Stakeholders, Others Disagree Over $800m Fuel Subsidy Palliative
Stakeholders in the petroleum industry, weekend, frowned over the Federal Government’s proposed $800 million fuel subsidy palliative to be shared with Nigerians.
As part of a palliative targeted at easing the pains of Nigerians, $800 million has been proposed for distribution to 10 million households.
But in an interview with Vanguard, Executive Director of Emmanuel Egbogal Foundation, Professor Wumi Iledare, said, “Subsidy is not anti-economics but the application of the tool has become an enigma in Nigeria’s economy perhaps because of lack of transparency and accountability. However, borrowing money for transfer payments to avert social unrest or protest against PMS subsidy removal is not sustainable and it is just a postponement of the evil day.
READ ALSO: FG Gets $800m World Bank Grant For Subsidy Palliatives
“The option for the government today is a partial price deregulation phased over a period by regulation with price modulation mechanism.
“Price discrimination is also a possibility, which has theoretical underpinnings. The $800 million seems to be politically laudable. It’s not just economically feasible in the long term to minimize the social welfare losses that come with subsidy. Increasing wages is not recommended under the prevailing inflationary economy. It will be a double shock to a sluggish economy.”
Also, Managing Director, Winman Nigeria Limited, Dr. Godwin Orovwiroro, faults the government’s planned palliative, adding that “the $800 million loan is intended to cushion the impact of subsidy removal particularly the effect on the economically disadvantaged Nigerians. Subsidy removal has been on the front burner of economic and political policies and it appears to be the only issue being flaunted by politicians as our economic ailment.”
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He said: “Some believe that its removal will cure our social malaise. These are narrow-minded approaches as no empirical evidence exists to show that the injection of the loan will solve anything. Let us examine the basis of fuel subsidy. The government’s position is that the cost of importation, including landing charges is more than the selling pump price. The differential being borne by the government represents the subsidy since the dispensing price is fixed and not subject to market forces.
“What they fail to tell us is that as long as the Naira keeps falling against the dollar, the subsidy malaise will never be cured. The exchange rate has become the amplifier of subsidy and the equation will always tilt to the negative until we embark on production for export to stabilize the exchange rate by the government to ease logistics of fuel distribution across the country as well as domestic freight costs.”
Nigeria’s Economic Growth Too Slow To Reduce Poverty – World Bank
The World Bank has warned that Nigeria’s economic growth is too slow to address the challenge of extreme poverty in the country.
Meanwhile, the bank has retained its economic growth (Gross Domestic Product, GDP) forecast of 2.8% for Nigeria in 2023, citing challenges of high inflation, foreign exchange shortages, and shortages of banknotes caused by currency redesign.
The World Bank gave the warning in the Global Development Prospect report for June 2023.
Among other things, the bank downgraded its economic growth forecast for Sub Saharan Africa to 3.2% for 2023, from 3.4% projected in its April World Economic Outlook. It also projected that global economic growth will slow to 2.1% in 2023, with prospects clouded by financial risks.
READ ALSO: Nigeria’s Borrowing From World Bank Hits $14.34bn In Q1 – Report
The World Bank stated: “After growing 3.1 percent last year, the global economy is set to slow substantially in 2023 to 2.1 percent, amid continued monetary policy tightening to rein in high inflation, before a tepid recovery in 2024, to 2.4 percent.
“Growth in Sub-Saharan Africa (SSA) continued to decelerate earlier this year owing to various country-specific challenges and heightened external economic headwinds.
“Growth in the three largest SSA economies – Nigeria, South Africa and Angola – slowed to 2.8 percent in 2022 and continued to weaken in the first half of this year. In Angola and Nigeria – SSA’s largest oil producers – the growth momentum has stalled amid lower energy prices and stagnant oil production.
“The post-pandemic rebound in Nigeria’s non-oil sector cooled earlier this year because of persistently high inflation, foreign exchange shortages, and shortages of banknotes caused by currency redesign.
READ ALSO: FG Gets $800m World Bank Grant For Subsidy Palliatives
“Growth in SSA is expected to decline further to 3.2 percent in 2023 before picking up to 3.9 percent in 2024. The recovery in South Africa is projected to slow to 0.3 percent this year as widespread power outages weigh heavily on activity and contribute to the persistence of inflation.
“Growth in Nigeria is expected to remain barely above the population growth – far slower than needed to make significant inroads into mitigating extreme poverty.
“Outlook downgrades, however, extend beyond the major regional economies with elevated cost of living restraining private consumption and tighter policies holding back a pickup in investment in many countries.
“More broadly, worsened domestic vulnerabilities together with tight global financial conditions and weak global growth are expected to keep recoveries subdued.”
Refineries: Reps Call For Forensic Audit Of N11.34trn Spent On Rehabilitation
The House of Representatives has demanded forensic audit of all rehabilitation projects at Port Harcourt, Warri and Kaduna refineries.
The demand followed the consideration of the recommendations of a report by its ad-hoc committee on the state of refineries and the need to ascertain the actual daily consumption of Premium Motor Spirit, PMS, otherwise known as petrol, in Nigeria.
It will be recalled that the consideration of the report was deferred when presented last week because the chairman of the committee of the whole and deputy speaker, Ahmed Idris-Wase, last week told the committee chaired by Ganiyu Johnson to give clear cut recommendations based on its specific mandate.
Re-presenting the report at plenary, yesterday, Johnson said the findings of the committee revealed that the rehabilitation of the three refineries had cost the nation N11.35 trillion in 13 years, beginning from 2010.
READ ALSO: Fuel Subsidy Hits N1.593tn, Refinery Rehabilitation Gulps N54.66bn
He said the refineries became unproductive from 2010, making a range of losses, with Port Harcourt put at 7.6 per cent losses to the tune of N132.52 billion from 2012; Warri at 6 per cent losses amounting to N111.37 billion from 2014 and Kaduna at 10 per cent losses to the tune of N122.62 billion from 2014.
The report stated that from 2010 to 2019, the refineries performed sub-optimally, with an annual combined capacity of less than 30 per cent.
According to the report, the NNPC obtained an executive approval and shutdown the refineries for comprehensive rehabilitation to restore the plants to a maximum of 90 per cent utilisation.
The report said total losses from the non-functional refineries since 2010 were placed at N366.52 billion, while the total cost of operations and running them from 2010–2020 stood at N4.80 trillion.
READ ALSO: Nigeria, Others Need $7.5bn To Deepen LPG Usage – Refiners
It further indicated that subsidy payments totalling N5.9 trillion was made from 2010 to 2020.
The committee, however, recommended that the NNPCL fast tracked the rehabilitation programme of the refineries empowered by the legislative intent for a deregulated business environment and restore the refineries to a minimum 90 per cent nameplate capacity utilisation.
Vanguard reports that the committee also recommended that NNPCL and the contractor (Tecnimont SPA of Italy) be urged to ensure that phase one of the rehabilitation works in Refinery Area 5 of the Old Port Harcourt Refinery, OPHR, with the processing capacity of 60,000 barrels per day earlier expected to be restored to 54,000 barrels per day of processing capacity representing 90 per cent capacity utilization by March, 2023, should unfailingly meet the new target date of September, 2023.
READ ALSO: Probe Missing $2.1bn, N3.1trn Of Subsidy Payments Or Face Legal Action, SERAP Tells Tinubu
It asked that a bank (names withheld) refund to the nation the total sum of US$438,012.44 paid them as retainer fees from 2017-2018 as the financing advisory contract for the rehabilitation of the three refineries was not successful and was suspended due to the financing consortia not reaching agreeable terms for the transaction with the NNPC.
Other recommendations include “that the NNPCL and the Contractor (Tecnimont SPA of Italy) be further urged to ensure that phase two of the rehabilitation works in Refinery Areas 1&2 of the New Port Harcourt Refinery (NPHR), with an installed capacity of 150,000 barrels per day be restored to the estimated processing capacity of 135,000 barrels per day.”
FG Records N930bn Two-month Fiscal Deficits – CBN
The Federal Government recorded N930.8bn fiscal deficit in January and February 2023 according to the Central Bank of Nigeria.
The CBN stated in its monthly economic report for February 2023 that, “The estimated overall fiscal deficit of the FGN expanded in February, due to a drop in the retained revenue.
“At N513.05bn, the provisional fiscal deficit of the FGN rose by 22.8 per cent relative to the preceding month. However, it was 16.2 per cent below the budget benchmark.”
READ ALSO: CBN Denies Devaluation Of Naira Report
According to the report, the fiscal deficit was N417.75bn in January.
The report said accretion into the federation account decreased by 32.3 per cent in February relative to the preceding month, on account of the 60.2 per cent fall in oil revenue.
It added that the development led to the expansion of the overall fiscal deficit (provisional) by 22.8 per cent due to a 16.4 per cent surge in provisional FGN capital expenditure, and a 7.7 per cent fall in FGN retained revenue.
Total public debt at N46.25tn (23.2 per cent of GDP) at end-December 2022, remained within the 40.0 per cent national threshold.
It stated that, “At N1.04tn, federation receipts were below the level in January by 32.3 per cent. Similarly, it was below the budget2 of N1.58tn by 34.3 per cent.
READ ALSO: CBN Gives Out N8trn In Interventions To Private Sector In Last 5 Years – Emefiele
“The decline, relative to January was attributed to a fall in collections from petroleum profit tax and royalties. Oil revenue, at N308.07bn, was 60.2 per cent below receipts in the preceding month.
“The outcome was driven, largely, by the 60.5 per cent decrease in collections from petroleum profit tax and royalties.”
At N730.21bn, non-oil revenue, was below the level in the preceding month and the monthly target by 3.7 per cent and 7.4 per cent, respectively.
The decrease was largely attributed to the 10.5 per cent decline in collections from corporate tax on account of the seasonality associated with its payments.
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