President Muhammadu Buhari has ruled out any likehood of returning to payment of subsidy on petroleum products, saying it would lead to several negative consequencies.
This is even as he said his administration has spent almost N1.7 trillion supplementing tariffs shortfalls to keep the electricity industry going. The president who said he was disappointed with the services of Distribution Companies (DISCOs) said with dwindling resources, it was no longer sustainable to fund energy subsidies.
Buhari, represented by Vice President Yemi Osinbajo, spoke, yesterday, when he declared open a two-day first year ministerial performance review retreat at the State House Conference Centre, Abuja.
The president said COVID-19 pandemic had led to a severe downturn in the funds available to finance the nations’ budget and also hampered government’s capacity.
He said one of the steps taken at the beginning of the crisis in March, when oil prices dipped at the height of the global lockdown, was the deregulation of downstream petroleum sector, especially on Premium Motor Spirit (PMS).
Buhari, however, assured that government was working towards mitigating the impact of deregulation on citizens.
“There are several negative consequences if government should even attempt to go back to the business of fixing or subsidising PMS 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.’’
He described as coincidental the timing of the adjustments in prices of patrol pump price and power tariff. The president said government was extremely mindful of the pains that higher prices meant at this time.
He said government did not take the sacrifices that Nigerians had to make for granted.
“We will continue to seek ways and means of cushioning pains, especially for the most vulnerable in our midst.We will also remain alert to our responsibilities to ensure that marketers do not exploit citizens by raising pump price arbitrarily.
“This is the role government must now play through the Petroleum Products Pricing Regulatory Agency (PPPRA). This explains why the 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 be keep coming down.’’
Buhari said the recent service-based tariff adjustment by the Electricity Distribution Companies (Discos) had also been a source of concern for his government.
The president said like many Nigerians, he had been unhappy with the quality of service given by the Discos, but there were many constraints, including poor transmission and distribution capacity. He said he already signed off on the first phase of the Siemens project to address many of the issues.
“Because of the problems with the privatisation exercise, government has had to keep supporting the largely privatised electricity industry. So far, to keep the industry going, we have spent almost N1.7 trillion, especially by way of supplementing tariffs shortfalls.
“We do not have the resources at this point to continue in this way and it will be grossly irresponsible to borrow to subsidise a generation and distribution which are both privatised.
“But, we also have a duty to ensure that the large majority of those who cannot afford to pay cost reflective tariffs are protected from increases.’’
According to the president, the Nigerian Electricity Regulatory Commission (NERC), the industry regulator, had approved that tariff adjustments had to be made but only on the basis of guaranteed improvement in service. Under the new arrangement, only customers who were guaranteed a minimum of 12 hours of power and above could have their tariffs adjusted, he said.
Buhari said that those who got less than 12 hours supply or the Band D and E customer must be maintained on lifeline tariffs, meaning that they would experience no increase.
“This is the largest group of customers; government has also taken notice of the complaints about arbitrary estimated billing. Accordingly, a mass metering programme is being undertaken to provide meters for over five million Nigerians, largely driven by preferred procurement from local manufacturers – creating thousands of jobs in the process.’’
He said his administration adopted a N2.3 trillion Economic Sustainability Plan (ESP) to mitigate the effect of the economic slowdown.
The plan, which consists of fiscal, monetary, and sectoral measures is expected “to enhance local production, support businesses, retain and create jobs and provide succour to Nigerians, especially the most vulnerable.”
Secretary to the Government of the Federation (SGF) Boss Mustapha, said the retreat was held to help government address the economic challenges and consolidate on achievements over the past year.
In a related development, Minister of Information and Culture, Alhaji Lai Mohammed, dismissed angry reactions that have trailed the withdrawal of subsidy as unnecessary and mischievous.
He also disclosed that the removal started in March with the introduction of price modulation for the industry.
Mohammed spoke in company with his counterparts in the petroleum resources and power, Timipre Sylva and Mamman Saleh in Abuja, yesterday.
He added that since the price of petrol is determined by the global price of crude oil, if the price of crude oil drops, the price of petrol would also drops in Nigeria. He also said Nigeria’s electricity tariff is the cheapest among many countries in Africa.
“…The long-drawn fuel subsidy regime ended in March 2020, when the Petroleum Products Pricing Regulatory Agency announced that it had begun fuel price modulation, in accordance with prevailing market dynamics, and would respond appropriately to any further oil market development.
“The price of fuel then dropped from N145 to N125 per litre, and then to between N121.50 and N123.50 per litre in May. With the low price of crude oil then, the cost of petrol, which is a derivative of crude oil, fell, and the lower pump price was passed on to the consumers to enjoy. 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, perchance, 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 truth of the matter is that subsidising fuel is no longer feasible, especially under the prevailing economic conditions. Government can no longer afford fuel subsidy, as revenues and foreign exchange earnings have fallen by almost 60 percent due to the downturn in the fortunes of the oil sector.”
Sylva agreed that government’s revenue has been impacted by the unexpected fallout of the COVID-19 epidemic.
In spite of the angst over the increment, the petroleum resources minister called for understanding.
“Production of crude oil was slashed to 1.4 million barrels per day, which is a huge drop in revenue and the prices have not gone up to where we expected them to be… In spite of the cut, we’ve not been able to get back to $45 per barrel of crude oil. We’ve gotten to point of removing subsidy and we call for understanding. It is in the best interest of the coming and all of us in the long run.”