Nigerian government announces removal of fuel subsidy from Jan 1, 2012

Petroleum Minister, Diezani Allison-Maduke

Nigerian government announces fuel subsidy removal from Jan 1, 2012
Ugo Okoro, Abuja

The Nigerian government has announced on Sunday that as from New Year's Day, January 1, fuel subsidies will end, according to a statement by the Petroleum Products Pricing Regulatory Agency.

The statement released on the PPPRA website said ,"The Petroleum Products Pricing Regulatory Agency wishes to inform all stakeholders of the commencement of the formal removal of the subsidy on Premium Motor Spirit," said a statement by the Petroleum Products Pricing Regulatory Agency, (PPPRA).

"Petroleum products marketers are to note that no one will be paid a subsidy on PMS discharges after 1st January 2012,"  in a  statement signed by PPPRA executive director Reginald Stanley.

It said consultations " in the coming weeks " would be made with stakeholders to ensure the transition occurs “in a hitch free manner”.

It therefore stated that "By this announcement, the downstream sub-sector of the petroleum industry is hereby deregulated for Premium Motor Spirit (PMS). Service providers in the sector are now to procure products and sell same in accordance with the indicative benchmark price to be published forthnightly and posted on the PPPRA website".

The agency assured that ,“The PPPRA in conjunction with the Department of Petroleum Resources (DPR) will ensure that consumers that consumers are not taken advantage of in any form”.

Burden of subsidy

The govenment had stated that in the midst of all these difficulties staring the country in the face, the country has continued to bear a huge subsidy burden of N1.3Trillion on fuel consumption.

President Goodluck Jonathan noted that the situation was so precarious that in the first eight months of 2011 alone, government was forced to dole out N1.3 trillion in payment to offset cost of subsidy to fuel importers.

He said currently, Nigeria which is in desperate need to rehabilitate its infrastructure in all sectors is compelled to spend almost One-Third of its annual budget on fuel subsidy. President Jonathan explained that if this continues, in two to three years, the economy will crash.

He said in the past, every government avoided taking the difficult decision on this matter and instead resorted to borrowing to carry out government transactions thereby piling up huge domestic debts that today threaten the future of young Nigerians and future generations.

The government had previously stated that the country runs an annual budget of 26 percent capital expenditure and 74 percent re-current, adding that apart from the fact that this lopsided expenditure pattern, it cannot meet the economic aspiration of Nigerians, even the 26 per cent capital budget is borrowed annually because of the huge budget deficit government is compelled to implement.

The President said the situation in which Nigeria has to borrow to carry out capital projects as well as part of its recurrent expenses was an obvious road to disaster and portends great danger ahead.

Infrastructural investment

Measures have been mapped out by government to reinvest proceeds that will accrue from deregulation in critical infrastructure, and in welfare programmes for Nigerians.

Also, the Minister of Finance and Chairperson of the Economic Management Implementation Team, Dr. Ngozi Okonjo-Iweala said the deregulation of the downstream sector of the oil industry was only one of these measures, as government was also taking other measures to address issues of leakages in the economy and aggressive strategy to earn more from the maritime and other sectors of the economy.

She said presently, Nigeria offers the cheapest fuel in West Africa and one of the cheapest in the world including among many oil producing nations.

The finance minister has explained that the reason why in some countries prices were high after deregulation of their downstream sector was because most countries levy tax on fuel and that in order to keep prices at reasonable levels after deregulation, government has decided not to levy tax on fuel.

Central Bank governor Lamido Sanusi has said Nigeria spent $16 billion of its foreign exchange on imported fuel in the first 11 months to last year.

Opposition from Labour groups

Already ,Labour and transport unions and some human rights groups had previously opposed the move.

  A spokesman of the Trade Union Congress,l TUC, Mr. Chika Onuegbu said organised labour had started mobilising workers to brace up for an indefinite strike to compel government to revert to the old pump price of N65 per litre of petrol.

``As we speak now, a lot of people who are at home cannot come back to town because they had gone there planning that this is how much they will use to come back and had spent the others on their loved ones. Many people are stranded'", he explained

``We will have no option than to embark on strike to show our grievance in a peaceful way,’’ he said.

Ugo