After weeks of speculations, the federal government yesterday officially announced the removal subsidy on petrol as a way of ending the incessant fuel scarcity.
Consequently, the Petroleum Products Pricing Regulatory Agency (PPPRA) announced that effective immediately, a litre of fuel would now sell for a maximum of N145 at all filling stations across the country.
It, however, advised Nigerian National Petroleum Corporation’s retail outlets to sell at prices lower than N145 a litre.
Briefing State House correspondents yesterday after a meeting with Vice President Yemi Osinbajo at the Presidential Villa, minister of state for petroleum, Dr. Ibe Kachikwu, said the decision was reached at a stakeholders’ meeting attended by the leadership of the Senate, House of Representatives, Governors’ Forum and labour unions, including the NLC, TUC, NUPENG, and PENGASSAN.
Kachikwu noted that the main reason for the current problem was the inability of importers of petroleum products to source foreign exchange at the official rate due to the massive decline of foreign exchange earnings of the federal government, which had resulted to private marketers’ inability to meet their 50 per cent portion of total national supply of petrol.
He said, “We have just finished a meeting of various stakeholders presided over by the vice president. The meeting had in attendance the leadership of the Senate, House of Representatives, Governors’ Forum and labour unions.
“The meeting reviewed the current fuel scarcity and supply difficulties in the country, and the exorbitant prices being paid by Nigerians for the product. These prices range, on the average, from N150 to N250 per litre currently.
“The meeting also noted that the main reason for the current problem is the inability of importers of petroleum products to source foreign exchange at the official rate due to the massive decline of foreign exchange earnings of the federal government. As a result, private marketers have been unable to meet their approximate 50 per cent portion of total national supply of petrol,” he said.
Speaking further, Kachikwu added that following a detailed presentation he made to the meeting, it had now become obvious that the only option and course of action open to the government was to take the following decisions:
“In order to increase and stabilise the supply of the product, any Nigerian entity is now free to import the product, subject to existing quality specifications and other guidelines issued by regulatory agencies, while all oil marketers will be allowed to import petrol on the basis of foreign exchange procured from secondary sources and , accordingly, PPPRA template will reflect this in the pricing of the product.”
He added that “pursuant to this, PPPRA has informed me that it will be announcing a new price band effective today, 11th May, 2016 and that the new price for petrol will not be above N145 per litre. We expect that this new policy will lead to improved supply and competition and eventually drive down pump prices, as we have experienced with diesel.”
In addition, he stated that the development would also lead to increased product availability and encourage investments in refineries and other parts of the downstream sector as well as prevent diversion of petroleum products and set a stable environment for the downstream sector in Nigeria.
“We share the pains of Nigerians but, as we have constantly said, the inherited difficulties of the past and the challenges of the current times imply that we must take difficult decisions on these sorts of critical national issues.
“Along with this decision, the federal government has, in the 2016 budget, made an unprecedented social protection provision to cushion the current challenges. We believe that, in the long term, improved supply and competition will drive down prices,” he added.
The further said that the Department of Petroleum Resources (DPR) and the PPPRA had been mandated to ensure strict regulatory compliance, including dealing decisively with anyone involved in hoarding petroleum products.
Meanwhile, the acting executive secretary of the PPPRA, Sotonye Iyoyo, in a statement said the agency will continue to modulate pricing in accordance with prevailing market dynamics, thereby ensuring fair value to all Nigerians
The updated template of the agency yesterday showed that the landing cost of a litre of petrol is now N119.74, while distribution margins, including transporters, retailers, dealers and bridging fund is now N18.37, bringing the total cost to N138.11 for a litre of petrol while marketers are advised to sell at a price not more than N145 a litre.
LEADERSHIP recalls that efforts to remove fuel subsidy by the administration of President Goodluck Jonathan in 2012 was met with stiff opposition as Nigerians rejected the move, saying corruption in the oil sector should be tackled instead of heaping the load on Nigerians.
The resistance led to what became the famous ‘Occupy Nigeria’ protest which grounded the nation’s economic activities for days, following which the policy was reversed and subsidy reinstated by the government.
But reacting to the development yesterday, industry analyst and former senior technical assistant to the minister of energy, Dan Kunle, said it was a development long overdue, noting that the right had finally been done.
Speaking exclusively to LEADERSHIP, he said, “When you free the supply of a commodity, the supply and demand will even out and the queues will phase away. You don’t need to control the price of petrol; let the market control the price. Who controls the price of telephone and all other essential life supporting items? So why should petrol price be controlled by a government that does not have the capacity to produce or distribute the product?”
Kunle, who stated that government had been controlling fuel price since 1973 when the Petroleum Equalisation Fund (PEF) was set up, said with the development now, the PEF should be dissolved as the agency had become irrelevant under the new scheme of things.
However, in his remarks, the chairman of the Civil Society Legislative Advocacy Centre (CISLAC), Auwal Rasfajani, said although the idea of subsidy removal was a necessary step to take, the timing was wrong.
Rasfajani told LEADERSHIP exclusively that government should have waited till a time when the economic condition of the country improved before removing subsidy, adding that it was doubtful if subsidy removal would end the fuel queues or tackle the age-long corruption in the oil sector.
LCCI hails fuel subsidy removal, says policy in interest of Nigerians
The director-general of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, has reacted to the removal of subsidy regime, saying the decision by the federal government to liberalise the petroleum downstream sector is inevitable given the acute resource constraint that the country is faced with at this time.
In a statement made available to LEADERSHIP, Yusuf said the overregulation of the sector and the subsidy regime had put enormous pressure on government finances and on the nation’s foreign reserves.
He noted that it was evident that the policy choice was not sustainable and the review is in the long term interest of the economy and the people.
He explained that Petroleum subsidy management has been characterised by serious transparency issues for several decades.
“There are two components of the subsidy phenomenon. The first is the actual subsidy, which is the differential between the pump price and the landing and other costs of fuel. The second [and more disturbing component] is the blatant corruption inherent in the fuel subsidy regime” he noted.
Yusuf noted that for several years, the Nigerian economy suffered severe bleeding from this phenomenon; with subsidy payments in the one trillion naira threshold, and even more. In an economy with huge deficit in economic and social infrastructures, it was simply scandalous, adding “It is in the overall interest of the economy and citizens for it to be discontinue”.
According to the DG, One of the critical elements of the Oil and Gas Sector reform, particularly the downstream sector, is the complete deregulation of the sector.
This will create a number of advantages for the economy.
It will free resources for investment in critical infrastructures such as power, roads, the rail systems, health sector, education sector etc.
The deficiency in all of these infrastructure areas is phenomenal. Fixing infrastructure will greatly improve productivity and efficiency in the economy and impact positively on the welfare of the people.
He reasoned that the review will boost private investment in the downstream oil sector especially in petroleum product refining.
“This will ultimately reduce importation of petroleum products and ease the pressure on the foreign exchange market as well as foreign reserves.
It will eliminate the rampant patronage, rent seeking activities and corruption that currently characterise the downstream oil sector.
It will improve product availability and eliminate fuel queues.
It will create more jobs for the teeming youth of the country in the downstream oil sector as investment in the sector improves” he said.
However, for the objectives of the new policy to be achieved, the current foreign exchange policy needs to be urgently reviewed to improve liquidity and transparency in the foreign exchange market.
Only a limited success will be achieved if the current rigidities in the management of the foreign exchange market persist, “yusuf added.
NLC rejects subsidy removal
The Nigeria Labour Congress (NLC) has rejected the removal of the petroleum subsidy by the federal government.
In his reaction to the increase, Comrade Aliyu Wabba said: “We reject it. We are going to convey emergency meeting of our National Executive Council (NEC). Look at the economic situation, workers and Nigerians cannot afford it. The Workers have not been paid their salaries. We have not even mentioned and resolved the issue of electricity tariff, and Nigerians cannot afford foods on their table we are now talking about another increase.
“It is something we rejected in its entirety, and we are going to meet immediately for emergency response to the issue.”
Meanwhile, the federal government is to engage the organised labour over the plan implementation of the deregulation policy in the downstream oil sector of the Nigerian economy.
Although, the minister of Labour and Employment, Chris Ngige said the President Muhammadu Buhari-led government had not deregulated the sector, he assured Nigerians that implementation of the policy would not resort to labour crisis and unrest.
Fuel subsidy removal, a gift to Nigerians – CSO
The president’s resolve to remove subsidy on fuel has been met with approval from many quarters even as the Centre for Social Justice, Equity and Transparency (CESJET) has described it as a gift to Nigerians.
According to a statement issued by CESJET’s Executive Secretary, Comrade Ikpa Isaac in Abuja today, the removal of the subsidy will put a lasting end to the incessant fuel crisis which have put the nation and innocent citizens at the mercy of a certain cabal.
“Different revelations have emerged of massive fraud in the fuel subsidy process, trillions of naira are alleged to have been fraudulently stolen from the government purse in the name of fuel subsidy payments. It is heart wrenching to discover that the country is being bleed on the side despite its already anemic financial status,” he lamented.
Comrade Ikpa said the deregulation of the downstream sector will open up the sector to private investors who hitherto developed cold feet to investing in the sector due to heavy government interference.
He said the removal of subsidy will not only break the cabal but also encourage those who have had refining licences approved several years ago to go ahead to build the refineries.
Speaking further on the benefits of subsidy removal, Ikpa added that this will tackle the incessant scarcity of petrol due to importation and also the spring up of petrochemical industries alongside local refining to create jobs.
CESJET while highlighting the economic benefits of the subsidy removal said the move will save the economy the unnecessary pressure put on the Naira due to the heavy demand for Forex to fund the importation of petroleum products rather we will be exporting refined petroleum products thereby earning foreign currencies to shore up our reserves.
He however likened the subsidy removal to the telecom revolution which according to him had freed the sector of unwarranted setbacks.
“It is time we do the next big thing after the great telecoms revolution that came with the liberalization of the sector in the early 2000s. We predict that the boom economy will experience with the deregulation of the downstream oil sector will make the telecoms experience a child’s play”. It declared.
Meanwhile CESJET has condemned the continuous spending of over N1trillion on subsidies and called on the government to remain resolute in its decision to remove subsidy.
“Nigeria in the last five years has consistently spent over N1 trillion that is about $5bn annually on petrol subsidies, same country that spent less than N20 billion on roads in the year 2015, but spent over N1 trillion on petrol subsidies in same year is unacceptable. It is on this backdrop that we proudly demand that no group or persons should distract the Buhari led administration from saving the nation from thus canker worm”, he said.[Leadership]