-Okonjo-Iweala defends proposal -Parties keep Jonathan waiting
THERE were hints yesterday that petrol (Premium Motor Spirit) may sell for about N120 per litre, if fuel subsidy is withdrawn.
Finance Minister Mrs Ngozi Okonjo-Iweala has said the removal of fuel subsidy next year is inevitable – to keep the economy afloat and rebuild infrastructure.
The hint on the new pump price emanated from a fact-sheet presented to select leaders of four political parties at a Monday night meeting with President Goodluck Jonathan at the Presidential Villa, Abuja.
The document, which The Nation obtained last night, states that subsidy must go, in the interest of the nation’s future and the masses.
Mrs Okonjo-Iweala, however, unveiled some safety nets being planned by the government to ameliorate the effects of the withdrawal of the subsidy.
She said between 2006 and 2011, the nation spent N3,655.17 trillion to subsidise fuel. The cash is 30 per cent of the total expenditure, 118% of the capital expenditure and 4.18% of the GDP.
“Subsidy does not get to the poor; the middle and upper classes are the real beneficiaries. It is clearly unsustainable,” said the Minister.
“Subsidy in 2011 alone so far is over N1.3trillion, which is higher than our capital budget. Evidence shows that the price of fuel in Nigeria is below both the African and international average.
“Nigeria, with its large population and small oil base, is comparatively poor, compared to other oil producers.
“Compared to other oil producing countries, Nigeria has a significantly lower GDP per capita; substantially less oil revenue per capita and greater social.
“With total crude oil production of approximately 2.5million barrels per day, Nigeria has a significantly lower GDP per capita. Nigeria’s GDP per capita is around $1200 per year, with over 167million in population.”
“Therefore, we must rethink our approach to managing our scarce resources to provide services to Nigerians. We will be better off using the amount spent on subsidy to target poorer groups and big infrastructure projects.”
Mrs Okonjo-Iweala hinted on what the pump price might look like next year, if the subsidy is removed.
She said: “Under the current downstream sector structure, prices are not determined by demand and supply. Pump price of PMS is fixed at N65 per litre by the government.
The landing cost of a litre of PMS is about N123 per litre, based on an average crude oil price of US$113.98pb. To this, add the cost of distributing, bridging and profit margins of N15.72 per litre. This results in effective cost of N139/litre.
“In 2012, the landing cost of a litre of PMS is estimated at N104/litre, based on a crude oil price of US$90pb. To this add the cost of distributing, bridging and profit margins of N15.72/litre. This results in effective cost of N120 per litre.
“Fuel subsidy is what is paid by government to keep prices below free market. The subsidy causes distortions that result in huge economic costs such as rent-seeking behaviour and smuggling.
“The amount of subsidy equals to the difference between the consumer pump price of fuel versus the total cost of producing or importing. The price of petrol is N65 per litre, but actual cost of supply is N139 per litre. And projected at N120 per litre in 2012.
“This means that currently for every one litre of petrol purchased at the official price of N65, government contributes N73. Presently, only petrol and kerosene enjoy government subsidy. Diesel has already successfully been deregulated.”
The Minister, who is also co-ordinating the economy, made in-depth submissions on why the removal of subsidy has become necessary.
She said: “Subsidy is a major fiscal and financial burden on the nation. From 2006 -2011, about N3.7trillion was spent on subsidy.
“In 2011, N1.348trillion was spent between January and October and it is expected to reach N1.436trillion by the end of the year. This represents 30 per cent of total Federal Government Expenditure; 118% of the capital budget; and 4.18% of GDP.
The breakdown of fuel subsidy in the past five years is as follows:
She added: “The large increase observed in 2011 is as a result of (i) increased crude oil price from US $81.25 per barrel(pb) to $US 113.98pb; (b) exchange rate movements; (c) larger volumes consume(about 35m litres per day); and (iv) N150billion of kerosene carried over from 2009 and 2010.
The minister listed six benefits of deregulation.
She said: “Deregulation implies limited intervention by government; it allows for better regulation and transparency; allows for free operation activities in the sector; attracts new investors into the market and it increases competition and promotes overall higher productivity; reduces scarcity by ensuring adequate supply of petroleum products; and similar success story to the telecommunication sector.”
The Minister also reeled out social safety nets in the pipeline for Nigerians, if the subsidy is removed.
•Launching of Subsidy Reinvestment and Empowerment Programme (SURE);
•Maternal and child health services;
•Public works/youth employment programme;
•Urban mass transit scheme
•Vocational training schemes; and
•High-profile infrastructure projects: Roads and rail; water resources, power; refineries (with private sector).
She said: “Structures have been developed to guarantee adequate oversight, accountability and implementation of the various projects.
“To ensure effectiveness, efficiency and delivery, high powered committee of eminent Nigerians to monitor revenue proceeds and proper implementation and use of the amount saved. Members with proven integrity will be drawn from the Nigerian youth, women groups and civil society organisations.”