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FG To Remove Fuel Subsidy In 2015

Published

10 years ago

November 21, 2014

President Jonathan has proposed to cut fuel subsidies in half in a bid to reduce spending after a retreat in global crude prices.
According to David Mark, the Senate President, the government   plans to reduce fuel subsidies next year to N458.6 billion ($2.6 billion) from N971.1 billion , citing a revised 2015 Medium Term Expenditure Framework and Fiscal Strategy Paper submitted by President Jonathan.
The global collapse in oil prices is biting into Nigeria’s income, 70 percent of which comes from crude exports. Finance Minister Ngozi Okonjo-Iweala plans to cut expenditure by 6 percent next year and lower the budgeted benchmark oil price to $73 per barrel, from $77.5 this year.
Kerosene subsidies will also be cut to N156 billion, from N250 billion, according to the proposal.
The landing price of crude oil as at Thursday, was $78.10 per a barrel, as against the price of $100 per barrel a few months back. The country’s budget was based initially on $78 when the price of crude oil was hovering between $90 and $100 per barrel.
The price of the commodity has dropped by more than 28 per cent since June, spurred by slow/stagnant global economic demand, and increasing oil supplies from shale oil in the United States, record of oil productions in Russia and the resumption of production in the oil producing countries plagued by unrest .
The government’s last attempt to scrap the subsidy in January 2012 sparked a week of strikes and protests, forcing the government to partially reinstate it. Unions and activists opposed the subsidy’s removal and said the government should fix its poorly maintained refineries and tackle corruption before raising cost for Nigerians.
The country has four refineries that have capacity to refine 445,000 barrels of crude oil per day but they have been moribund for several years.
The deliberate attempt by the government not to   rehabilitate   or privatise them has put the burden of importing petroleum products, especially Premium Motor Spirit (PMS) or petrol, on the government at very high expense. The total production capacities of the refineries currently is not more than seven million litres of pms.
The country consumes an average of 40 million litres of PMS daily, most of that being supplied by the Nigerian National Petroleum Corporation through its subsidiary, the Petroleum Products Marketing Company (PPMC).
But Diran Fawibe, the chairman and chief operation officer of International Energy Services, said that the move by President Goodluck Jonathan to cut the amount to be spent on subsidy is a step in the right direction.He however fears that the labour unions and civil society groups may not allow Jonathan to implement the policy, especially in an election year.
He urged the president to carry the union members and civil society groups along.
He said there would be no point for the president to move such an idea without being able to carry it out, adding that the cost of fuel subsidy would continue to balloon, since the country has no functional refineries .
The Dangote Refinery which is the most viable one in sight, he said, would not come on stream until 2018.
Spending N458.6 billion on fuel subsidy   according to him ,is still a lot of money and it would amount to creating jobs for indigenes of other countries .
Speaking in the same vein , Austin Nweze of Pan Atlantic University said that subsidy would create jobs for other countries at the expense of Nigerians
He said in the short run, the cut may affect the price of fuel, as it would go up temporarily, but in the long run, it would benefit Nigerians.
The government, he said, should remove subsidy completely and encourage the establishment of refineries in the country, adding that such a move would encourage competition in the price of fuel.
He however expressed fears that corruption may pose as an obstacle, as those that are benefitting from the corrupt system may work against the proposal.
Do you think this will solve the issue of depreciation of crude price? or the fall in value of naira?
We all knew what happened in January 2012 when it was partially removed first, Just hope this won’t be worst .