The Federal Government now incurs about N1.69bn daily to subsidise petrol consumption, OKECHUKWU NNODIM writes
Nigeria currently spends N1.69bn daily as subsidy on petrol despite the decline in the country’s oil exports and the resultant squeeze on the nation’s revenues.
While industry experts and highly placed politicians canvass the stoppage of the subsidy regime, President Muhammadu Buhari has yet to take a stand on the issue.
Buhari had last Monday explained that he had yet to take a decision on the removal of subsidies on refined petroleum products.
The President, in a statement by his Senior Special Assistant on Media and Publicity, Mallam Garba Shehu, was quoted as saying, “I have received many literature on the need to remove subsidies, but much of it has no depth. When you touch the price of petroleum products, that has the effect of triggering price rise on transportation, food and rents.
“That is for those who earn salaries; but there are many who are jobless and will be affected by it.”
Subsidy is a form of financial aid or support extended to an institution, business, or individual generally with the aim of promoting economic and social policy.
But experts told our correspondent that the President was considering the political gains of subsidy, and stressed that this was detrimental to Nigeria’s economy, considering the whopping sum being spent daily subsidising petrol consumption.
Latest figures from the Petroleum Products Pricing Regulatory Agency show that the government is paying N42.35 as subsidy on every litre of petrol consumed in the country.
Specifically, the agency, in its pricing template released on Thursday July 16, 2015, which was based on average Platts prices for a day before, stated that the Expected Open Market Price or total cost of petrol was N129.35 per litre.
This is against a regulated retail price of N87 per litre. The difference between the EOMP and the retail price is, therefore, N42.35.
According to the Nigerian National Petroleum Corporation, the country consumes about 40 million litres of Petrol daily.
By multiplying the volume of petrol consumed across the country on a daily basis with the current amount spent on subsidising the product, it means that the government spends about N1.69bn on subsidy daily at N42.35 per litre.
The PPPRA stated that the effective date of the approved pricing template was January 19, 2015, noting that the actual landing cost of the product was N113.86 per litre.
The cost elements that make up the landing cost include the product’s offshore cost of N102.6 per litre; trade margin, N1.47; lightering expenses, N4.18; NPA fee, N0.77; financing, N1.59; jetty depot throughput charge, N0.8; and storage charge, N3.
On the product’s distribution margin, retailers get N4.6; transporters, N2.99; dealers, N1.75; bridging fund, N5.85; marine transport average, N0.15; and admin charge, N0.15; making a subtotal margin of N15.49.
When added to the landing cost of N113.86, the EOMP of N129.35 per litre is arrived at, but the product is sold at filling stations at N87 per litre.
The Director, Emerald Energy Institute, University of Port Harcourt, Prof. Wumi Iledare, explained that the plunge in crude oil prices and the drop in Nigeria’s oil exports had led to a stiff revenue squeeze and wondered if the Federal Government would be able to sustain the billions of naira being incurred daily as subsidy.
Iledare, who is a former President, International Association for Energy Economics, said, “We cannot continue to subsidise petrol without having functional refineries. Other countries that subsidise petrol like Saudi Arabia and Venezuela have refining capacities beyond what they consume. If we refine all we consume and sell excess, nobody will call for subsidy removal. But we don’t.
“It may make political sense and the only thing they are worried about is the political implication. But this is where they have to educate the society that what they are losing as a result of fuel subsidy is enormous. These are monies that can be used to increase Nigeria’s education standard.”
Also speaking on the issue, the Managing Director, Frontier Oil Limited, an oil and gas field development firm, Mr. Thomas Dada, told our correspondent that the price of crude oil would fall further in the near future, judging by the recent historic deal between Iran and the United States.
Dada said, “I hope the President will be able to assess the issue in detail maybe when he has formed his cabinet. But I think sooner or later, we have to remove subsidy because it has never benefitted this nation but only a few people.
“Let me ask you a question, how many people are buying fuel at N87 per litre right now in this country? If you go to Abia, Niger or Adamawa states, they pay much more than N87 per litre and these are Nigerians paying this much because they need the product. So, who is actually benefitting from subsidy? He (Buhari) may have his reasons but we need to look at the bigger picture.
“Is the telecoms sector being subsidised? No. Is it not functioning? It is functioning! The coffers of the government are empty; so, I don’t know how you are going to sustain subsidy. Oil price is going to drop with Iran and the USA coming to a nuclear agreement. That means if we don’t see a $40 per barrel oil price by next year or two, then we are lucky.
“So, how will Nigeria continue to afford subsidy? We should be encouraging private sector refineries, which will be able to meet our petroleum product needs.”
The Governor of Kaduna State, Mallam Nasir El-Rufai, at a function in Abuja last week, urged Nigerians to unite against the continued payment of subsidy, stressing that it was only making a few persons wealthy at the expense of the masses.
He had said, “In 2014, Nigeria was producing on the average about 2.2 million barrels of crude oil per day, while importing most of its daily consumption of 43.5 million litres of refined petroleum products. That reliance on imports of refined products has seen unsustainable expenses on questionable subsidy payments exemplified by $8.99bn in the 18 months between January 2012 and June 2013.
“About N971bn was budgeted for subsidy payments in 2014 alone (more than twice that was eventually paid). You all recall how trillions of naira were paid out as oil subsidy in 2011, when only N254bn was appropriated. No one has been successfully prosecuted for this scam.
“I daresay that the oil subsidy regime has neither grown our people nor guaranteed stability of refined product supplies. What subsidy has achieved is create a huge hole in the budget and a new array of overnight billionaires… “It is time to tackle the corruption in the subsidy regime. We can discuss how the resulting subsidy savings will be spent to improve lives, while guaranteeing stability of supply to the domestic market. We have a President with both the integrity to responsibly manage the savings and the experience of managing special interventions based on subsidy savings.”
