Nigerians to pay additional N3.4tn annually on petroleum consumption
Nigerians will spend about N6.732tn on the purchase of Premium Motor Spirit, popularly called petrol, within a period of 12 months once the Federal Government stops subsidising the commodity from February next year, investigations have revealed.
This came to the fore on Wednesday as the Nigeria Labour Congress described government’s plan as a “penny wise-pound foolish” gamble.
The Senate and economic experts also faulted the Federal Government’s plan to pay N5,000 each to 40 million Nigerians to cushion the effect of fuel subsidy removal.
The Group Managing Director of the Nigerian National Petroleum Company Limited, Mele Kyari, had on Tuesday announced at a World Bank event in Abuja that petrol would sell for between N320 and N340 per litre from February 2022.
The current pump price of petrol at filling stations is between N162 and N165/litre, although the product is mostly sold at the upper N165/litre rate due to recent challenges in the downstream oil sector.
The N165/litre price is basically because the product is being subsidised by the Federal Government through the NNPC.
Going by the latest revelation of the NNPC boss that subsidy on petrol would end in February and the price jerked up to N340/litre, findings showed that Nigerians would spend about N18.7bn daily for the over 55 million litres of petrol consumed each day across the country.
Users of petrol would spend about N561bn for the average of 30 days in a month, while in the 12-month period, consumers would pay about N6.732tn.
In its most recently published monthly operational and financial report, which was for April 2021, the NNPC put the daily petrol consumption in Nigeria at 55.79 million litres.
“To ensure continuous increased PMS supply and effective distribution across the country, a total of 1.67 billion litres of PMS translating to 55.79 million litres per day were supplied for the month in the downstream sector,” the oil firm stated.
Working with 55 million litres daily consumption figure and the current price of N165/litre, consumers of petrol are estimated to be currently paying N9.075bn daily and about N277.25bn monthly.
By increasing the cost of petrol to N340/litre and matching it against the 55 million daily consumption rate, Nigerians would be paying N18.7bn daily for PMS, while their monthly spending would be N561bn.
This means that the annual fuel consumption bill of Nigerians will be in the region of N6.732tn.
From the foregoing, it implies that Nigerians would pay an additional amount of about N283.75bn every month on petrol when the new N340/litre price for PMS comes into effect.
Therefore within a period of 12 months, Nigerians would spend about N3.4tn extra on the current N3.3tn for the purchase of petrol should the Federal Government halt the subsidy regime.
But the government promised on Tuesday that it had plans to cushion the economic effect of the planned subsidy removal, as it announced plans to replace fuel subsidy with a N5,000 monthly transportation subsidy to the poor.
According to her, a monthly transport subsidy in the form of cash transfer of N5,000 will be given to between 30 and 40 million Nigerians.
The NNPC, being the sole importer of petrol into Nigeria for the past four years, has been subsidising the commodity and has been incurring humongous cost as subsidy.
This development had severely depleted the oil firm’s remittances to the Federation Accounts Allocation Committee, hence, reducing the monthly allocations to the three tiers of government consistently.
Subsidy removal a tricky issue, it must be well-managed to prevent social backlash — Experts
But experts called on the government to be cautious in handling the removal of fuel subsidy considering the harsh economic climate in Nigeria.
A renowned economist and Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, told one of our correspondents that the government must be tactical in handling the tricky nature of subsidy removal.
He said there was a need to creatively manage the transition from the current pricing regime to a fully deregulated arrangement.
This, he said, was a tricky issue which could pose a serious challenge to government if not tactically managed.
Yusuf, who is a former director-general of the Lagos Chamber of Commerce and Industry, noted that if the policy transition was not properly managed, the risk of a social and political backlash could be quite high.
He stated that there was no doubt in the sound economic and business case in favour of fuel subsidy removal, “but the social and political contexts are equally critical.”
He said, “Certainly, the subsidy is not sustainable, which is why there is need to accelerate engagement with the relevant stakeholders to come up with a policy transition strategy that is sustainable, realistic and pragmatic.”
A professor of Economist at the University of Uyo, Prof Leo Ukpong, said removing the fuel subsidy would make life harder for Nigerians as there would be increased inflation.
However, Ukpong added that removing the fuel subsidy is the right thing to do.
He stated, “Economically, it is the right thing to do. You can’t pay lower than what it costs to produce goods. It would end the corruption. Our problem is not the fuel subsidy, it is the corruption around the subsidy.”
He further described the plan to give Nigerians N5000 as a waste of money, which would not reduce the negative impact of fuel subsidy removal.
He said, “Giving Nigerians N5000 monthly is a waste of money. It would not help alleviate the negative impact of removing the fuel subsidy.”
The Chief Executive Officer of Financial Derivatives Company, Bismarck Rewane, on his part, said that while the removal of the fuel subsidy would lead to lesser consumption due to increasing prices, the government would have extra funds to trigger economic growth.
Rewane, however, questioned the process and essence of the distribution of the N5,000 transport palliative to 40 million Nigerians, which would likely cost about N2.4tn in one year – an amount that is N600 billion short of the N3tn for fuel subsidy.
He said, “N5000 times 40 million is about N200bn a month. It is N2.4tn in one year. This means that the government wants to save N3tn to spend N2.4tn. Now, who are the 40 million people? For instance, I buy petrol but I am not among those who will get N5,000 a month. So, who are those 40 million to get this money? And how will it be disbursed?”
A professor of Economics and Public Policy at the University of Uyo and the Chairman of the Foundation for Economic Research and Training, Prof Akpan Ekpo, said the government needed to provide a form of mechanism that would help reduce the effect on the poor.
He said, “There should be a gradual phased-out removal of the fuel subsidy. The removal will make all prices go up. There would be structural inflation because the economy depends on oil and the whole structure of the economy would be affected by the removal of the subsidy.”
Fuel subsidy putting pressure on govt revenue, its removal becoming unavoidable – LCCI
The Director-General of the Lagos Chamber of Commerce and Industry, Dr Chinyere Almona said that the removal of subsidy was becoming more unavoidable looking at the pressure it placed on government revenue.
She said the chamber had always advocated the need to have a fully deregulated oil and gas sector in Nigeria with cost-reflective pricing for the oil products. Spending up to N250bn monthly on fuel subsidy at a time when the debt to revenue ratio was above 73 per cent, according to her, was not economical.
She said that an immediate implication of removing the subsidy would be the increase in transport and logistics which would translate into higher costs for goods and services, rising inflation, increased poverty from diminishing purchasing power, and a likely rise in the unemployment rate.
“However, with more money freed for other purposes, the government should be able to spend more on utilities to cushion the effects of the removal. With cost-reflective pricing, smuggling of the products to neighbouring countries will reduce due to reduced margins.”
Almona also raised a concern about the plan of the Federal Government to disburse N5,000 to 40 million poor Nigerians.
She said, “On the proposed N5,000 to be given to some people, we always wonder how the selection is made and from what database or register. What is the guarantee that the money will end up with the right people needing the intervention? One of the biggest problems with our social investment programmes is that we do not have a systematic methodology on how beneficiaries are selected.”
Cost of doing business will increase, fuel-induced inflation inevitable – MAN
The Director-General of the Manufacturers Association of Nigeria, Mr Segun Ajayi-Kadir in a statement said, “Regardless of the arguments back and forth on the issue, PMS remains a commercial product. It is therefore not insulated from the laws of demand and supply.
“From an economic point of view, and that is the area I am comfortable to talk about, it should not come as a surprise. The rise in the price of crude oil should signal the inevitable increase in the landing cost of PMS in the country. You have oil marketers importing the fuel with the need to recover their costs and make a profit. Taken together, it is inevitable that the pump price of PMS will increase.
He however, said fuel-induced inflation might arise. “The increase in the cost of transportation – and the multiplier effect on other costs – that will accompany the more than 100 per cent increase will erode the disposable income of the average Nigerian.”
He said it would also increase the cost of doing business for manufacturers and small business owners.
On his part, the Deputy President of the Nigeria Labour Congress, Joe Ajaero, described as illogical the planned payment of N5,000 palliative after the removal of petrol subsidy.
Ajaero, however, told The PUNCH that the matter would be discussed by the NLC at a larger meeting.
NLC rejects subsidy removal, says it’s a foolish gamble
Also, the congress in a statement on Wednesday by its President, Ayuba Wabba, rejected the planned fuel subsidy removal.
It said the government’s thoughts on the move was cloudy, describing it as a ‘penny wise pound foolish gamble.’
The congress described the move as a recipe for aggravated hyper-inflation.
In a statement titled, ‘Nigerian workers refuse to take the bait,” the congress said, “The contemplation by government to increase the price of petrol by more than 200 per cent is a perfect recipe for an aggravated pile of hyper-inflation and astronomical increase in the price of goods and services.
“This will open a wide door to unintended social consequences such as degeneration of the current insecurity crises and possibly citizens’ revolt. This is not an outcome that any sane Nigeria wishes for.”
Wabba said the discussion between the Federal Government and the World Bank is a monologue, adding that the NLC would continue to insist on its rejection of deregulation based on import-driven model.
The NLC President said it was difficult to convince Nigerian workers why the country is the only nation among the Organisation of Petroleum Exporting Countries that could not produce its own refined petroleum products and thus adopts the neo-liberal import production model of refined petroleum products.
He added, “We wish to reiterate our persuasion that the only benefit of deregulation based on import-driven model is that Nigerian consumers will infinitely continue to pay high prices for refined petroleum products.
“This situation will definitely be compounded by the astronomical devaluation of the naira which currently goes for N560 to US dollars in the parallel market. Thus, any attempt to compare the price of petrol in Nigeria to other countries would be set on a faulty premise as it would be akin to comparing apples to mangoes.”
“We wish to warn that the bait by government to pay 40 million Nigerians N5,000 as palliative to cushion the effect of astronomical increase in the price of petrol is comical, to say the least.
“The total amount involved in this queer initiative is far more than the money government claims to spend currently on fuel subsidy. Apart from our concerns on the transparency of the disbursement given previous experiences with such schemes, we are wondering if government is not trying to rob Nigerians to pay Nigerians? Why pay me N5000 and then subject me to perpetual suffering
“Clearly, government thoughts on the so-called removal of fuel subsidy is cloudy and appears to be a “penny wise-pound foolish” gamble. It is clear that the palliative offered by government will not cure the cancer that will befall the mass of our people who suffer the double jeopardy of hype-inflation while their salaries remain fixed.”
The Senate also faulted plans by the N5,000 to 40 million Nigerians as transportation expenses.
But the Chairman, Senate Committee on Finance, Senators Solomon Adeola, told journalists on Wednesday that there was no provision for N5,000 for the said monthly stipend for 40 million Nigerians, in the 2022 budget currently before the National Assembly.
He said the executive would have to bring the proposal to the parliament for approval before it could start its implementation.
He said there is no way the executive would take a unilateral decision on a programme that would gulp N2.4tn without getting the approval of the parliament
He also queried the criteria that the executive would use to determine the beneficiaries of the transportation allowance.
Health workers under the aegis of the Joint Health Sector Union also cautioned the Federal Government over the proposed increase in fuel prices.
The spokesperson for JOHESU, Olumide Akintayo in an interview with one of our correspondents advised the Federal Government to look for other alternatives to solve the issues surrounding the fuel subsidy.
Meanwhile, the Minister of Finance, Budget and National Planning, Dr Zainab Ahmed, has revealed that with zero remittance from the Nigerian National Petroleum Company to the federation, the Federal Government can no longer sustain petroleum subsidy costs which are currently about N250bn monthly.
Ahmed disclosed this while briefing State House Correspondents on Wednesday after the week’s Federal Executive Council meeting presided over by the President, Major General MuhammaduBuhari (retd.), at the Presidential Villa, Abuja.