President Muhammadu Buhari may handover the reins of power to president-elect, Bola Tinubu on May 29, 2023 without giving approval for the removal of fuel subsidy, which has been eating away at the country’s finances.
Buhari’s government has been under pressure from international institutions like the IMF and the World Bank to remove the subsidy on Petroleum Motor Spirit before leaving office as this would provide political cover for the incoming administration.
Successive governments since 1999 have been unable to muster the political will to remove the subsidy as it is hugely popular in the country and previous attempts to end it have led to social unrest.
LEADERSHIP Weekend learnt from a reliable source that no circular on effecting the removal of the subsidy on PMS has been issued by the Minister of Finance, Zainab Ahmed or even the presidency with less than 60 days left in the administration.
The government official describe recent comments by the minister that the subsidy will be remove before May 29, the handover date, simply as political rhetoric as the Nigerian Midstream and Downstream Petroleum Regulatory Authority, the successor agency for the Petroleum Products Pricing Regulatory Agency, is also yet to share a pricing template with relevant agencies and ministries for a deregulated PMS market.
The official added that current appointees of the Buhari government are concentrating on clearing their tables before a new government comes on board.
The minister of state for Petroleum Resources, Timipre Sylva had also resigned from office on March 14, 2023 to pursue his governorship ambition in Bayelsa. LEADERSHIP Weekend contacted his media, Julius Bokoru by telephone to ascertain the level of preparedness the minister had made for the removal of the subsidy before resigning from office. Bokoru declined to respond.
In spite all this, stakeholders in the downstream oil and gas industry have been working on a number of strategies to create a balanced market operation, ignoring the uncertainties around the timeline announced by the federal government to jettison petrol subsidy regime.
Added to the lack motion from the presidency, LEADERSHIP WEEKEND reports that some senators across political party lines have rejected the proposal on petrol subsidy removal as presented by President Buhari.
Buhari had in the 2023 – 2025 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP), proposed N3.6 trillion in the 2023 Budget for fuel subsidy, which was from January to June.
The Joint Senate Committee on Finance and Economic Planning, which worked on the document had while submitting it’s report at plenary, cut the N3.6 trillion subsidy provision to N1.7 trillion in order to reduce the fiscal deficit of N11.3 trillion contained in the MTEF/FSP.
The proposal of the Senate panel on subsidy was however rejected at plenary but the House of Representatives okayed its Committee’s recommendation which was N1.7 trillion.
Buhari, in the 2023 fiscal document presented before the joint sitting of the two chambers of the National Assembly had proposed that the subsidy regime would terminate with his administration on May 29, 2023.
However, some senators vowed to extend the terminal date for the subsidy removal to the end of 2023.
They argued that stopping the subsidy regime at the time a new administration would be taking over power, would create a lot of crisis.
The senators pledged to rework the fiscal document to make sure that the terminal date for the discontinuation of subsidy payment was shifted to December 2023.
At the presentation of 2023 budget breakdown last year, the minister of finance, budget and national planning, Zainab Ahmed said the federal government had budgeted for a two-dimensional scenario for the planned removal of fuel subsidy.
As it stands, it’s certain the subsidy regime will end by mid-2023. Both the finance minister and governor of the Central Bank of Nigeria have said the subsidy regime would be ended on or before May, 2023.
So far, Nigeria has been able to deregulate Kerosine prices, Diesel prices. The only one that is not deregulated is PMS. The current administration is planning to comply with the PIA, because it is an Act of the National Assembly.
She believes that the lack of actual deregulation of the sector is robbing Nigeria of the needed revenues, saying the subsidy is currently being given to people that can afford it. Stating that there is no provision for subsidy in the 2022 budget from July next year, Ahmed reiterated the government’s readiness to abolish the incentive from July 2022.
No welfare package to cushion effect of subsidy removal
LEADERSHIP Weekend recalls that the federal government is yet to adopt a social welfare measure to cushion effects of the planned fuel subsidy removal. “So, the numbers are still to be discussed and to be agreed upon,” the finance minister said.
The minister had said while the government is determined to implement provisions of the Petroleum Industry Act, prescribing absolute deregulation of the oil sector, it is also being mindful of adopting a measure that would be practicable and easy to implement.
The executives had proposed to provide a welfare pack for a population of between 5000 and 40 million poor and vulnerable Nigerians in a period of one year to cushion the expected economic impact of the potential subsidy removal, a move that was widely criticised as misplaced priority by most Nigerians.
This is as the Nigerian National Petroleum Company, NNPC, Limited had made it clear that it would no longer remit any money to the Federation Accounts Allocation Committee for sharing to the three tiers of government monthly.
It said this was based on its latest transition from a public corporation to a limited liability company and that it currently owed no money to FAAC, as all monetary arrears to the committee were owed by the old corporation and not the new oil company.
This declaration followed official unveiling of the NNPC Limited by Buhari who at the occasion declared that the new entity was henceforth free from institutional regulations.
Buhari, who made this public at the Presidential Villa, Abuja, stated that the oil firm would from now on conduct itself under best international business practice.
Before its official unveiling as a limited company, the NNPC had failed to make any remittance to FAAC since 2021. It had consistently deducted the amount it spends on fuel subsidy monthly, a development that had eroded the funds which it would have remitted to the committee.
Between January and May 2022, the NNPCL, had spent N1.274tn on petrol subsidy, being the sole importer of the commodity into Nigeria.
It described its subsidy spending as under-recovery of a Premium Motor Spirit/value shortfall.
Chief Executive Officer, NNPC Limited, Mele Kyari, stated that the firm was now a private outfit and had nothing to do with FAAC anymore.
Under present circumstances, Kyari said, the company would pay our taxes, royalties and deliver dividends to its shareholders.
Kyari said, “You now have a smarter, more responsive and much more accountable company that must act within the premises of all regulations that are in Nigeria for private companies.
“It must also meet the standards of best practice in every industry in terms of governance, complying with regulations and beyond these, eyes are on the ball that your shareholders are expecting you to deliver value to them.
“That value must translate in two forms. One is that they must see dividends and the second part is that you must deliver energy in this country. This company is now in a position to do both of them because it is now a nimble company, can act, borrow and return peoples money quickly.”
He said the firm would now make decisions very quickly, get the best class of people anywhere in the world, inject them into the company and get its Initial Public Offer ready by June 2023.
“I am sure Nigerians will see a very different company in the coming days and months. And we are convinced that by the mid of next year this company will be IPO ready,” Kyari stated.
Addressing the issue of subsidy, he said, “Subsidy is not NNPC’s burden. Subsidy is the decision of the state and in every jurisdiction anywhere in the world, countries see them differently. In some countries, they put petroleum tax on top of the market price of these products.
“So when decisions are to be made in some jurisdictions they will reduce the level of taxation. That also is another form of subsidy. In some countries, you have zero taxation but you will pay the market price for the commodity. That also in a way, in fiscal system, looks at it from a subsidy point of view.
“In very many countries, a leader can decide that I don’t even want my countrymen to buy it at the market price. I’m ready to reduce that price for them so that they can buy.”
He explained further, “In either case, whichever way the decision and the policy of the state decides, you know NNPC is there in the space to provide the product to the state at commercial value and, of course, it is also our duty to deliver to the customer at the price that the state wants.
“So it is no longer an NNPC issue. NNPC will have no issue with this. NNPC will be happy to supply because we will now see the state as our customer.”
Remove Fuel Subsidy, Fix Refineries, PENGASSAN Tells Federal Govt
He further explained that the new NNPC had no need for a sovereign guarantee, as lenders would only ask for such when the company seeking the loan lacked access to its assets.
“Today the assets are in our books and have been transferred to us. That is what banks are looking for, and that is the reason why they ask for a sovereign guarantee,” he stated.
Meanwhile, in the midst of these unclear policy direction, stakeholders midstream and downstream sectors have urged the Federal Government to address key challenges and outline strategies for a sustainable future in the petroleum downstream sector.
They made the appeal during a virtual online workshop with the theme “Deregulation of the Nigerian downstream sector: The day after,” organized by the Nigerian Petroleum Downstream Industry in collaboration with the African Refiners and Distributors Association (ARDA) held in Lagos.
The Authority Chief Executive, Nigerian Midstream and Downstream Petroleum Regulatory (NMDPRA), Farouk Ahmed, in his comments stated that the Authority shall allow free market pricing once the sector was fully deregulated.
Alhaji Lawal Yusuf Othman, National President of the Nigerian Association of Road Transport Owners (NARTO), in his presentation, warned that the full deregulation of the downstream sector and complete removal of petrol subsidy will introduce a mix of opportunities and challenges into the operating environment.
The Executive Secretary, ES of Depot and Petroleum Products Marketing Association of Nigeria, DAPPMAN, Femi Adewole explained that market liberalization means the removal of government subsidies and price controls on petroleum products, and allowing market forces to determine the price and supply of petroleum products.
National President, Independent Petroleum Marketers Association of Nigeria (IPMAN), Elder Chinedu Okoronkwo, who was represented by Mr. Mike Osatuyi, IPMAN’s National Operations Controller, revealed that the marketers are in full support of the government’s plan to embark on full deregulation of the downstream sector.
He warned Nigerians to prepare to pay up to N750 for every litre of petrol after the full implementation of the subsidy removal, adding that the pump price is likely to drop to around N500 if the Government encourages the Central Bank of Nigeria (CBN) to provide forex to marketers at the official rate.
Industry stakeholders at the workshop called on the government to implement appropriate palliatives in the form of public transportation, freight of agricultural produce, ensure transparent and effective communication, improve access to foreign exchange, trade finance, guarantee strategic stock, and provide access to crude oil for refineries ahead of the plan to embark on the total removal of petrol subsidy.
The workshop offered the industry regulator and all players across the midstream and downstream value chain the opportunity to deliberate on measures that needed to be put in place ahead of the full implementation of the Petroleum Industry Act (PIA) in Nigeria.
The Chairman of Major Oil Marketers Association of Nigeria (MOMAN), Mr. Olumide Adeosun, who doubled as the facilitator, stated that the virtual workshop aimed at addressing key challenges and outlining strategies to ensure a sustainable future for the petroleum downstream sector. He added that safeguarding consumer interest in a deregulated environment was also underscored.
The collaborative workshop provided a platform for stakeholders to share knowledge and develop strategies to ensure the Nigerian Petroleum downstream Industry remains a strong, competitive force while transitioning to a more sustainable future.
On current landing cost of petrol, an indigenous oil trader who pleaded for anonymity, said the cost is not steady as it is determined by two key factors which he said include exchange rate and products country of origin.
“The source of the product could alter the landing cost and also the trading exchange rate. But largely in Nigeria, what eventually determines the outcome of the pump price is associated costs of hiring daughter vessels to evacuate products from mother vessels in the high sea and down to the depots.
“As at last year to charter a daughter vessel depending on the size is about $35,000 but today we pay as high as $75,000 a day and this is built on the final cost.
“The NNPCL will allocate volume to marketers and they expected to hire vessels for evacuation and delivery at depots, so we have to recover costs when selling to other marketers operating petrol stations” he explained.