FG to Cut 2020 Budget by N1.5tn, Deregulates Petrol Pricing

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Zainab Ahmed
  • NNPC reduces pump price to N125

Omololu Ogunmade in Abuja and Ejiofor Alike in Lagos

The federal government wednesday in Abuja announced its decision to reduce the N10.59 trillion 2020 budget by N1.5 trillion.

It also said it would reduce capital budget allocation by 20 per cent across the ministries, departments and agencies (MDAs) as well as 25 per cent cut in both the recurrent and capital budgets of government enterprises.

The federal government also deregulated petrol pricing, directing the Petroleum Products Pricing and Regulatory Agency (PPPRA) to modulate pricing in accordance with prevailing market dynamics and further oil market development.

Subsequently, the Nigerian National Petroleum Corporation (NNPC) announced that its outlets would sell petrol at N125 from today, an N18 reduction from the N143 it sold up till yesterday.

These decisions were taken in reaction to the drastic fall in the price of crude oil in the international market caused by the outbreak of COVID-19 and trade war between Russia and Saudi Arabia.

Making the disclosure while briefing State House reporters after the weekly Federal Executive Council (FEC) meeting, the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, said the guidelines on how the budget reduction would be carried out had been sent to every ministry.

“On the expenditure side, the president has approved that we should cut down the capital expenditure budgeted by 20 per cent across ministries, departments and agencies and also a 25 per cent cut of all government-owned enterprises and these include the ones that are in the national budget.

“The ones that we included in the 2020 Budget, and also the ones that we didn’t include in the 2020 budget. What we have done is that we have written every ministry and given them guidelines on how these adjustments will be made to enable us to have detailed inputs from the ministries. But I can just say that the bulk cut is above N1.5 trillion – the reduction in the size of the budget, and this includes N457 billion from PMS under-recovery.

“On how much it affects the federally funded upstream projects, it is about 25 per cent cut. The exact amount we will work out when we get inputs from the ministries, departments and agencies,” he said.

According to her, the budget cut will affect upstream projects with 25 per cent cut adding that the exact figure in monetary value would be worked out when inputs are received from the MDAs.

She said President Muhammadu Buhari had directed the reduction of capital budget allocation by 20 per cent across the MDAs as well as 25 per cent cut in both the recurrent and capital budget of government enterprises.

“On the expenditure side, the president has approved that we should cut down the capital expenditure budgeted by 20 percent across ministries, departments and agencies and also a 25 percent cut of all government-owned enterprises and these include the ones that are in the national budget.

“The ones that we included in the 2020 Budget, but also the ones that we didn’t include in the 2020 budget,” she submitted.

Ahmed also said the government was concerned about the possibility of the country slipping back into recession, pointing out that states would also be affected as funds flowing into the Federal allocation Account Committee (FAAC) would be affected.

According to her, instructions had already been given to government institutions to stop both further recruitments and replacements of staff until the situation improves to avoid shooting up the wage bill.

However, she said there is no plan to downsize as the president had issued a directive that salaries and pensions should be promptly paid.

She also said the states are also expected to follow the path of the federal government by adjusting its fiscal plans.

“Of course, we have concerns (about going into recession). This is resulting in about 40 to 45 per cent reduction and also it will affect the states because it means FAAC will be significantly reduced. FAAC is just a pool of funds and we share what is realised..So, it will affect the states as well.

“So, we are expecting the states to take similar measures to amend the plans that we have made and bring them down to current realities. It is just a question of deferring some non-essential expenditure so that when things turn, we might actually go back to our plans…

“On recruitment, there is already an instruction to stop recruitment. What the agencies have been doing is a replacement but even that is being suspended. When things improve, we will go back to the issue of recruitment but for now, our wage bill is already very high.

“The president has directed that salaries and pensions must be paid unfailingly. So, we are not looking at downsizing in any way. We are maintaining our workforce as it is but we are just stopping the increase in the size of the nominal roll,” she said.

Ahmed also spoke on oil benchmark, saying the federal government was planning to reduce the benchmark from the current $57 per barrel in the budget to $30 per barrel but with the hope of ensuring the production of the projected 2.18 million barrels per day is achieved.

She added that the implication of such a drastic reduction is that budget deficit would increase from the N1.8 trillion in the budget, adding that the National Assembly would be engaged on the developments.

“On benchmark, we are working on the worse case scenario of $30 per barrel and also we are holding onto the production numbers of 2.18 million barrels per day. This you will remember is approved by the National Assembly. This is our own analysis and we will start engaging the National Assembly.

 

FG Reduces Petrol Pump Price to N125

Meanwhile, with effect from today, the pump price for petrol will drop to N125 under a new fuel pricing regime approved yesterday by President Muhammadu Buhari in the wake of the volatility in crude oil price occasioned by the twin factors of COVID-19 pandemic and price war between Saudi Arabia and Russia.

As at yesterday, the pump price of petrol was N145 per litre, a price regime that came into effect from May 11, 2016.

By the move, the federal government has completely deregulated the price of petrol because, with the slump in crude oil price, the NNPC is faced with price over-recovery and no longer under-recovery.

The chief executive officer of one of the leading oil marketing companies in the country explained to THISDAY that with the development, oil marketers would also adjust their pump price down to the N125 per litre that has been announced.

According to him, because of the situation as well as the scarcity of forex in the country, oil marketers would now have to be depending on the NNPC for the supply of petrol.

“Right now, NNPC will be the sole importer because there is a shortage of forex. No oil marketer will be willing to use scarce dollars to import petrol that would be sold in naira and when you exhaust the product, you will now be faced with the difficulty of getting dollars,” the source who pleaded to remain anonymous said.

To ensure that the price always responds to any development in the oil sector, the president also directed the Petroleum Products Pricing and Regulatory Agency (PPPRA) to modulate pricing in accordance with prevailing market dynamics and further oil market development.

However, following the reduction of the pump price to reflect the drop in the international market price of crude oil, the marketers of petrol have called for higher margins on imported product.

The presidential approval, which was given at the weekly Federal Executive Council (FEC) meeting in Abuja followed the presentation made by the Minister of State for Petroleum, Chief Timipre Sylva.

Sylva had last Friday told State House reporters that the committee set up by the president to review the state of the economy following the drastic fall in the price of crude oil in the international market was still consulting on the possible reduction of fuel price.

The price of crude oil has been hovering between $24 and $28 in recent times following the outbreak of COVID-19 and the oil war between Russia and Saudi Arabia.

This led to a drastic drop in the price of refined products, automatically knocking off the subsidy elements in the pricing regime.

A statement wednesday by Sylva said the federal government had directed the National Petroleum Corporation (NNPC) to reduce “Ex-coastal and ex-depot prices of PMS to reflect current market realities.”

The statement, which did not indicate the price, said the NNPC would henceforth issue a monthly guide on what he described as the appropriate pricing regime.

Sylva, who said the reduction would rejuvenate the economy and bring relief to Nigerians, added that the PPPRA would also provide a framework for a sustainable fuel supply.

He added that the Petroleum Ministry would continue to encourage the use of natural gas as an alternative to fuel consumption.

The statement said: “The drop in crude oil prices has lowered the expected open market price of imported petrol below the official pump price of N145 per liter.

“Therefore, Mr. President has approved that Nigerians should benefit from the reduction in the price of PMS, which is a direct effect of the crash in global crude oil prices.

“In view of this situation, based on the price modulation template approved in 2015, the federal government is directing the Nigerian National Petroleum Corporation (NNPC), to reduce the ex-coastal and ex-depot prices of PMS to reflect current market realities.

“Also, the PPPRA shall subsequently issue a monthly guide to NNPC and marketers on the appropriate pricing regime. The agency is further directed to modulate pricing in accordance with prevailing market dynamics and respond appropriately to any further oil market development.

“It is believed that this measure will have a salutary effect on the economy, provide relief to Nigerians and would provide a framework for a sustainable supply of PMS to our country. The Ministry of Petroleum Resources will continue to encourage the use of compressed natural gas to complement PMS utilisation as a transport fuel.”

Following the minister’s directive, the NNPC yesterday reviewed its ex-coastal, ex-depot and retail pump prices accordingly.

“Effective March 19, 2020, NNPC’s ex-coastal price for PMS (petrol) has been reviewed downwards from N117.6 per litre to N99.44 per litre while the ex-depot price is reduced from N133.28 per litre to N113.28 per litre.

These reductions will, therefore, translate to N125/litre retail pump price,” Group Managing Director of NNPC, Mr. Mele Kyari, said in a statement.

He said despite the obvious cost implication of the immediate adjustment to the corporation, NNPC was delighted to effect the massive reduction of N20 per litre for the benefit of all Nigerians.

“Accordingly, all NNPC retail stations nationwide have been directed to change the retail pump price to N125 per litre,” he added.

Marketers Seek Higher Margins

Oil marketers, who spoke to THISDAY, however, said the new price did not address the issue of poor margins allocated to them by the PPPRA.

“It is a welcome development but we still have issues we will take up with PPPRA and NNPC. Our margins in the old price regime were very poor. We thought the present regime will address it but from the details released by the NNPC, nothing has changed. We will take it up today (Thursday) with PPPRA,” said one of the marketers.

Another marketer told THISDAY that with the landing cost at N96 per litre, PPPRA should adjust its margins.

“If the landing cost is still N96 and PEF will take their own and transport will take their own, then there is still a problem for us. We don’t have good margins,” he added.

He, however, stated that if the minister’s directive was fully implemented, it would lead to deregulation.

“The fourth and fifth clauses in the minister’s memo will lead to deregulation if implemented. If PPPRA sticks to it, there will be deregulation without the federal government saying that it has deregulated,” he added.