FG Projects N1tn Petrol Subsidy Savings, Targets Economic, Infrastructure Devt

Timipre Sylva
  • MAN: Removal of subsidies good for economy


Adedayo Akinwale in Abuja and Dike Onwuamaeze in Lagos

The federal government yesterday estimated that it would save over N1 trillion yearly from the removal of fuel subsidy following the deregulation of the downstream sector of the petroleum industry.

The extra cash, Minister of State for Petroleum, Mr. Timipre Sylva, told journalists yesterday in Abuja, would be used to fund infrastructure development and to grow the nation’s economy.

He urged Nigerians not to allow themselves to be fooled by critics of deregulation to create anarchy and chaos.

The subsidy removal policy got the support of the Manufacturers Association of Nigeria (MAN) yesterday even as it lamented that its members spent N67.38 billion, which is 38 per cent of their operating costs, to self-generate electricity in 2019, while the unsold inventory of manufactured goods stood at N402. 4billion.

Sylva said with subsidy removal, Nigeria would recover the losses incurred in selling products below the market price and the losses incurred in providing dollars at special rates to fund importation.

The minister stated that successive administrations had attempted to deregulate but lacked the political will or the time was not good for the implementation of the policy.

Sylva noted that deregulation is a policy direction that is good for the common Nigerian because it is going to create many opportunities they could tap into to improve their socioeconomic conditions.

According to him, the refining sector is not developed because no refinery can operate commercially in Nigeria with a subsidy in place.

He said: “I believe that this discussion around subsidy has been a vexed issue that has captured the imagination of this country for a long time now. Successive administrations have attempted to deregulate. But sometimes, some administrations lacked the political will and at other times, the time was not good for it. And why did I say the time was not good for it? Does that imply the time is good for it now?

“The problem around deregulation is that people must understand first, that the product we are talking about is a derivative of crude oil. It is refined from crude oil.

“Therefore, it has a direct relationship with the price of crude oil. If the price of crude oil goes up, then you expect that it would reflect in the price of the derivative.

“So, the best time to achieve this we looked at was the time when crude oil prices are low so that Nigerians will get the benefit of those low prices.”

Sylva said when the federal government announced the deregulation of the downstream sector in March and the pump price of petrol was reduced, the advantage was transferred to the consumers.

The minister, however, added that when the price of petrol was reduced in March, nobody reacted in the market place and nobody reduced the prices of goods and services to reflect the reduction in the price of petrol, as even transportation fares remained the same.

“In March, when we announced the deregulation, the prices were low and that advantage was transferred to the consumer.

“So, we brought down the price of petrol. The unfortunate thing is that when we brought down the price of petrol, nobody reacted in the market place. The prices were the same. Nobody reduced their prices because the price of petrol had reduced.

“Even bus fares, taxi fares were the same. It did not go down when we reduced the pump price of petrol. We thought that those people in the market; transport drivers and transport owners would reduce their price. But nobody reduced their prices. But anytime there is even a kobo increase in the pump price of the product, you see that people will increase their prices triple fold and four-fold.

“At this moment, let Nigerians not be fooled; there are people who are ready to take advantage of every situation to create anarchy and chaos. And it is these people that are at work now. Is anybody saying that this policy direction is a wrong policy direction?

“That is the discussion we should be having. If it is a wrong policy direction, why has every successive government attempted to do the same thing? It is because it is something that is unsustainable. The subsidy is unsustainable. Let us look at it: Subsidy means that you buy the product at a certain price and then you reduce the price and sell it at a loss to the people.”

MAN: Removal of Subsidies Good for Economy

Meanwhile, manufacturers have backed the government’s removal of petrol and electricity subsidies but lamented that they spent N67.38 billion, which is 38 per cent of their operating costs, to self-generate electricity in 2019, while the unsold inventory of manufactured goods stood at N402. 4 billion.

The President of the MAN, Mr. Mansur Ahmed, at a press conference at the end of the association’s 48th Annual General Meeting (AGM) in Lagos yesterday, also bemoaned that more than 40 per cent of foreign exchange needs of manufacturers are not met.
“Moreover, genuine exporters are still being owed huge sums of money as a backlog of unpaid outstanding from the Export Expansion Grant Scheme,” he stated.

Ahmed noted that the government’s continued payment of subsidy to the electricity sector at the tune of N500 billion as recorded in 2019 has become unsustainable and no longer in the long-term interest of the economy. “This cannot continue,” he said, “because the government will not have money to invest in other areas like infrastructure. So, what we have discussed with the government is that it should find ways to help the manufacturing sector by ensuring that we will see significant improvement in the availability of electricity.

“The problem for the manufacturers is not just the tariff but availability. We can afford to pay the higher tariff if the power supply will be steady and we are paying only for what we have consumed.”

Ahmed said that it should be recalled that the “MAN has always agreed that fuel subsidy is not good for our economy. We have seen that diesel became easily available when it was deregulated and that its price also remained largely stable. This is what we believe should happen to all petroleum products if the sector is deregulated.

“Let it be deregulated so that we will have consistent supply and encourage more people to invest in the sector because we cannot continue to depend on the import of petroleum product while the government is unable to maintain its refineries. We want a situation where private investors will be encouraged to invest in the refining and distribution of petroleum products.

“Ultimately the supply will stabilise and we are sure that when that happens the price will come down.”
He added that inasmuch as the MAN understood why the federal government was constrained to close the country’s borders in 2019, it has become noteworthy to state that it has now outlived its usefulness.

“This border closure cannot be a sustainable arrangement. It has been closed long enough for the government to introduce measures that will control smuggling, dumping and importation of faked products. We, therefore, believed that the borders should now be opened.

“We have made this very clear to the government that the border closure cannot persist. It should be opened because we will soon start the implementation of the African Continental Free Trade Area agreement,” he said, adding that Nigerian exporters are losing their export markets in West Africa and some parts of Africa as a result of the closure of the border.

The manufacturers also appealed to the government to reverse the Value Added Tax rate back to the pre 2020 Finance Act rate and reduce the Personal Income Tax to a flat rate of 10 per cent for one-year effective from April 2020 in order to “improve the disposable income of Nigerian workers, stimulate consumption, promote an upsurge in demand and increase production output.”