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NNPC Provides Update on Why FG Can’t Remove Fuel Subsidy Now
On Sunday, the Nigerian National Petroleum Corporation, oil marketers, and experts explained why the Federal Government could not end petrol subsidies despite the fact that they were not included in the 2022 budget.
In separate interviews with The Punch, the Independent Petroleum Marketers Association of Nigeria and experts, including Sheriffdeen Tella, a professor of Economics at Olabisi Onabanjo University, Ago Iwoye, Ogun State, said it would be disastrous for the government to stop the subsidy without functional refineries in the country.
According to an examination of the appropriations for the ministries of finance and petroleum resources in the 2022 budget, the Federal Government made no provision for a gasoline subsidy for the following year.
However, it was learned on Sunday that the commodity may still be subsidized in 2022, since the country’s sole importer of fuel, the NNPC, indicated that the Federal Government had not issued a counter-order on subsidy.
Garba-Deen Muhammad, the corporation’s Group General Manager, Group Public Affairs Division, affirmed to The PUNCH that gasoline subsidies would continue until the government and labor reached an agreement on the problem.
For more than four years, the NNPC was the sole importer of petrol into Nigeria, since other oil marketers stopped importing the product due to a lack of foreign money and the naira’s occasional decline against the US dollar.
Muhammad reiterated that the commodity’s price would remain unchanged until negotiations with labor unions were completed, emphasizing that the Minister of State for Petroleum Resources, Chief Timipre Sylva, had previously indicated this.
Muhammad stated:
“I am aware that the conversations are ongoing, and the minister made it plain when he spoke that no conclusion would be reached and no decision (on subsidies) would be made until the negotiations are completed.” That is still the case.”
When asked if the NNPC will continue to bear the enormous financial weight of subsidies, the GGM said, “Yes, the NNPC has not made any fuss about the load it is carrying.”
“And I can’t cast judgment on it since the higher authorities have spoken.” The minister and the GMD (Group Managing Director of NNPC, Mele Kyari) have both stated that they are hiring workers.
“This is because labor represents the Nigerian people, and the decision will not be made until the discussions are completed.”
The Petroleum Industry Act, which was passed in August of this year, makes no provision for gasoline subsidies.
In response to the issue, IPMAN set five conditions that must be completed before the Federal Government discontinues gasoline subsidies.
Chief Ukadike Chinedu, IPMAN’s National Public Relations Officer, remarked that getting the country’s refineries operational was the most important element that needed to be addressed.
He stated:
“It will be extremely dangerous for the Federal Government to remove subsidies without first enacting certain conditions.” The most important issue is that the government ensures that all refineries are in good operational order.
“The other is that there must be a level playing field for modular refineries to be operational in order to promote domestic production and address the country’s foreign exchange worries.”
“The importation of petroleum items generates subsidy, therefore if we stop importing these products, we will have to deal with currency difficulties.” So the NNPC and the government have a lot of work to do before they discontinue petrol subsidies.”
We can’t avoid subsidies right now or prices will rise — Economist
Tella, an economist, also stated that refineries must be repaired before subsidies can be effectively terminated.
He stated:
“The fuel subsidy is not supposed to continue, but the fact that our refineries are not operating simply means that we can’t avoid it; otherwise, the price will explode.”
“Because they said it wasn’t in the budget and that the NNPC would handle it, the NNPC does have a budget.” It would have no effect on spending, but it would have an impact on what comes to the Federal Government and how it is allocated.”
Subsidy is now a political issue that all Nigerians must bear, according to an ex-LCCI DG.
Dr Muda Yusuf, the immediate former Director-General of the Lagos Chamber of Commerce and Industry, commented on the situation, saying that the issue of petrol subsidy had turned political.
He further stated that all Nigerians bore the responsibility of petrol subsidy because the NNPC deducted some of the subsidy charges from its monthly remittances to the Federation Accounts Allocation Committee.
He stated:
“The political will to deal with the subsidy issue is one of the most significant challenges we face, and to be fair to the administration, it is also a politically difficult thing to deal with, particularly as we approach the elections in 2023.”
Prof Pat Utomi, a political economist and former presidential contender, said there was a lot of dishonesty in the gasoline subsidy.
He stated, ”
“This should have been resolved a long time ago.” However, we don’t know who benefits from them, and there is a lot of dishonesty, so we can’t engage the public in what we need to accomplish.
“I have always been opposed to the idea of a subsidy without a stated purpose of what the subsidy will achieve.” “I understand subsidy if you are going to subsidize to produce production so that you can enhance output in a region, and then you make the subsidy of whatever it is for a certain amount of time to attain the production levels that you desire.”
Another expert, Idakolo Gbolade, Managing Director/Chief Executive, SD & grin Capital Management Limited, cautioned against removing the subsidy now, claiming that doing so would worsen Nigerians’ well-being.
He stated that the subsidy should be abolished only when the country reaches self-sufficiency in its own fuel refinery.
“Although I am aware that the gasoline subsidy is riddled with anomalies and unaccounted funds, I still feel that the government should maintain it, through whatever structure or manner it chooses, until Nigeria is self-sufficient in refining its own crude oil.”
“We are getting close to it if Dangote’s private refinery comes to fruition.” I feel that the country should have adequate refined petroleum.
“At that time, if the subsidy is abolished, Nigerians will not bear as much of the brunt since it will be traded based on the foreign cost of oil and refined here in Nigeria without landing duties and other charges,” he explained.
He went on to say that public officials who advocate for the subsidy’s abolition are acting in their own self-interest because the subsidy is one of the few ways the federal government directly affects the Nigerian people.
“Those who are demanding for the subsidy to be lifted today are doing so for their own selfish reasons,” he says. “I can tell you that this is one of the very few dividends that the Nigerian people are receiving from the government, and it is the regulated price of petrol.” If it is eliminated now, the average Nigerian will face terrible hardship.
“This is the only tool the government has to reach out to the people.”
Dr Olalekan Aworinde, senior lecturer of Economics at Pan Atlantic University, stated that the removal of subsidies is a welcome development if the money is used efficiently to improve the lives of Nigerians.
“If the government does not allocate any money for subsidy in the budget that was released, it signifies that the government is ready to abolish the subsidy.” Although the NNPC has stated that they intend to continue, how will they fund it? Essentially, we should brace ourselves for the worse, as the government is preparing to eliminate the subsidies from the price of gasoline.
However, I believe it is a positive development. If the government uses the money that was previously used for subsidies wisely, the country will benefit from a multiplier impact of that money.
“However, the concern is that if the money for subsidies is eliminated, we may not observe the multiplier impact.” This regime is rife with deception, fraud, and corruption. As a result, I doubt they will be able to spend the money wisely. That is the problem. But the most significant thing is that the government will eliminate the subsidy, which will limit a lot of things since the subsidy is a deception. It is preferable to put an end to the scam.
“The first advantage of stopping the subsidy is that we will not have a situation of subsidy fraud.” Also, the market will be more competitive since people will be able to bring in gasoline without the government interfering.
Furthermore, when supply exceeds demand, the price falls. In addition, we can see the impact of the money spent on subsidy earlier. Increased capital spending will improve people’s lives. It may also help with the government’s debt stock.
These are some of the benefits we can obtain. However, if it is not well executed, we will not see the multiplier impact,” he stated.
