrol. The amount may go higher if a full subsidy provision is made in 2022. The N900 billion is a subsidy for the first half of 2022.

The Federal government had put total expenditure for 2022 at N16.39 trillion with a crude oil benchmark price of $57 per barrel and daily oil production estimate of 1.88 million barrels, inclusive of condensates of 300,000 to 400,000 barrels per day.

The budget was prepared on a benchmark exchange rate of N410.15 per dollar and GDP growth rate of 4.2 per cent with 13 per cent inflation rate.

President Muhammadu Buhari while presenting the budget to a joint session of the National Assembly said the total federally distributable revenue is estimated at N12.72 trillion in 2022 while total revenue available to fund the 2022 budget is estimated at N10.13 trillion.

But going by the disclosure a few days ago by the Nigerian National Petroleum Corporation when it submitted its report to the Federation Account Allocation Committee, FAAC, the corporation spent the sum of N864.07bn in the subsidizing premium motor spirit, popularly known as petrol consumed locally in just nine months, January to September this year. This amount, experts have projected may hit N2 trillion by end of this year.

The report also disclosed that the Federal Government has set aside a whopping sum of N900bn for payment of subsidy on PMS for the year 2022.

The amount spent on subsidy in the nine months represents 31 per cent of the total revenue of N2.7trillion generated by the corporation between January and September.

The NNPC in the report to the FAAC said subsidy did not incur in January but spent N25.37illion in February. It hit N60.39bn, N61.96bn and N126.29bn in March, April, and May respectively while it spent N164.33bn, N103.28bn, N173.13bn and N149.28bn on PMS subsidy in June, July, August and September.

READ ALSO: Nigeria spending on petrol subsidy while Ghana, Rwanda prioritising education, healthcare – Ex-Emir Sanusi

Many Nigerians are worried over the recurring issue of subsidy in the country, as no one is sure if there is even a subsidy at all. Last year June, the federal government announced it has removed fuel subsidies as the international crude oil price went up to $45 per barrel. At that time, it increased the pump price of PMS from N95 per litre to N165 per litre.

Nigerians then heaved a sigh of relief as the burden of fuel subsidy seemed to be over. Just a year and three months after, the issue of subsidy has reared its ugly head again even as the international price of crude has increased by over 25 per cent from $45 per barrel to $83.12 per barrel as of Friday last week.

The Minister of Finance, Budget and National Assembly, Zainab Ahmed, had first in July during the public consultation of the Medium-Term Expenditure Framework/Fiscal Strategy Paper for 2022-2024 raised the alarm as she described the amount spent on subsiding petrol as a drain on the economy.

She said N900bn would be spent next year on subsidizing the product, adding that such could have been spent on more productive sectors of the economy such as health, education and infrastructure.

Going by the figures in the 2022 Federal Government budget, the projected subsidy budget of N900bn is higher than the N292.7bn for sinking fund, N750.03bn allocated for personnel cost for government-owned enterprises, and N335bn overheads cost.

It is also higher than the N261.2bn budgeted for overhead costs for government-owned enterprises; N567.02bn for pension, gratuities and retirees; and N366.13bn capital supplementation budget.

Ahmed lamented that subsidy “is costing us big time. We are spending over N150bn on subsidy, which means NNPC has to use that amount of money to pay for PMS and distribute it. That is money that the federation account can share.

“We are being penny-wise, pound-foolish to think that by giving this subsidy, that citizens are benefitting. But by the end of the day, the citizens are actually the ones that are carrying the brunt of the wealthy.”

Ahmed was worried that while subsidy was supposed to be enjoyed by the poor, those actually benefiting from it were the rich people in the society.

For effect, she added, “Some (the rich) have two, three, four cars and they are the ones that we are subsidising. It is not helping the farmer who needs a bus from his farm to the market. But we need to get rid of subsidies completely, although it is not a popular view with labour.

“Right now, we are subsidising consumption in Nigeria; we sell at N165 per litre when our neighbours are selling at N500 per litre. It is only the marketers that are benefiting by taking this product from Nigeria and selling it across borders. The common man is not benefiting.”

For Ben Akabueze, the Director-General of Nigeria’s Budget Office, Nigeria retaining fuel subsidies amid tight fiscal conditions is ‘a case of collective foolishness’, which is only hurting the economy, but benefiting the rich.

In an earlier interview, Akabueze expressed worries about those resisting the removal of subsidy on petrol but didn’t resist the removal of subsidy on diesel and kerosene. He lamented that there is nowhere in the world where diesel costs more than petrol, even from a logical point of view as it costs more to produce petrol than to produce diesel.

An unending debate

The issue of subsidy has been a recurring one in the country. NNPC’s General Managing Director, Mele Kyari recently insisted that Nigeria no longer make an allocation for fuel subsidies.

In what appears to be a case of speaking from both sides of the mouth, many key figures in the country’s administration are speaking in favour of the removal of subsidies.

According to Akabueze, ‘when this administration decided to get rid of the subsidy, there were people who advocated and insisted that it couldn’t be without a ceiling. Remember that the oil marketers at that time were seen to be highly suspect because in one year the subsidy rose up to N2.1 trillion, more than even the revenues of the government for that year. If we did not put that N145 ceiling, things would have been bad,’ he said.

Some oil experts have said that full deregulation of the nation’s oil sector could see the nation save up to N10 trillion in 4 years. 

Speaking at the 15th edition of the Oil Trading Logistics (OTL) Africa Downstream Conference in October, the Managing Director of Swift Oil Limited, Stilian Mitakev in his presentation said that the actual expenditure on subsidies in the oil sector is more than 24 per cent of the nation’s proposed 2022 budget of N16.39 trillion.

He stated that gains of the new Petroleum Industry Act (PIA), anchored on full deregulation of the oil sector, will not be realized if the government continues to fund subsidies.

To him, even though the PIA has been passed, he sees problems for the government because of the PMS.

“There may not be severe problems with refining other products because they are deregulated and there is no scarcity. With the PMS, it is different. The downstream sector is supposed to be fully deregulated and no refined product should be subsidized, but the federal government has budgeted for subsidy until June 2022 as revealed by the Finance Minister.”

“Frankly, I don’t think that subsidy will end in June 2022. I see it going on until 2023. By 2021, the PMS subsidy is expected to reach N2.9trillion at the end of the year. The total subsidy would represent over 24m per cent of the 2022 proposed national budget.”

He warned that with the continuous subsidy payments, the federal government keeps limiting its expenditure in other crucial sectors of the nation, such as education, military, health infrastructure, roads, among others.

For the Executive Secretary, Major Oil Marketers Association of Nigeria, the cost of procuring diesel is higher than the landing cost in Nigeria.

Isong, in his presentation at the OTL Africa Downstream Conference in Lagos recently, said a member of the association brought in diesel into the country at a landing cost of N338.78 per litre, while the pump price is N325 per litre.

While highlighting the price of diesel in neighbouring African countries, Isong said the commodity was sold for N397.07 per litre in Burkina Faso, N388.37 in Liberia, N448.81 in Ghana, N382.50 in Benin, N437 in Mali, N397 in Chad, N405 in DR Congo, N417.51 in Cameroon and N325.00 in Nigeria.

According to Isong, the elements of deregulation which sustains the prices of petroleum products cheaper in the country in relation to its neighbours, fosters smuggling of the products and other sharp practices witnessed at the border areas.

While he stressed that the pump price of Automotive Gas Oil, also known as diesel, may rise further as the landing cost has increased to N338.78 per litre, he noted that the further rise in global oil prices and naira depreciation pushed up the cost of importing fuel into the country.

“What you land your diesel at is a function of how much you get your US dollars, more than anything else. Diesel in Nigeria is deregulated; it is still the cheapest in the African region,” he said.

On his part, the Managing Director of Petroleum Products Marketing Company (PPMC), Mr. Isiyaku Abdullahi stated that a total deregulation of the nation’s oil sector could see Nigeria save over N12trillion in four years.

He said full deregulation of the oil sector would usher in competition while the government would save the trillions expended on subsidies to utilize for other commitments.

He explained that the trillions would better equip the government to live up to its responsibilities in crucial infrastructure developments such as; roads, health care facilities, maritime security, education, among others.

Many Nigerians are, however, sceptical of the government’s subsidy claims. According to Ogido John, a Civil Society leader, the government is crying wolf where there is none. The ploy is employed by the government to increase the pump price of petrol.

“Whenever you hear government begin to speak about subsidy, get ready for the fuel price increase. This government can’t do anything to diversify the economy in order to earn more revenue apart from increasing the pump price of petrol,” he said.

For Anyanwu Isdore, a business owner in Lagos, the government is not subsidizing fuel. “What we are paying for is the corruption in the system and the inefficiency in the NNPC.  Many people who have no jobs are working in NNPC, many of them don’t even have seats, but they go home every month with jumbo pay,” he lamented.

He said the government would only fuel inflationary pressures if it increases the pump price of petrol. “Let them increase the price of petrol, it will only increase inflation,” he said.

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