How Federal Government Spent N10.4trn On Fuel Subsidy In 13 Years—Investigation

Within a period of 13 years covering January 2006 and December 2019, the Federal Government spent a whopping sum of N10.413trn to subsidize the price of Premium Motor Spirit for Nigerians, THE WHISTLER has learnt.

Within the 13 year period, the N10.413trn burden of subsidy payment for PMS translates into a yearly average payment of about N743.8bn.

A breakdown of the payment showed that the highest amount spent as petrol subsidy was in 2011 when the government released the sum of N2.1trn to oil marketers.

The N2.1trn spent on fuel subsidy that year is about 44.2 per cent of the entire N4.75trn Federal Government budget for the 2012 fiscal period.

This was followed by subsidy payment of N1.355trn, N1.316trn, and N1.217trn made by the Federal Government in 2012, 2013 and 2014.

Based on official statistics as obtained by this Newspaper, the Federal Government spent N257bn on subsidy in 2006, while N272bn, N631bn, N469bn and N667bn went into fuel subsidy payment in 2007, 2008, 2009 and 2010 respectively.

In the 2015 fiscal period, fuel subsidy payment gulped the sum of N654bn while 2017, 2018 and 2019 had N144.5bn, N730.9bn and N595bn respectively.

In terms of what the country had lost to fuel subsidy regime, based on analysis, the average yearly amount of N743.8bn used in subsiding petrol could finance 1,860 kilometers of roads for Nigeria.

The N743.8bn could also be used to finance nine well equipped 120 beds tertiary health centres annually for the country.

The decision of the Federal Government to stop the fuel subsidy regime is one which economic experts have described as long overdue, largely because it signals the government’s desire to stop the corruption-ridden fuel subsidy payment which had benefitted only a few.

The huge amount spent annually on petrol subsidy had resulted into a massive deficit budget which the government had to patch through borrowing.

It is the burden of this massive budget deficit that the government is beginning to shed with the withdrawal of subsidy payments which had inevitably led to the increase in pump price of petrol.

 
With landing cost of petrol currently at N207.98, government would have to pay N62.98 as subsidy per litre of petrol and the NNPC has to defray an estimated N3.149bn per day under what is tagged “under-recovery.”

Experts agree that this cannot be sustainable in a country such as Nigeria where the subsidy fund could do a lot to develop critical infrastructure to grow the economy.

The argument against subsidy payment is buttressed by the current lopsided situation where Nigeria’s low fuel price has encouraged smuggling of the product to other West African countries where prices are far higher.

For instance, in Niger Republic which borders Katsina State, petrol sells for N346 per litre while in Cameroon it sells for N449. In Ghana it is put at N332, while in Benin Republic down south, the product sells for N359 per litre.

In Senegal, the price of petrol sells for N549, Guinea N363, Burkina Faso N433, Sierra Leone N281, Mali N476, and Liberia N257 among others.

According to data from www.globalpetrolprices.com, Nigeria  is the only country in West Africa where petrol sells for less than N200 per litre, and this has allowed unscrupulous marketers to promote smuggling of the product to the detriment of the country.

The argument that Nigeria is an oil producing country and should provide petrol at cheaper cost does not hold water since the country had relied largely on importation for local consumption.

Nigeria’s refineries have not worked at optimum capacity in the last two or three decades due to lack of adequate maintenance and corruption in public expenditure.

Experts are of the view that Nigeria now has the opportunity to invest the huge sums that would have been spent on subsidy payment into the four refineries to make petrol available locally, which is the only viable way the product can be cheaper.

Stakeholders who spoke on the issue across the country said that the subsidy removal would enthrone a downstream deregulation era that would allow market forces to determine the price of petrol.

The Chairman, Major Oil Marketers Association of Nigeria, Adetunji Oyebanji, said the association welcome government’s action in allowing the market to determine prices.

He noted that this would prevent the return of subsidies while allowing operators the opportunity to recover their costs.

He said the move would in the long run, encourage investment and create jobs.

Oyebanji explained that though prices at the pump would need to be adjusted to reflect realities of the increase of ex-depot prices by the Petroleum Product Marketing Company, the magnitude of the increase, timing and location would be determined by each individual company.

The MOMAN chairman, however, called on the Ministry of Petroleum Resources to intensify its public awareness drive to educate the populace on the current realities.

He added, “The Ministry of Petroleum Resources should also be telling Nigerians that we can no longer afford subsidy.

“If we keep it, the investment in infrastructure, health, education, will not be possible.

“We are borrowing so much to finance our budget. We spent over a trillion naira on subsidy last year. It is unsustainable.”

MOMAN’s position was re-echoed by another stakeholder in the Downstream Sector, Sani Yau, a Director at NIPCO Plc and Chairman of SY Petroleum Limited, who emphasized that the price increase was reflective of trending realities in the sector.

He noted that deregulation will foster an eventual price reduction in the nearest future when other market fundamentals would converge to create the desired competitive market space.

The Depot and Petroleum Products Marketers Association of Nigeria also said deregulation will open up the downstream oil sector for fresh investments.

DAPPMAN said deregulation would also bring about market deepening, diversification, and expansion.

It said these would culminate in stable demand and supply regimes, ‘which are critical to ensuring that consumers have uninterrupted access to affordable quality products without the huge financial burden currently borne by the government’.

The association said full deregulation of the downstream sector would enhance economic growth and development of the nation.

The Chairman, DAPPMAN, Mrs Winifred Akpani, commended the government for consistently seeking ways to reposition the sector for effectiveness and profitability.

She said DAPPMAN remained in support of the implementation of a fully deregulated regime, which according to her would make operations in the downstream sector more seamless, enhance transparency, competitiveness and sustainable growth.

She said, “DAPPMAN is mindful of the commitment of the government and the functional organs managing the sector to ensuring value to every Nigerian and we salute them for this as we are indeed up against uncertain times.

“However, we believe that full deregulation of the sector remains the most viable option for Nigeria to effectively navigate this period and ultimately safeguard the future of our economy and the well-being of 200 million Nigerians.”

“We believe these considerations will be duly addressed with a deregulation regime that guarantees long-term benefits and empowers the government to commit savings made in the process to infrastructure development, job creation, agricultural revolution, education and health.”

She explained that deregulation would spur the growth of Small and Medium-scale Enterprises as well as large corporates. This, she noted would further increase Nigeria’s human capacity index, competitiveness and ultimately drive inflow of foreign investments.

The Minister of State for Petroleum, Timipre Sylva, said the removal of subsidy and the deregulation of the oil sector is an economic imperative.

He said, “The government is no longer in the business of fixing prices for petroleum products, we have stepped back. Our focus now is on protecting the interest of the consumers and making sure that marketers are not profiteering.

“The deregulation of petrol is a necessary and an inevitable policy direction that we had to take at this time. And we have so far saved over N1trn from it.”

The Minister noted that by the deregulation exercise, the government has backed out of the business of determining the price of Premium Motor Spirit, adding that the price is to be determined by the marketers who import the product.

He said, “At this point the government no longer fix prices for the product, we now allow the marketers and market forces to do so.

“But we watch keenly to ensure that the marketers do not charge too much for the product”.