Tag: Subsidy

  • Over N13trn Spent On Subsidy Payment In 16 Years – FG

    Over N13trn Spent On Subsidy Payment In 16 Years – FG

    The Federal Government says over N13trn was spent on subsidy payment in 16 years between 2005 and 2021.

    The Secretary to the Government of the Federation (SGF), Boss Mustapha, stated this on Monday in Abuja during the launch of the 2022-2026 Strategic Plan of the Nigeria Extractive Industries Transparency Initiative (NEITI).

    He said, “I have carefully studied the NEITI’s policy advisory on fuel subsidy forwarded to my office. I will like to commend NEITI for the in-depth research and outline of options to assist government in making a decision on the subsidy removal debate.

    “From that Policy Advisory, over N13trillion (N74Billion) is documented to have been expended on the payment of subsidy between 2005 and 2021. The figure in relative terms is equivalent to Nigeria’s entire budget for health, education, agriculture, and defence in the last five years, and almost the capital expenditure for 10 years between 2011 2020.”

    According to the SGF, the figure could have been more in financial terms and opportunity costs to the nation if some cost-cutting measures were not put in place by the government.

    He said the government is following the debates around subsidy removal by the citizens, some of which include the need to fix the nation’s refineries and the creation of visible safety net programmes to reduce the impact on the poor and vulnerable in the society especially workers.

    “While we remain open to the ongoing debate, a comprehensive position to guide the incoming administration on when and how to make this decision is being developed by the Presidential Transition Council which I currently head.

    “I therefore have no doubt that the incoming administration will consider our position on the issue and make an informed decision in the overriding public interest.

    “However, I must state that the Buhari administration has done excellently well in managing the subsidy burden in-spite of the complex challenges it has posed to the economy over these years, putting at the forefront of its considerations, the welfare and needs of the average Nigerian,” Mustapha stated.

  • Subsidy: N5,000 grant’ll end up like SURE-P, says CSLS

    Subsidy: N5,000 grant’ll end up like SURE-P, says CSLS

    Minister of Finance, Budget and National Planning, Zainab Ahmed has said that the N5,000 monthly grant proposed to be given to poor Nigerians next year to cushion the impact of petrol subsidy removal will suffer the same fate as the Subsidy Reinvestment Programme introduced in 2012, CSL Stockbrokers Ltd has said.

    The Minister of Finance, Budget and National Planning, said this week that the Federal Government would give a transport grant of N5,000 each to between 30 million and 40 million poor Nigerians for a duration of 12 months.

    Analysts at CSLS noted on Friday that former President Goodluck Jonathan attempted to remove subsidies in January 2012, which led to demonstrations and strikes across the country.

    They said in a note that Jonathan was subsequently forced to reapply some subsidy (although not the full amount) to assuage Nigerians’ anger.

    The analysts noted that in response to the cries of Nigerians for accountability, Jonathan set up SURE-P on Feb. 13, 2012 to reinvest whatever the Federal Government would get from subsidy removal into programmes and activities that would be beneficial to the masses.

    They said, “However, after a few years of the programme, no meaningful progress was made towards alleviating youth unemployment in Nigeria.

    “Former Chairman of the SURE-P, Christopher Kolade, after his resignation, noted that he resigned his position in 2013 because the SURE-P operations were becoming tainted with corruption and politics, thereby losing its credibility.”

    The analysts described subsidy removal as a critical free-market reform, saying, “We believe it is beneficial to the economy and to government finances, though it will almost certainly put pressure on consumers and small businesses.”

    They said, “We, however, believe there remains some political risk in implementing the change. The subsidy on petroleum is widely seen as a form of social security in a country where health and social security provision is non-existent.

    “Thus, we believe the July 2022 commencement date for the plan might not come to fruition. 2022 is a pre-election year and the government may be forced to retain the subsidy to avoid any clash with the populace.”

    The CSLS said the plan to provide a monthly grant of N5,000 would not in any way provide the needed cushion compared with the expected increase in petrol price.

    “Also, it appears almost impossible to effectively execute the plan given Nigeria’s poor population data and we believe it will go the way of the SURE-Project,” it added.

  • FG, States Won’t Be Able to Pay Salaries in 2022 If Fuel Subsidy is Retained – World Bank

    FG, States Won’t Be Able to Pay Salaries in 2022 If Fuel Subsidy is Retained – World Bank

    The World Bank yesterday sounded the alarm bells to Nigeria, saying further delay in removing the fuel subsidy which had been described as a major drain and waste on the economy could see the federal and state governments unable to pay salaries from 2022.

    The Lead Economist, Nigeria Country office of the World Bank, Marco Antonio Hernandez, painted a gloomy picture of Nigeria if the country decides to continue with the controversial fuel subsidy, while unveiling the Nigeria Development Update (NDU), a bi-annual report of the multilateral institution, at an even that held in Abuja as well as virtual.

    Also, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, during a panel session at the event, lamented the huge burden the continuous retention of the subsidy on petrol had been to the corporation, warning that going forward, “the NNPC may have to start invoicing the federation to be able to maintain subsidy.”

    This is just as the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, reiterated that the government was working on introducing measures that would cushion the impact of fuel subsidy removal on vulnerable Nigerians.

    Speaking further, Hernandez, in the report, urged Nigeria to remove subsidy on petroleum motor spirit (PMS) in February 2022, as prescribed by the Petroleum Industry Act (PIA), warning that further delay could worsen the precarious revenue situation confronting the country.

    The report also warned that the present fiscal condition of the sub-national governments would take a turn for the worse in 2022 with 35 of the 36 states unable to meet their financial obligations.

    Hernandez stated that a situation where N250 billion goes into fuel subsidy monthly was unsustainable as the paucity of revenue confronts the country, especially the sub-national governments.

    Hernandez who provided insights into the NDU report, titled “Time for Business Unusual,” stated that should the current revenue challenge continue till 2022, only Lagos State would be able to meet its financial obligations.

    The report pointed to mounting fiscal pressures due to lower-than-expected revenues in 2021 and the rising cost of PMS subsidy.

    It stated: “Because most states rely heavily on inter-governmental transfers, diminished revenue inflows to the Federation Account are jeopardising fiscal sustainability at the state level.

    “For example, in the oil-producing State of Bayelsa federal transfers account for 91 per cent of revenues, and declining transfers caused a 22-percent drop in Bayelsa’s revenues per capita during the year.

    “Even in the state of Lagos, which relies the least on Federal transfers, transfers accounted for 29 per cent of revenues in 2020. Most State expenditures cover salaries and administrative expenses, and given their rigid (i.e., nondiscretionary) nature, State-level expenditures are difficult to cut.

    “Consequently, lower revenues are likely to intensify pressure on states’ debt stocks and undermine their fiscal sustainability.”

    According to the report, in contrast to past periods of high oil prices, the Nigerian government has this time not been able to fully benefit from the oil boom because oil production has fallen below Nigeria’s estimated capacity and the Organisation of Petroleum Countries (OPEC) quota due in part to rising insecurity and the higher cost of the PMS subsidy.

    It stated: “In 2022 the federal government plans to spend about 3,000 naira (US$7) per person for health, while the cost of the PMS subsidy for next year could reach 13,000 naira (US$32) per person. Not only is the PMS subsidy costly, but it mainly benefits richer households.

    “Nigeria has the opportunity to establish a “compact” with citizens that eliminates the subsidy and uses the savings to provide targeted cash transfers to lower-income-households, invest in job-creating programs, and improve its fiscal position.”

    It stated that the insufficient supply of foreign exchange (FX) issues related to the predictability of exchange rate management, the unsustainable subsidy on premium motor spirit (PMS), burdensome trade restrictions, and the sizeable fiscal deficit financing by the Central Bank of Nigeria (CBN) are undermining the business environment, compounding underlying constraints on domestic revenue mobilisation, foreign investment, human capital development, and the delivery of public services.

    The report noted that despite a strong initial recovery and resurgent global oil prices, Nigeria’s pre-crisis challenges were threatening its post-crisis recovery, highlighting the need to depart from business-as-usual policies.

    “Even though Nigeria’s economy exited a pandemic-induced recession, several challenges persist including double-digit inflation, declining incomes, and rising insecurity.

    “While the government took bold policy measures to mitigate the impacts of the COVID-19 crisis, the reform momentum has slowed which hinders Nigeria’s ability to reach its growth potential,” World Bank Country Director for Nigeria, Shubham Chaudhuri said.

    The report prescribed policy options for Nigeria, including addressing fiscal pressures.

    “Urgent priorities for the next three to six months include reducing inflation, improving exchange-rate management, mobilising additional oil and nonoil revenues, eliminating the PMS subsidy and redirecting expenditures towards targeted cash transfers and other priority investments, fostering competitive markets, and improving infrastructure.

    “While Nigeria’s macroeconomic projections have been updated since the previous edition of the NDU, the government’s fundamental policy challenges remain unchanged,” it added.

    In his contribution, Kyari, pointed out that while all over the world, subsidies are introduced to bring cost control and less pains to citizens, in Nigeria, fuel subsidy has become a major fiscal burden that must be eliminated.

    The NNPC boss explained: “Today, we are evacuating about 60 million litres of gasoline from all the depots in the country. It is not national consumption and it is very understandable because of issues such as cross-border smuggling.

    “As long as you have arbitrage, traders don’t see it as a crime, they just take advantage of that and exploit it. What we are dealing with is about N243 billion of fuel subsidy monthly. So, there is no magic around that.

    “This is the reality that we are facing. Going forward in 2022, we simply cannot afford this, we just don’t have the resources. As a matter of fact, the NNPC may have to start invoicing the federation to be able to maintain subsidy.

    “When you take out N243 billion from your total income every month, you are not able to fund your operations and so you can’t meet your other fiscal obligations. Clearly, there is a challenge in the ability to pay. So, there is a reform going on, particular in the energy sector and no one can stop.”

    Also, the Governor of Kaduna State, Mallam Nasir El-Rufai wondered why the country would continue to allocate more monies to fuel subsidy compared with the allocations to education, roads and the health sectors.

    “Is subsidising petrol more important than our health as even in a year we spent significant amount on health due to the pandemic, the budget for subsidy was still higher? Does it make sense?

    “Is subsidising petrol about thrice as educating our children and preparing them for the future more important? The capital budget for roads is five times less than our budget for subsidy. We have to ask ourselves as Nigerians whether this makes sense at all,” he added.

    According to El-Rufai, “this is the first time in Nigeria that oil prices are rising globally, yet, there is no windfall. In fact, we are getting less. Why? Because according to Kyari, subsidy is taking N250 billion per month.”

    He disclosed that this month, what the NNPC paid to the federation account, as part of its contribution to the amount to be shared by the Federation Account Allocation Committee (FAAC), was only N14 billion as against the N120 billion stipulated in the budget, and, “with the threat that next month they would ask the federation account to give them a cheque to cover subsidy.”

    “So, we have to ask ourselves if this subsidy still makes sense. Who is benefiting from it other than the smugglers and neighbouring African countries and some rich people? We have to stop this thing that will bring Nigeria to its knees,” the state governor added.

    Earlier, in her opening remarks, Ahmed expressed optimism that recent developments in the oil sector, such as the Petroleum PIA 2021, the full reactivation of the four public refineries in the country, and the completion and coming on stream of the three private refineries under construction in 2022, would significantly boost contribution from the sector to economic growth.

    According to her, subsidies’ regime in the sector remained unsustainable and economically disingenuous.

    She disclosed that ahead of the target date of mid-2022 for the complete elimination of fuel subsidies, the government was working with its partners on measures to cushion potential negative impact of the removal of the subsidies on the most vulnerable at the bottom, which she estimated to be 40 per cent of the population.

    “One of such measures would be to institute a monthly transport subsidy in the form of cash transfer of N5,000 to between 30 – 40 million deserving Nigerians.

    “As a government, we remain committed to our broad objectives of stimulating broad-based growth through diversification and the active participation of the private sector to ensure that our growth is inclusive.

    “We will continue to prioritise investment in critical infrastructure needed to unlock production and supply constraints, to create adequate productive employment and preserve jobs, and to ensure macroeconomic stability and promote poverty reduction and equity.

    “I agree with the Report that with the expansion of social protection policies during the pandemic, the government has an opportunity to phase out subsidies such as the PMS subsidy while utilising cash transfers to safeguard the welfare of poor and middle-class households.

    “Towards this end, we intend to accelerate our structural reforms, particularly in the power sector, in governance, in business environment to unlock the huge potentials of the economy, scale up social safety net and deepen financial inclusion to reduce poverty and inequality gaps. We will carefully calibrate the sequencing of these reforms to manage their attendant political fallouts,” she added.

    Ahmed pointed out that digital revolution was looming in Nigeria and waiting to happen spontaneously.

    “I agree that Nigeria’s digital economy can transform economic activities by unleashing new productivity gains, offering new services, and improving the government’s efficiency. We see enormous opportunity for our theming youth population in this sector which has largely remained unharnessed with isolated progress and possibilities.

    “We need greater investments in newer and competitive technologies to be made for the provision of critical infrastructure in the telecoms sector to unleash potentials.

    “To protect such investments, government has been mobilising national security outfits, and even local ‘vigilantes’ to provide added layers of security for the infrastructure, while at same time engaging local communities towards addressing the likely root causes of cases of infrastructure vandalisation,” she added.

  • Subsidy Draining Nigeria’s Economy – Finance Minister

    Subsidy Draining Nigeria’s Economy – Finance Minister

    Minister of finance, budget and national planning, Mrs Zainab Ahmed, has said petroleum under-recovery popularly known as fuel subsidy is a major drain on the nation’s economy, which ought to have been scrapped to free up money for critical sectors like health and education.

    She said, “It is a major waste, a major drain on the economy. We are worried that we are spending money we should be spending on education and other areas.”

    The minister stated this yesterday when she appeared on the Politics Today programme on Channels Television.

    Ahmed said the lack of actual deregulation in the oil sector is denying 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 restated the government’s readiness to abolish the incentive from that date.

    She said ahead of the plan to remove the fuel subsidy by next July, the government is currently negotiating with the labour union while also providing social welfare packages for more Nigerians to cushion the expected effect of the removal of subsidy on their livelihoods and businesses.

    The minister said the government is also working with development partners, including the World Bank to provide alternative means of transportation for Nigerians as palliatives.

    On road infrastructure, Ahmed said there is a toll policy that has been approved on roads for the government to recoup the monies spent on provision of road projects. She however said the government is not looking at recovering the funds immediately. She said the government is aware that those plying the roads will pay tax from the economic gains from the good roads.

  • BREAKING: FG to spend N900bn on subsidy in 2022

    BREAKING: FG to spend N900bn on subsidy in 2022

    The Federal Government has projected to spend N900 billion on subsidy payout to oil marketers in 2022.

    Minister of Finance Budget and National Planning made this disclosure on Thursday at presentation of the Medium Term Expenditure Framework/Fiscal Strategy Paper for 2022-2024 in Abuja

    She also disclosed the Federal Government will spend N13.98trillion in the 2022 fiscal year.

    In 2022, the government said it will slash capital expenditure to N3.61trillion in 2022, from the N4.37trillion approved for 2021.

    Details shortly…

  • FG set to replace fuel with Compressed Natural Gas to stop subsidy payment

    FG set to replace fuel with Compressed Natural Gas to stop subsidy payment

    The Minister of State for Petroleum Resources, Timipre Sylva says that plans are ongoing by the Federal Government to expand the use of Compressed Natural Gas (CNG) in order to stop subsidy payment.

    Sylva made this known while briefing newsmen in Abuja on Wednesday.

    CNG is a fuel that can be used in place of gasoline, diesel fuel and liquefied petroleum gas (LPG).

    CNG ccombustion produces fewer undesirable gases than the aforementioned fuels.

    He said that government was set to discourage the use of Premium Motor Spirit PMS also known as petrol for transportation, especially for commercial purposes.

    Sylva said that payment of subsidy on petrol was taking a toll on the finances of the country, adding that the government was working toward encouraging Nigerians to use CNG as fuel for transportation.

    The minister of state noted that government had over the years done a pilot scheme on CNG in Benin City, and it had proven that it would go a long way in serving as an alternative to fuel if expanded to the entire country.

    According to him, while PMS at subsidised price goes for N143 per liter, CNG goes for between N95 and  N97 per liter

    “We will start very soon to roll out. Already, there is a pilot programme in Benin, which has worked for a long time.

    About 4,000 vehicles are already on CNG in Benin.

    “We want to expand that CNG programme across the country and we believe it is going to create a lot of opportunities for Nigerians and also give Nigerians a new lease of life because the commodity would be accessible,’’ he said.

    Sylva said that the Ministry would focus on two key areas in 2020 to help in the stabilising the oil and gas sector and move it to the next level.

    He said that government would support all efforts to ensure the increase in crude oil  production level.

    According to him, the country is currently produces about 1.774 million Barrel Per Day (BPD) which is still far behind the target.

    “Few years ago, we produced more  than two million barrels per day but we are projecting three million barrels and ultimately to get to four million bpd.

    The United Arab Emirate used to produce 2.7 million bpd but today, they have moved to four million per day.

    “We have gone back, today, according to OPEC report, we are producing 1.774 million bpd. You can see the need for us to move forward and that is actually the mandate of President Muhammadu Buhari to us,’’ he said.

    He added that the ministry would ensure improved relationship between industry stakeholders and the common man on the street by ensuring accessibility of petroleum products.

    The minister of state said that the ministry would also in 2020 focus on tackling the insecurity challenge around oil and gas facilities in the country.

    “Crude oil theft is being contained with strong legislation but it has continued to linger, this is because of lack of community inclusion.

    “Our recommendation will be use of technology, community participation, Engagement of Petroleum Technology Institute (PTI) and infrastructure development in the Niger Delta region among others,’’ he said. (NAN)