Subsidy removal: Experts flay FG’s $800m palliatives

Outrage has continued to trail the announcement by the Minister of Finance, Budget and National Planning, Zainab Ahmed, that the federal government has borrowed $800 million (about N368.2 billion in official rate or N596 billion in black market) from the World Bank  to use as palliative ahead of the total removal of petrol subsidy in […]

Outrage has continued to trail the announcement by the Minister of Finance, Budget and National Planning, Zainab Ahmed, that the federal government has borrowed $800 million (about N368.2 billion in official rate or N596 billion in black market) from the World Bank  to use as palliative ahead of the total removal of petrol subsidy in June. 

While saying subsidy as it is being implemented in Nigeria is not viable, pundits in the areas of economy and finance said it is very unlikely if the N368.2 billion interventions will cushion the economic challenges that will come with the total removal of what the government called “under recovery.” 

They said subsidy wouldn’t have been an issue for long if past governments had tackled the root cause, insisting that palliatives were akin to momentarily scratching the surface as the pain will soon return.

Marketers and other groups in the downstream sector of the petroleum industry have said that fuel prices may likely double as soon as the subsidy was removed and it will have a ripple effect on everything. 

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The finance minister at a press briefing after the Federal Executive Council (FEC) meeting presided over by President Muhammadu Buhari, on Wednesday, said the government had met with members of the incoming administration as well as the newly established Presidential Transition Council (PTC) on the palliative issue. 

Specifically, she said the $800m, which is the first tranche, will be disbursed to the 10 million households  (equivalent to about 50 million Nigerians) considered to be most vulnerable already captured by the National Social Register (NSR), to cushion the effect of the subsidy removal. 

“This is a commitment in the Petroleum Industry Act…We are on course, we’re having different stakeholder engagements,” she said. 

‘No transparency in managing subsidy’ 

Speaking to Daily Trust, a public affairs analyst, Jameel Muhammad, blamed the government for the lack of transparency in the petrol subsidy issue.

He said, “My initial impression has always been the lack of transparency. 800 million dollars is about N362 billion (official rate), and that is about 5 to 6 per cent of what the government now claims to be spending on subsidy, which is about N6 trillion.

“If you remove N6 trillion from the system, you are cushioning the effect with 6 per cent of it,” he said. He argued that there is already a framework to fund the social investments and not for the government to engage in fresh borrowing. Muhammad also said it was wrong for the government to borrow to subsidise consumption. 

He said, “Why is the government going to the World Bank to get a loan again? I am sure it is at a certain interest rate, which is draining resources. There is already a lack of transparency in the operation and then the administration of the removal too, this is a very big problem. 

“Government could subsidise production from the source but not to subsidise consumption by giving out money to people,” he said. On his part, the Co-Founder and CEO, Nairaxi Nigeria, Kingsley Eze, said if 10,000,000 vulnerable households are on the national social register and even if you divide the $800m among the 200 million people that will be around $4, which is about N2, 000 and not enough to fund transport cost to work for five days. 

He said, “If Nigeria has gotten $800m, how do you invest it to be sustainable? My opinion is to invest this money in creating the right infrastructure for what one gains from the subsidy since the subsidy is used for subsidising the mobility and logistics; making sure that one digitises transportation and not sending the money to citizens but to operators. 

“There are bus companies and digital transportation including foreign players doing that in Nigeria. Government should have a framework for bus companies and then subsidise it to bring down the price; it is a better way that has been tried in other countries. 

“If you transfer such money assuming to all the citizens, which will be around N2, 500, operators will hike the transport price but if there are buses with a government logo on it knowing that the price is cut by 50 per cent, this is more sustainable,” he said. 

Speaking on the view by labour that fuel subsidy should not be removed until the refineries and other plans are in place, Mr Eze said the request was justified. “Nigeria is a rich country selling about one million barrels every day and the question is, what is the government doing with the revenue?” 

He also shared the view that the government should be transparent and get everyone involved in the process of getting the data right for Nigerians to believe in the process. Both Mohammad and Eze called for more sensitisation of Nigerians. 

 “It is the duty of the government to come out transparently to tell the people that this is a consumption subsidy and that it is not free even if the people own the oil. The National Orientation Agency (NOA) should tell Nigerians that there is a lot of corruption, especially in padding the cost of subsidy while another cabal will be padding the quantity of fuel supply as figures are padded from one agency to another,” Muhammad said. 

On his part, the Executive Director, Centre for Fiscal Transparency and Integrity Watch, Umar Yakubu, said the $800m loan was not thought out well and that the amount to be shared at the end of the day for the 50 million poor Nigerians is a paltry sum. 

His words: “If you do the maths, they said they want to give 50 million poor Nigerians palliatives. When you now divide the amount by 50 million people, it will give you $16 per person, which will be slightly N7,500 or maybe N10,000 at the parallel market. Then you ask yourself what that amount will do to people for the next four years, that is assuming if the money gets to the people intended. 

“Now when looking at the opportunity cost, with $800m, it means $1m can go to each local government comfortably since we have 774 local governments and you will even have a balance of $26 million,” he said.

According to him, “If every local government invests $1m dollars in schools, we will have about N500m, which can be used to build and renovate schools and hospitals as well. Imagine equipping schools and hospitals in each local government with that amount, it will surely lead to development.”

Sharing the same thought, another source said, “The World Bank to gift Nigeria $800m to cushion the adverse effect of fuel subsidy withdrawal is ok but the decision of the FGN to disburse the fund through direct payments into the accounts of the poorest citizens is fraudulent. The poor do not have bank accounts. How does the government identity and select the beneficiaries.

“Why not use the funds in improving social services, health-care and education?” he asked. Over N16bn wasted on SURE-P

The plan to spend $800m on palliative measures will not be the first if eventually implemented after June 2023. The Goodluck Jonathan government in 2012 spent over N16 billion on the Subsidy Reinvestment and Empowerment Programme (SURE-P) for the Public Mass Transit Revolving Fund (PMTF) but most of that money was not recovered as loan from the beneficiaries. 

According to reports, The Infrastructure Bank (TIB) gave out the fund through mass transit vehicles to 31 beneficiaries, mostly commercial transport operators with 1,179 vehicles released under a four year repayment scheme. It was later found that only a few firms like ABC Transport PLC and Young Shall Grow Transport Ltd fully repaid their loans, according to an investigation by The ICIR in 2016. 

The bank lists as “Chronic defaulters 15 companies and organizations, owing N4.586bn as of December 2015. Among these, the National Union of Road Transport Workers (NURTW) got N2.3bn, the Nigerian Association of Road Transport Owners (NARTO) got N403.4 million, and the Road Transport Employers Association of Nigeria (RTEAN) got N370.7m.

Nigeria spends 6trn on subsidy

Despite over N6 trillion subsidies funding for petrol in about 18 months so far, Nigerians have continued to buy the product at N195/l in Abuja and over N300 per litre in the states.

The country spent over N3.3tr on what it calls under-recovery of petrol import through the Nigerian National Petroleum Company (NNPC) Ltd. It pegged another N3.35tr for the same purpose, which would serve till June 2023, a month into a new administration.

At least N200 billion is spent every month on the subsidy to keep the petrol price within limit previously but that keeps rising. The pump prices have changed about three times in one year. From N165/l early in 2022, the pump price rose to N175/l, N185/l and now N195/l as the official rate in Abuja while it is high above N300/l across some states. 

In February, the Group Chief Executive Officer of NNPC Ltd, Mele Kyari, said about N400bn is spent to subsidise petrol every month, which is about N202 per litre of petrol.  

Kyari said the landing cost of importing petrol three days ago was N315 per litre but that NNPC transfers to the marketers at N113/l and at 66 million litres daily multiplied by 30 days, it amounts to N400bn monthly. 

“It is a strain on the cash flow of our company when you don’t get a refund from the ministry of finance. But we will continue to support the country and provide energy security to the country,” said Kyari. The World Bank had repeatedly said that the subsidy regime in Nigeria only subsidises the rich (with many cars) and the economy of neighbouring countries like Niger Republic (due to petrol smuggling). 

“The majority of the poor don’t benefit as much from the subsidy” compared to those who have ‘many cars’ or who take fuel across the neighbouring states,” Chaudhuri had  said when he visited Daily Trust office in 2021.

But some experts have a different opinion, saying the price of petrol has a direct correlation with the cost of living of the poor who are in the majority. An economist at SPM Professionals, Paul Alaje, said the subsidy is part of what is raising Nigeria’s borrowing for consumption.

Alaje said, “The question again is, should we continue to borrow to finance a budget that is not impactful on the economy? The answer is no.” 

Borrowing for consumption 

The announcement that the federal government has borrowed $800m for the palliative has also not gone down well with experts as some argued that the debt profile of Nigeria at N36 trillion was too high to add more to it. 

According to the National Bureau of Statistics (NBS), Nigeria’s public debt stock stood at N44.06 trillion or $101.91 billion in the third quarter of 2022. 

This could however reach N77 trillion with the addition of the Ways and Means expenses of the Central Bank of Nigeria (CBN), which has stirred controversy so far. 

According to the latest data, the debt, which was N42.84 trillion or $103.31 billion in the second quarter of 2022, went to N44.06tr in the third quarter, growing by 2.84 per cent in just three months.

 

By Sunday M. Ogwu, Simon E. Sunday, & Philip S. Clement