FG Appeals over Deregulation, Hope Rises for Infrastructure Funding

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Vice President Yemi Osinbajo SAN in a virtual meeting

•Osinbajo says attendant hardship not intended
•Rewane: Subsidy removal, tariff increase will boost investments

Iyobosa Uwugiaren, Omololu Ogunmade, Emmanuel Addeh in Abuja and Peter Uzoho in Lagos

The federal government yesterday stepped up efforts on two fronts to douse tensions generated by the double whammy of the increase in petrol pump price and electricity tariffs with Vice President Yemi Osinbajo saying the hike in the cost of the two items was not to inflict pains on Nigerians.

A coterie of ministers also pleaded with Nigerians to show understanding of the delicate situation that led to the increase in the petrol price and electricity tariffs, saying despite the new cost regime, the cost of the two commodities are still cheaper in Nigeria than in any other African country.

But a former Chairman of the Asset Management Company of Nigeria (AMCON), Mr. Mustapha Chike-Obi, has punctured the popular belief that fixing the nation’s refineries would translate into cheaper petrol for Nigerians.

Yesterday’s interventions by Osinbajo and the ministers are the fourth since last week when the Petroleum Products Pricing Regulatory Agency (PPPRA) jacked up the ex-depot price of petrol from N138 per litre to N151, inducing a shift in the retail cost of the commodity from between N145-N148 to the extant N158-N162 band.

Earlier, a new tariff regime in the power sector, under which the price of a kilowatt per hour of electricity had more than doubled, had taken effect from September 1.
The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had last Thursday shed light on why the federal government was forced to stop fuel subsidy, saying it constituted a drain on the country’s meagre resources.

She had explained that all the decisions were geared towards weathering the current headwinds posed by the COVID-19 pandemic.
The presidency followed up with a statement on Sunday in which it said but for a myriad of economic challenges caused by the COVID-19 pandemic, the president would not have allowed the rise in the pump price of petrol to protect the vulnerable.

It stated that history would be kind to President Muhammadu Buhari for summoning the courage to make such a hard decision that would save Nigeria from economic ruination.
However, the vice president, at the opening of a three-day ministerial retreat in Abuja disclaimed insinuations that the Buhari administration was insensitive by hiking fuel price and electricity tariffs at the same time.
He explained that the fuel subsidy was removed to avert the return of fuel queues and the attendant man-hour loss.

Osinbajo represented Buhari to declare open the retreat, following the president’s trip to Niamey, Niger Republic capital to attend the ECOWAS Summit on COVID-19.
He said in view of the subsidy removal, fuel price would continue to rise as the cost of crude oil recovers in the international market.

He, however, explained that the government would not allow independent marketers to take advantage of the situation by arbitrarily hiking petrol price.

According to him, the current hike in fuel price is not a fresh development, but rather a product of deregulation of the downstream petroleum sector earlier in the year following the fall in the prices of crude oil in the international market because of the effects of COVID-19 on the global economy.

He said following the deregulation, the pump price of petrol would always rise when the prices of crude oil increase in the international market.
He added that notwithstanding the attendant hike in the prices of refined petroleum products, the federal government could not return to the subsidy regime because government revenues have dropped by 60 per cent.
According to him, if the federal government should return to the subsidy regime, it could lead to a return to fuel queues.
Osinbajo stated that petrol subsidy had to be scrapped, because there was no allocation for it in the revised 2020 budget in view of the necessity to free funds for health, education and other social services.

He said: “The COVID-19 pandemic, which has affected economies globally, has compelled us to make some far-reaching adjustments that may cause some initial pain, but which is necessary for long-term gains. As you all know, when oil prices collapsed at the height of the global lockdown, we deregulated the price of premium motor spirit (PMS) such that the benefit of lower prices was passed to consumers. This was welcome by all and sundry.

“The effect of regulation though is that petrol prices will change with changes in global oil prices. This means, quite regrettably, that as oil prices recover, we would see some increases in petrol prices.

“There are several negative consequences if the government should resume the business of fixing or subsidising petrol prices. First of all, it would mean a return to the costly subsidy regime. Today we have 60 per cent less revenues, we just cannot afford the cost.
“The second danger is the potential return of fuel queues – which has, thankfully, become a thing of the past under this administration.

“Nigerians no longer have to endure long queues just to buy petrol, often at highly inflated prices. Also, as I hinted earlier, there is no provision for fuel subsidy in the revised 2020 budget, simply because we are not able to afford it if reasonable provisions must be made for health, education and other social services. We now have no choice.”

However, the vice president said the government would be alive to its responsibilities by ensuring that oil marketers do not take advantage of the development to arbitrarily increase the pump price of petrol.

He added that PPPRA has provided a price ceiling that marketers must not exceed and with the deregulation of the oil sector, more marketers are free to import petrol.
According to him, with more entrants into the market, the competition would increase that would kindle the law of supply and demand that would eventually force down the price of petrol.

He said: “Nevertheless, I want to assure our compatriots that government will remain alert to its responsibilities. The role of government now is to prevent marketers from raising prices arbitrarily or exploiting citizens. This was why PPPRA made the announcement a few days ago setting the range of price that must not be exceeded by marketers.

“The advantage we now have is that anyone can bring in petroleum products and compete with marketers, that way the price of petrol will keep coming down.
“The other painful adjustment that we have had to make in recent days is a review of the electricity tariff regime. If there is one thing that we have heard over and over again, it is that Nigerians want consistent and reliable power supply.

“So, the power sector remains a critical priority for the administration. Protecting the poor and vulnerable, while ensuring improved service in the power sector, is also a major priority for the government. And our policies, like the social investment programmes and other socio-economic schemes to benefit Nigerians, show that we remain focused on improving the welfare of the common man.”

Osinbajo said like many Nigerians, he had not been happy with the quality of services being provided by the distribution companies (Discos), prompting the federal government to allow the Discos to make tariff adjustment as determined by guaranteed improvement in supply.
He said under this arrangement, only consumers with guaranteed power supply for 12 hours could have their tariffs adjusted, while those who experience supply below 12 hours would pay the old tariffs.

He added that following arbitrary estimated billing by Discos, a move aimed at metering five million Nigerians, with the meters produced by local manufacturers has begun.
According to him, the new metering arrangement would create jobs while the National Electricity Regulatory Commission (NERC) has been directed to strictly enforce capping regulation to ensure that unmetered consumers are not billed above their metered neighbours.

“The recent service-based tariff adjustment by the Discos has been a source of concern for many of us. Let me say frankly that like many Nigerians, I have been very unhappy about the quality of service given by the Discos.
“That is why we have directed that tariff adjustments be made only on the basis of guaranteed improvement in service. Under this new arrangement, only customers who are guaranteed a minimum of 12 hours of power and above can have their tariffs adjusted,” he said.

He also unveiled plans by the federal government to supply solar power system to five million homes within 12 months.
He said the plan would be beneficial to 25 million citizens with the Central Bank of Nigeria (CBN) providing the financial backing for manufacturers, while the scheme would create 250,000 jobs.

According to him, the metering arrangement would also provide 50,000 jobs, thus bringing the job creation target in the sector to 300,000.
He said the electricity tariff adjustment was more about establishing a system to result in improved service for consumers at a fair and reasonable price, adding that the simultaneous fuel hike and increase in electricity tariff is a mere coincidence.

“There has been some concern expressed about the timing of these two necessary adjustments. It is important to stress that it is a mere coincidence in the sense that the deregulation of PMS prices happened quite some time ago, it was announced on 18 March 2020 and the price moderation that took place at the beginning of this month was just part of the ongoing monthly adjustments to global crude oil prices.

“Similarly, the review of service-based electricity tariffs was scheduled to start at the beginning of July but was put on hold to enable further studies and proper arrangements to be made,” he said.

He disagreed with insinuations that the federal government is insensitive, saying the government would not deliberately inflict hardship on the people as he tasked ministers and other senior officials to effectively implement the economic sustainability plan.
“In order to mitigate the effects of the developments on Nigerians, CBN had created credit facilities to the tune of N100 billion for healthcare and N1 trillion for manufacturing.

“From January 2020 to date, over N191.87 billion has already been disbursed for 76 real sectors projects under the N1 trillion Real Sector Scheme; while 34 healthcare projects have been funded to the tune of N37.159 billion under the Healthcare Sector Intervention Facility. The facilities are meant to address some of the infrastructural gap in the healthcare and manufacturing sector as a fall out to the COVID-19 pandemic and to facilitate the attainment of the governors’ five-year strategic plan,” the vice president added.

Fuel Price, Electricity Tariffs in Nigeria, Lowest in Africa, Say Ministers

Meanwhile, some ministers have appealed to Nigerians to show understanding over the hike in fuel price and electricity tariff, saying Buhari is not unmindful of the pains associated with higher prices at this time.

They, however, said in spite of the recent increases in the price of fuel, petrol price and electricity tariffs in Nigeria remain the lowest in the West/Central African sub-regions.
Minister of Information and Culture, Alhaji Lai Mohammed; Minister of State for Petroleum, Chief Timipre Sylva; and Minister of Power, Alhaji Saleh Mamman, told reporters at a joint press conference in Abuja that the federal government could no longer afford fuel subsidy, as revenues and foreign exchange earnings have fallen by almost 60 per cent due to the downturn in the fortunes of the oil sector.

Also explaining what informed the hike in electricity tariff, Mohammed, who spoke on behalf of his colleagues, said in order to keep the industry going, the government has so far spent almost N1.7 trillion, especially by supplementing tariffs shortfalls.
He added that the government does not have the resources to continue along this path.
The minister, however, said the federal government would continue to seek ways to cushion the pains, especially for the most vulnerable Nigerians with cheaper and more efficient fuel in form of autogas.

According to him, the current price regime of petrol is in line with the deregulation of the downstream sector in March in accordance with prevailing market dynamics.
‘’With the price of crude inching up, the price of petrol locally is also bound to increase, hence the latest price of N162 per litre. If, per chance, the price of crude drops again, the price of petrol will also drop, and the benefits will also be passed on to the consumers.
‘’The angry reactions that have greeted the latest prices of Premium Motor Spirit (PMS) are, therefore, unnecessary and totally mischievous. Gentlemen, the truth of the matter is that subsidising fuel is no longer feasible, especially under the prevailing economic conditions in the country,” he stated.

The minister added that even though the federal government acted to mitigate the effect of the economic slowdown by adopting an Economic Sustainability Plan, it also had to make some difficult decisions to stop unsustainable practices weighing the economy down.
Mohammed added that from 2006 to 2019, fuel subsidy gulped N10.413 trillion – an average of N743.8 billion per annum.

‘’According to figures provided by the NNPC, the breakdown of the 14-year subsidy is as follows: in 2006 subsidy was N257 billion; in 2007, subsidy was N272 billion; in 2008, subsidy was N631 billion; in 2009, N469 billion; in 2010, N667 billion; in 2011, N2.105 trillion; in 2012, N1.355 trillion; in 2013, N1.316 trillion; in 2014, N1.217 trillion; in 2015, N654 billion; in 2016, figure not available; in 2017 the subsidy was N144.3 billion; in 2018, N730.86 billion, and in 2019, subsidy was N595 billion,” he stated.

Presenting a comparative analysis of petrol prices in the sub-regions (Naira equivalent per litre), Mohammed said in Nigeria it’s N162 per litre; Ghana – N332; Benin Republic – N359; Togo – N300; Niger – N346; Chad – N366; Cameroon – N449 and Burkina Faso – N433 per Litre.

In Mali, it’s N476 per litre; Liberia – N257; Sierra Leone – N281; Guinea – N363; Senegal – N549, while in other places, petrol sells for N211 per litre in Egypt and N168 in Saudi Arabia.

On electricity tariff adjustment by Discos, Mohammed explained that the government does not have to borrow just to subsidise generation and distribution, which are both privatised.
He, however, stated that to protect the vulnerable, NERC has approved that tariff adjustments had to be made, but only on the basis of guaranteed improvement in service.
Mohammed also said despite the recent service-based tariff review, the cost of electricity in Nigeria is still cheaper than in many countries in Africa.

He advised Nigerians to renounce those who have latched onto the issue of petrol pricing and electricity tariff review to throw the country into chaos.
The minister of state for Petroleum said the huge effects of COVID-19 pushed the federal government to take tough decisions, appealing for understanding by Nigerians.

Fixing Refineries Won’t Lead to Cheaper Petrol Price, Chike-Obi Insists

A former Chairman of AMCON, Chief Mustapha Chike-Obi, yesterday said contrary to popular belief, fixing refineries in the country would not automatically make the pump price of petrol more affordable.

Chike-Obi, the current Chairman of Fidelity Bank, who spoke on ARISE NEWS, the broadcast arm of THISDAY Newspapers, added that there’s no empirical evidence to support the belief that banning foreign imports and producing in-country would lead to a cheaper commodity.

Citing the ban on sugar, cement, textile, and flour as examples, he explained that the problem with the Nigerian economy is deeper than merely banning imports and embarking on local production.

He noted that there’s no supporting infrastructure, including power and efficient transportation system to reduce the prices of goods produced locally.
Chike-Obi, who threw his weight behind the removal of subsidy on petrol and increase in electricity tariffs, said both decisions were in the right direction.
He admitted that the government and its agencies need to communicate more effectively with Nigerians to understand the benefits of deregulation.

He said: “There’s never a good time for difficult reforms. There’s always a reason to put it off. I think we need to separate the reforms from the timing. The government has work to do in terms of building trust and communicating the reasons for its actions.
“On a stand-alone basis, the reforms make sense. Nigeria can no longer afford to be paying triple subsidy on foreign exchange, electricity and petrol. There’s no time you remove them that people will not say, why didn’t you wait.

“This is the correct time to do it, though it affects a lot of people because the Nigerian revenue scenario is drying up and you don’t wait for the fire to burn your house before calling for fire service.”

He added that while the current reforms are still “baby steps,” the federal government should be commended for taking tough measures.
According to him, “As for the refineries, the best analogy is cement. Everything to make cement, including gypsum, is in Nigeria here. Yet Nigerian cement is more expensive than their foreign alternative.

“We had to ban the importation of bagged cement in order to allow the cement companies in Nigeria to thrive. So, the notion that if we refine petroleum in Nigeria, it will be cheaper than petroleum refined in Belgium or Denmark or Holland is not supported by any facts.
“Our textile industries couldn’t compete with their foreign alternatives. What we need to do is to address the root cause of our non-competitiveness. Why everything we make in Nigeria is either lesser quality or more expensive than its foreign alternatives.

“And those things are the cost of power, cost of transportation. Transporting a container from China to Apapa is cheaper than transporting the same container from Apapa to Kano.
“We need to address the infrastructure issues which again have come from bad management for the last 15-20 years. It’s not a matter of any immediate government.”

According to him, the federal government must now begin to efficiently deploy the resources freed from subsidy to the health, education and other priority areas, so that Nigerians would begin to see the positive impact of the removal of subsidies soon.
On the confusion surrounding the deregulation of the downstream sector, Chike-Obi advised that Nigerians “should not allow perfect be the enemy of good,” saying, however, that whether Nigeria sells it crude oil abroad or in the country, the Organisation of Petroleum Exporting Countries (OPEC) quota would play a significant part.
He said: “The fact that they have taken a step or two towards deregulation is better than taking no steps at all.

“All the people complaining about the perfect deregulation, I say to them to be patient. This government has now shown it is willing to look at reforms. They are baby steps, but it is a good step.

“You say we have crude oil in Nigeria, but many Nigerians don’t realise that we have a production quota from OPEC. So, whether you give it to Nigerians or sell it for dollars, you can’t produce more than the quota and they don’t deduct what you use internally from your quota.

“So, the problem is: is the best use of your crude oil (two million bpd) to subsidise Nigerians or its best use is use it to get as many dollars as you can get, to build, roads, schools and power. That’s the question facing us.”
Chike-Obi stated that the country could not afford to continue to subsidise petrol when schools are failing, the power supply is erratic, adding that the government must now begin to prioritise.

Rewane: Subsidy Removal, Tariff Increase will Boost Investments

Meanwhile, the Managing Director and Chief Executive Officer of Financial Derivatives Company Limited, Mr. Bismarck Rewane, has said the removal of subsidy and increase in electricity tariffs would boost investments in the downstream sector of the oil and gas industry, as well as the power sector.

Speaking yesterday on ARISE NEWS channel, Rewane said subsidy removal would encourage investments in private refineries such as the Dangote Refinery, while the tariffs increase would help the power companies to invest in metering, network expansion and also improve generation.

According to him, an electricity consumer in Ikoyi parts of Lagos spends about N25,000 on generators daily, while he would only pay about N8,000 under the new tariffs.

“If you live in Ikoyi, you spend N25,000 to power the generator daily. But if you are under Eko Electricity Distribution Company, you will pay about N8,000. What has happened is that the affluent is subsidising the poor,” he explained.
On the issue of removal of the petrol subsidy, he said the measure would free revenues for the government to provide essential services and at the same time boost investments in the downstream sector.

“Investments will increase. It will boost investments in private refineries such as Dangote Refinery, while those who will buy our dilapidated refineries will also come. “Nobody is justifying any increase but where will the revenue come from? There is no appropriate time. If not now, when? If not you, who?
“There is a time, you have to take hard decisions,” he added.

Fuel Subsidy Removal Raises Hope of Infrastructure Development, Analysts Say

Meanwhile, the Petroleum Products Marketing Company (PPMC) recently announced a new Ex-depot price of N151.56 for petrol raising pump rice of the product to N161 per litre, a development that has continued to generate mixed reactions, especially following the impact of the Covid-19 pandemic.

But the move is one most economic analysts agree is long overdue, largely because it signals federal government’s desire to stop the corruption-ridden fuel subsidy regime which had benefitted only a few.

Subsidy payment had continued to increase over the years, hitting an N1. 149, 385 trillion in 2019-a year when only a mere $1 billion was provided in the budget-forcing a massive deficit government had to patch through borrowing.

This is the burden the government is shedding with the withdrawal of subsidy payments which has inevitably led to the increase in pump price.
The Chairman of Fidelity Bank Plc and former Managing Director of the Asset Management Corporation of Nigeria (AMCON), Mr. Mustapha Chike-Obi, supported the government’s action.

According to him, there is no better time to take such an action but now.
Chike-Obi said: “Look, there is never a good time for difficult reforms, there is always a reason to put it off. So I think we need to separate the reforms themselves from the timing, and I agree that the government has work to do in terms of building trust and in also communicating the reasons for the actions better. But the reforms themselves on the standalone basis, they make sense.

“Nigeria can no longer afford the subsidies that it has been paying and I mention the triple subsidies on foreign exchange, electricity, and PMS, and there is no time you remove any of those subsidies that people will not say, well, why didn’t you wait, you could have waited and all that.”

Also, the Chairman of the Major Oil Marketers Association of Nigeria (MOMAN), Mr. Adetunji Oyebanji, welcomed government’s action in allowing the market to determine prices.
He said the policy would prevent the return of subsidies while allowing operators the opportunity to recover their costs, adding that it would in the long run, encourage investment and create jobs.

Nonetheless, with landing cost of petrol currently at N207.98, government would have to pay N62.98 subsidy per litre of petrol and the NNPC has to defray an estimated N3.149b per day under what is tagged “under-recovery.”
Therefore, the experts agree that this cannot be sustainable in a country such as Nigeria where the subsidy fund could do a lot to develop critical infrastructure to grow the economy.

The argument against subsidy payment is further buttressed by the current lopsided situation where Nigeria’s low fuel price has encouraged smuggling of the product to other West African countries where prices are far higher.
For instance, in Niger Republic which borders Katsina State, petrol sells for N346 per litre while in Cameroon it sells for N449. In Ghana it is N332 while in Benin Republic down south, it sells for N359 per litre.

According to data from www.globalpetrolprices.com, Nigeria is the only country in West Africa where petrol sells for less than N200 per litre, and this has allowed unscrupulous marketers promote smuggling of the product to the detriment of the country.
The argument that Nigeria is an oil producing country and should provide petrol at cheaper cost does not hold water since the country has relied largely on importation for local consumption.

Nigeria’s refineries have not worked at optimum capacity in the last two or three decades due to lack of adequate maintenance and corruption in public expenditure.
Nigeria now has the opportunity to invest the huge sums that would have gone into subsidy payment to into the four refineries to make petrol available locally, which is the only viable way the product can be cheaper.

Those who protested against removal of subsidy under the Goodluck Jonathan government did so because of lack of confidence in the ability of the administration to manage the surplus fund well, in view of the widespread perception of the his administration as corrupt and unwilling to stop the squandering of public resources.

There’s no doubt the President Muhammadu Buhari administration has amply demonstrated that public resources would no longer be imprudently managed and had shown a desire to invest in capital projects across the country.

Many would argue that some opposition political parties criticizing the Buhari administration as a result of the withdrawal of fuel subsidy are being hypocritical because they know it is the right thing to do.

In 2012 when Jonathan government’s attempt to withdraw fuel subsidy was protested by Nigerians, Ngozi Okonjo-Iweala was quoted in a TELL Magazine interview as saying “Nigerians would have to decide whether they want to remove fuel subsidy or they want the country to collapse.”

Those words are even truer today after emerging from a devastating Covid-19 pandemic economic lockdown.
As noted by the Minister of State for Petroleum, Timipre Sylva, removal of subsidy and the deregulation of the oil sector is an economic imperative.

He said the Government “is no longer in the business of fixing prices for petroleum products, we have stepped back.
“Our focus now is on protecting the interest of the consumers and making sure that marketers are not profiteering.”