How Fuel Subsidy May Mar 2022 Budget, PIA  

Despite wide criticisms, fiscal controversies and sharp practices surrounding the fuel subsidy regime in Nigeria, the Federal Government would have spent N2.9trillion by December 2021 subsidizing PMS instead of deregulation.

Oil experts have also projected that higher expenditure would also be recorded in 2022 as the government would subsidize Premium Motor Spirit (PMS) throughout the year, although the proposed 2022 budget only covers PMS subsidy for the first six months.

A full deregulation of the nation’s oil sector could see the nation save N12trillion in 4 years by jettisoning the subsidy payments which helps to regulate the pricing but leaves severe economic effects on the nation.

Speaking at the 15th edition of the Oil Trading Logistics (OTL) Africa Downstream Conference last week, the Managing Director of Swift Oil Limited, Mr. Stilian Mitakev argued that the actual expenditure on subsidies in the oil sector is more than 24% of the nation’s proposed 2022 budget of N16.3trillion.

According to Mitakev, the stated gains of the new Petroleum Industry Act (PIA), anchored on full deregulation of the oil sector, will not be realized if the government continues to fund subsidies.

His words: “The PIA has been passed but the Authorities have a problem and that is with the PMS. There may not be severe problems with refining other products because they are deregulated and there is no scarcity. With the PMS, it is different. The downstream sector is supposed to be fully deregulated and no refined product should be subsidized, but the federal government has budgeted for subsidy until June 2022 as revealed by the Finance Minister.”

“Frankly, I don’t think that subsidy will end in June 2022. I see it going on until 2023. For 2021, the PMS subsidy is expected to reach N2.9trillion at the end of the year. The total subsidy would represent over 24% of the 2022 proposed national budget.”

Mitakev warned that with the continuous subsidy payments, the federal government keeps limiting its expenditure in other crucial sectors of the nation, such as education, military, health infrastructure, roads, among others.

Speaking further on PIA, he noted that although some of the oil sector agencies like the Department of Petroleum Resources (DPR), Petroleum Products Pricing Regulatory Agency (PPPRA), and the Petroleum Equalization Fund (PEF), have been scrapped, the new Commissions will be manned by the staff from the scrapped agencies.

“The same policies will likely be recycled and implemented by the staff from the scrapped agencies, even though we are in a new dispensation,” he said.

He advised that the new Chief Executives appointed to head the new organizations should be seasoned professionals that can ensure innovative approaches to service delivery and professionalism is attained by the workforce.

Also speaking, the Executive Secretary of Major Oil Marketers Association of Nigeria, Mr. Clement Isong, in his presentation at the OTL Africa Downstream Conference in Lagos on Wednesday, said as of Tuesday, a member of the association was able to bring diesel into the country at a landing cost of N338.78 per litre, while the pump price was N325.

The MOMAN Executive Secretary compared the price of diesel in neighbouring countries; showing that the commodity was sold for N397.07 per litre in Burkina Faso, N388.37 in Liberia, N448.81 in Ghana, N382.50 in Benin, N437 in Mali, N397 in Chad, N405 in DR Congo, N417.51 in Cameroon and N325.00 in Nigeria.

According to Isong, the elements of deregulation which sustains the prices of petroleum products cheaper in the country in relation to its neighbours, fosters smuggling of the products and other sharp practices witnessed at the border areas.

While he stressed that the pump price of Automotive Gas Oil, also known as diesel, may rise further as the landing cost has increased to N338.78 per litre, he noted that the further rise in global oil prices and naira depreciation pushed up the cost of importing fuel into the country.

“What you land your diesel at is a function of how much you get your US dollars, more than anything else. Diesel in Nigeria is deregulated; it is still the cheapest in the African region,” the MOMAN boss said.

On his part, the Managing Director of Petroleum Products Marketing Company (PPMC), Mr. Isiyaku Abdullahi stated that a total deregulation of the nation’s oil sector could see Nigeria save over N12trillion in four years.

PPMC’s Managing Director, Abdullahi asserted that full deregulation of the oil sector would usher in competition while the government would save the trillions expended on subsidies to utiliize for other commitments.

He explained that the trillions would better equip the government to live up to its responsibilities in crucial infrastructure developments such as; roads, health care facilities, maritime security, education, among others.

Noting that the new Petroleum Industry Act (PIA) has created the framework for full deregulation of the nation’s oil sector, the PPMC boss also expressed optimism that the move would dissipate the pressure of forex and aid in stabilizing the naira.

“With the federal government and NNPC’s commitment to have the Nigerian refineries working, especially the Port Harcourt and Warri refinery by the end of this year, as well as the Dangote Refinery coming up next year; we would have a lot of petroleum products refined in-country. This would see us buy and sell the product in naira and the pressure on forex from this sector will be minimized,” he said.

Speaking further, the PPMC boss opined that in-country refining of petroleum products would also see the nation’s fuel market transform from the current import dependent state to net-exporter status.

Meanwhile, the immediate past Director General of Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf observed that Nigeria’s political economy had for several decades impeded the growth of the nation’s oil and gas sector.

Yusuf, who was asked to give an outlook of the oil sector from the prism of an economist and external observer, said; “the petroleum downstream sector is perhaps the biggest casualty of the political economy challenge. The economy had suffered considerable setbacks as well, from a macroeconomic standpoint.”

He expressed worry that there is still a lack of political will to push through the needed reforms in the sector, adding that pronouncements at the highest level of political leadership in the country are pointers in this direction.

“The fact that the government is still reluctant to let go of the refineries should be a source of concern as it could pose a risk to the reform outcomes,” the economist said.

While most of the downstream operators at the conference welcomed the move for full deregulation of the oil and gas sector at the summit, the Labour union represented by the Auditor of Trade Union Congress (TUC), Dr. Obinna Ogbonna demanded guarantees of job security for workers.

According to Dr. Ogbonna, the Labour union which protects the interest of the masses, wouldn’t allow the deregulation to further impoverish Nigerians via massive job losses in an already difficult economic situation.

He noted that several government administrations have always increased the retail prices of petroleum products irrespective of economic buoyancy or recessions, adding that the government as well as the private operators in the new arrangement must prioritize labour demands.