Subsidy removal: Begin “serious” engagement with stakeholders, CSOs, others now – Experts warn FG

Uyioghosa  Akpata

The Nigerian Government has been challenged to begin the process of mitigating the socio-political tension that could possibly herald the removal of subsidy in June 2023, with the initiation of serious engagement between the Government, relevant stakeholders, think tanks, and Civil Society Groups.

This was part of the views expressed by industry experts and analysts who shared their views with EnergyDay on the sideline of the Federal Government’s proposed plan to spend N3tn on subsidy for Premium Motor Spirit(PMS) this year, alongside a similar plan to spend N3.35 trillion on subsidy in the first six months of 2023, (Jan-June 2023).

The Nigerian National Petroleum Corporation (NNPC) Limited had revealed that petrol import in 2021 was 22.35 billion litres, which translated to an average supply of 61 million litres per day.  Adding that the Government made an annual subsidy estimate of N6.5 trillion on the assumption of 60 million litres of daily PMS supply, based on  continuous adjusted by market and demand realities

Industry experts including marketers have speculated that subsidy on PMS could rise up to N5tn or N6tn going by the rise in crude oil price in 2022, while the World Bank and International Monetary Fund, had called for a halt in petrol subsidy considering the humongous amount spent annually subsidising petrol daily.

The analysts however warned that removing subsidy on PMS anytime between now and June 2023 could be politically undesirable, noting that there are underlining economic challenges that Nigerians are already facing while subsidy of PMS still subsists.

They however suggested urgent high-level engagement of stakeholders and members of the public that would focus more on a pragmatic and realistic strategy that would be acceptable to all Nigerians.

Dr. Muda Yusuf, Chief Executive Officer · Centre for the Promotion of Private Enterprise (CPPE), noted that subsidy removal is desirable considering the strain on Nigeria’s struggling economy and fiscal imbalance amidst a decrease in revenue due to rising oil theft.

He cautioned that before the Nigerian Government can embark on removal there is a need to creatively manage the transition from the current pricing regime to a fully deregulated arrangement.

He said, “It is essential to accelerate engagement with the relevant stakeholders to come up with a policy transition strategy that is sustainable, realistic, and pragmatic.

”The conversation should not only be economic, but also social and political considerations.”

Mr. Tope Kolade Fasua, CEO of Global Analytics  Consulting (GAC) in a chat with our correspondent said that any attempt by the government to end the subsidy regime will result in triple-digit inflation.

According to him, the removal could trigger a debilitating hike in transportation costs. He also noted that a fully deregulated downstream sector could also result in a high risk of unemployment.

Reacting to the assumption that the removal of subsidy would help the country to ascertain the actual volume of PMS consumed locally in Nigeria, which will reduce the smuggling of the subsided PMS to neighbouring West African countries through the porous borders, Mr Fasua urged the relevant authorities in the petroleum industry to explore the option of ascertaining the exact volume of PMS,  instead over-reliance of the figure released by the only NNPC.

He, however, noted smuggling of petrol to neighbouring African countries is no justifiable reason to remove the subsidy on PMS. He, therefore, charged the Government to seek the views of stakeholders in initiating a reasonable solution to the subsidy regime.

Osato Guobadia, an Energy Analyst, at Stears Business, in a conversation with our correspondent revealed that the removal of subsidy is likely going to lead to an increase in the price of PMS.

He said, “Professor Yemi Osinbajo, in 2015, during the election campaign period stated that the government wishes to remove the subsidy however, the timing was wrong because of how much it will contribute to inflation at that time.

Mr Osato however cautioned that the advocates for the removal of subsidy on PMS must assume the negative impact of the removal on average Nigerian. He noted that the consequence of the complete end to the PMS subsidy regime will be detrimental.

TUC’S CONDITION FOR SUBSIDY REMOVAL

Festus Osifo, President of the Trade Union Congress (TUC), at the National Association of Energy Correspondents of Nigeria (NAEC) Strategic International Conference, recently held in Lagos, agreed that the payment of subsidy on PMS  has limited the potential of the country’s downstream sector.

Osifo urged the Nigerian Government to deal with the trust deficits before concluding on the plan to completely remove subsidy on PMS.

The TUC President insisted that the Presidency and the National Assembly should reduce their budget. He also noted that the equivalent of the amount being paid on subsidy at the moment should be transferred to fixing education, healthcare, and improve on infrastructure.

FG’s plan to inaugurate a national summit on the removal of petroleum subsidy

EnergyDay’s check showed that the Federal Government is planning to initiate a national forum to take a decision on petroleum subsidy.

Zainab Ahmed, Minister of Finance and National Planning disclosed this last month when she appeared before the House of Representatives Ad Hoc Committee investigating Premium Motor Spirit (PMS) subsidy.

According to her,  the Federal Executive Council (FEC)  gave the approval for a planned summit of the government, leadership of all political parties, and relevant groups to discuss and agree on the removal of the petrol subsidy.

She said, “When we engaged with the leadership of the parliament, they recommended a national stakeholders forum that will bring all major stakeholders together, including all political parties leaders. We reported that at the Federal Executive Council, and we got an approval that it should be arranged and the government is considering that.

“There is a need to have this as a national discussion. If we all as a nation agree that this PMS subsidy should go, then we all agree that it should go. It is not the president alone that decides, nor can it be the ministry of finance making final decisions. I hope this is done very soon, that we take that decision,” she said.