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2012 Fuel Subsidy Bill Set to Hit N1tr

23 Apr 2012

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Minister of  Petroleum, Dizeani Allison Madueke



By Festus Akanbi      and Chuks Okocha 

The rise in the price of crude oil may force the Federal Government to review its provision for fuel subsidy in the 2012 budget, THISDAY has learnt.

The bill could now hit N1 trillion as against the N888 billion provided for in the 2012 Appropriation Act.

This will, however, still be less than the various estimates of N1.2 trillion, N1.5 trillion and N1.8 trillion said to have been expended on subsidy last year which has been the subject of probe by the two chambers of the National Assembly.

Meanwhile, governors of the 36 states of the federation will today meet to discuss the continued withdrawals by the Nigerian National Petroleum Corporation (NNPC) and Petroleum Products Pricing Regulatory Agency (PPPRA) from the federation account.

They are also expected to respond to the comments by the Central Bank Governor (CBN) Sanusi Lamido Sanusi that the amount budgeted for subsidy would not be enough for this fiscal year.

In the 2012 amended budget, the estimated total figure for subsidy was put at N888.1 billion, made up of N656.30 billion for petrol and kerosene – while N231.8 billion was budgeted as the carry-over for subsidy claims in 2011.

THISDAY checks, however, revealed that the rise in the price of crude oil which stood at $118.83 (Brent) in the international market yesterday has increased the landing cost of imported petrol into Nigeria, which is now estimated at N167.93, based on the pricing template of the PPPRA.


As at January this year when the finance ministry amended the 2012 budget in line with the partial removal of subsidy based on the official pump price of N97 per litre, subsidy on petrol was reduced to N34 per litre as the landing cost of the commodity was N141 a litre.

However, now that the landing cost of petrol has increased to N167.93 per litre, the Federal Government would have to pay the difference of N70.93 per litre as subsidy to importers, thus increasing the total subsidy bill for the year on petrol alone by N200 billion.

A member of the Economic Management Team, who spoke on the issue, said the Federal Government was currently in a dilemma and that the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, was fretting over the burgeoning bill.


He added that going by the report of the House of Representatives Ad hoc Committee on the Monitoring of the Fuel Subsidy Regime, which conservatively put the daily consumption of petrol in the country at 33 million litres per day, it meant that the Federal Government would require N854,351,850,000 to sustain the subsidy regime on petrol alone in 2012 instead of the N656.30 billion set aside in the budget.

“If we also have to use the landing cost of kerosene as shown on the PPPRA pricing template for the product, it also means that subsidy bill on kerosene would also increase.

“At this rate, subsidy payments could hit the trillion naira mark in 2012, insofar as the price of crude oil continues to hover at between $118 and $125 per barrel, which is a likely possibility,” the official said.

The removal of fuel subsidy on January 1 sparked off protests across the country as the price of the commodity increased from N65 to N141 per litre. But the government later reduced it to N97.

Okonjo-Iweala had earlier raised concerns that Nigeria would need about N200 billion extra to fund fuel subsidy till the end of the year. The minister also expressed concern that the government had to draw down on the Excess Crude Account (ECA) in a period of sharp decline in revenue accruing to the federation.

Shell had warned recently that crude oil worth about $5 billion was being stolen from the country on an annual basis.

Similarly, Sanusi had last week warned that the 2012 budgetary allocation for fuel subsidies would run out before the end of the year, risking the country raiding its oil savings or borrowing more.

Sanusi told Reuters: “With oil prices where they’ve been since the beginning of the year, I’m sure that we will be exposed to that amount long before the year runs out.

“If I was asked for my advice, I’d simply say pay what you have in the budget and simply stop paying. (If not) they will have to take the money from the excess crude account (or) we will have to borrow money.”

Nigeria relies on crude exports for more than 80 per cent of government revenues and budgets for this amount based on the benchmark oil price and assumed production, which was set at 2.4 million barrels per day this year.

“(The output) assumption was too optimistic... based on the most rosy forecasts of operating environment. When you’ve got militancy, you’ve got production shortages, you’ve got natural operational failures, a more conservative output figure to begin with would have been better,” Sanusi said.

Meanwhile, a governor told THISDAY that a circular for the meeting had been sent out and two principal items of withdrawals from federation account and other matters relating to subsidy were the major issues on the agenda of the meeting expected to take place at the Rivers State Governor’s Lodge.

THISDAY also gathered that the meeting will dwell primarily on the deductions from the accounts which have far exceeded the agreed deductions for the oil subsidy.


The governor said what was budgeted for this year as oil subsidy was N888 billion, but data available showed that in January and February, over N300 billion was deducted from the federation account for subsidy.

According to the governor, “This is a negation of the 2012 budget where it is expected that about N74 billion would be deducted from the federation account for the petroleum subsidy. If you have been observing closely, you will note that the March FAAC money was merely shared a few days ago.”

He also said: “If this matter is not properly handled, then at the end of the year, following the deductions from the federation account, that over N1.8 trillion would be have been deducted.”

He said considering what Sanusi said that the money budgeted for subsidy would not be enough, “we don’t want to be taken unawares. There is the need to meet and take a position before it becomes late. If the money is to be deducted from the Excess Crude Account as the Central Bank Governor suggested, then, it will have a negative implication on the money to be shared in the FAAC and it also means less money for the states.”

He explained that they would consider the outcome of President Goodluck Jonathan’s meeting with the governors’ seven-man committee headed by the chairman of the Nigeria Governors’ Forum (NGF), Rotimi Amaechi, two weeks ago.

The NGF had empanelled a committee headed to meet with the president to address some of the federation’s fiscal issues including their request for a lion share of the federation account.

The meeting is expected to commence at 8pm today.
In the March FAAC distribution, the federal, states and local governments shared N613 billion. 

The Minister of State for Finance, Yerima Ngama, explained that the total funds available for distribution in the month under review increased to N726.772 billion, exceeding the projected fund by N224.216 billion in terms of the 2012 budget as a result of higher price of crude oil.

However, the gross income of N726.772 billion was lower than the N766.772 billion realised the previous month.

He blamed the shortfall on decrease in crude oil export for the month following several operational issues and safety challenges at Bonga, Brass, Bonny and Qua-Iboe terminals.

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