Government banking on PIB to unplug subsidy

• To keep petrol price at N162 for fear of protests • Marketers want full deregulation • More trouble for states over minimum wage, sliding IGR

• How govt frustrates PPPRA’s seven-year subsidy exit plan

• LCCI says subsidy difficult to police, poses major corruption risk

Worried about social resistance that might trail the removal of petrol subsidy, there are indications that the Federal Government will not tamper with the price of petrol anytime soon until tensions abate and food inflation tamed, The Guardian has learnt.
To avoid a repeat of another ENDSARS crisis that was already leading to calls for certain governance issues in the country, the Federal Government is hesitant on allowing labour protests to hold.
The Guardian had exclusively reported last month that President Muhammadu Buhari ordered that petrol subsidy should remain in place for the next five to six months to enable government carry out wide consultations before reaching a final decision on the issue.
Insiders familiar with the negotiations between the Nigeria Labour Congress (NLC) and the Federal Government on subsidy removal said while full deregulation is expected to commence in lieu of fiscal challenges, the impact of last EndSARS crisis lingers in the minds of policy makers.
With the Central Bank of Nigeria (CBN)’s adoption of the Investors and Exporters (I&E) window rate, subsidy claims have risen while discrepancies in the volume of consumed fuel creates concerns about transparency in the administration of subsidy.

Also, with food inflation at a 12-year high, Nigeria risks a backlash if it allows an increase in fuel prices in line with the rebound of crude in the international market.

Labour unions have warned of protests if increases are announced after prices were allowed to rise several times in the second half of 2020. The pump price of petrol has remained steady since early December, even though oil is trading around $65 per barrel.

While organised labour retains its stance on subsidy payment, development finance institutions, petroleum marketers and some members of the organised private sector see the practice as not sustainable, pushing fiscal authorities to the cliff.

Recognising that government pulling out of paying subsidy on petrol was always going to generate labour unrest, the Petroleum Products Pricing Regulatory Agency (PPPRA) developed a seven-year exit strategy to ensure gradual withdrawal from the subsidy payment and herald liberalisation of the downstream sector but that strategy has been put on hold for reasons best known to the managers of the industry.

Indeed, The Guardian gathered that to circumvent the anger of labour movement over the imminent removal of petrol subsidy, the Federal Government has devised means of using provisions in the Petroleum Industry Bill (PIB) to justify the removal since negotiations with labour has ended without resolution on how deregulation of the downstream sector would be implemented.

It is anticipated that the National Assembly would pass the PIB given the desperation of the Federal Government to stop subsidising imported petrol. However, the timeline for the PIB passage remains uncertain going by the continuous shift from April this year till another unknown date.

Last week, the Minister of State for Petroleum, Timipre Sylva, gave the assurance to newsmen that the PIB would be passed latest June, which is barely 30 days from today.

The Guardian learnt that there are more than meets the eyes in the Ministry of Petroleum as it panders towards satisfying the Nigerian National Petroleum Corporation (NNPC), which is now the sole importer of petrol into the country.

Some governors, including Governor Nasir el-Rufai, had last week disclosed that the payment of between N70 billion and N210 billion monthly on fuel subsidy is unsustainable.

El-Rufai while presenting the report on the appropriate pricing of Premium Motor Spirit (PMS) otherwise called petrol, during the 30th teleconference meeting of the Nigeria Governors’ Forum (NGF), noted that the payment of subsidy to keep the PMS price at N162 per litre is completely unsustainable.

According to the marketers, the government’s inability to follow through the implementation of the downstream petroleum sector reforms is partly responsible for the present challenges in the country, adding that the government should be transitioning to a market-driven environment through policy-backed legislative and commercial frameworks.

Chairman, Major Oil Marketers Association of Nigeria (MOMAN), Tunji Oyebanji, recently noted that full deregulation of the downstream sector remains the most glaring boost to potential investors in the local refining space, adding that non-functional refineries cost Nigeria over $13 billion in 2019.

In its reaction, the Lagos Chamber of Commerce and Industry (LCCI) reiterated its stance, saying that the petrol subsidy regime poses a major corruption risk, adding that the system is extremely difficult to police and is responsible for the spike in the supposed domestic petrol consumption.

According to LCCI Director-General, Dr Muda Yusuf, the way out is a quick exit strategy from the subsidy conundrum. Yusuf added that the position of labour on subsidy is popular, but not fiscally and economically sustainable, as it is putting the future of the country at a great risk.

“This economy cannot survive the subsidy-induced headwinds for long. Labour needs to come to terms with the phenomenal macroeconomic and systemic risks that the perpetuation of the subsidy regime poses for the country.

“Investments in refineries would only be sustainable if it is private-sector driven.  And no private capital will flow to a sector where the product price is fixed by the government, irrespective of changes in cost parameters. It would not just happen.

“Over the past three decades, the policy of public sector dominance of the downstream petroleum sector had effectively blocked private investment in the sector.  The economy is now paying a huge price for decades of an inappropriate policy choice,” he added.

He then urged labour and government to come up with creative and innovative ways of cushioning the effects of subsidy removal rather than insist on a policy that could pull down an already fragile economy.

Already, there are uncertainties surrounding the tenure of the Executive Secretary of PPPRA, Abdulkadir Saidu, whose four years stay in office officially expired on April 19, 2021. Saidu was seconded to the PPPRA from the Nigerian National Petroleum Corporation (NNPC) in April 2017.

The PPPRA scribe proceeded on leave a few days to April 19 to avoid confusion in the operations of the agency, leaving the General Manager, Corporate Planning, Teddy Okonkwo, to act in his stead.

The tenures of Executive Secretaries of Petroleum Equalisation Fund (PEF), Nigerian Content Development and Monitoring Board (NCDMB) and that of Petroleum Technology Development Fund (PTDF) were recently renewed by the Federal Government.

Staffers at PPPRA are confused over a substantive Executive Secretary as most of the assignments and approvals that require the attention of the Executive Secretary cannot be carried out by the Acting Executive Secretary, which is breeding lacuna in the operations of the agency.

ALSO, there are troubles ahead for state governments that are yet to begin the implementation of the new national minimum wage as only 16 states are presently implementing the law. Another trouble for states is the sliding Internally Generated Revenue (IGR), which is expected to slide further this year.

A document, which was exclusively obtained by The Guardian in Abuja yesterday, listed Borno, Delta, Ebonyi, Edo, FCT, Jigawa, Kaduna, Kano, Katsina, Kebbi, Lagos, Ondo, Sokoto, and Yobe as states that are fully implementing the national minimum wage, while Adamawa, Bauchi and Bayelsa are awaiting commencement.

Agreement for the implementation of new minimum wage law has been signed in 16 states that comprise Abia, Akwa Ibom, Anambra, Bayelsa, Borno, Delta, Ebonyi, Edo, FCT, Jigawa, Kaduna, Kano, Katsina, Kebbi, Lagos and Ondo. States where agreement has been reached but not signed are Cross Rivers, Enugu and Sokoto.

Negotiations are still ongoing in the following states: Adamawa, Bauchi, Benue, Ekiti, Gombe, Imo, Kogi, Kwara, Nasarawa, Niger, Ogun, Osun, Oyo, Plateau, Rivers Yobe and Zamfara. Taraba State is yet to initiate negotiation with labour at all and is also not implementing the new wage floor.

States that are yet to begin implementation of the wage are Benue, Cross Rivers, Ekiti, Enugu, Gombe, Imo, Kogi, Kwara, Nasarawa, Ogun, Osun, Oyo, Plateau, Rivers, Taraba and Zamfara.

Speaking on negotiations with the Federal Government, the President of NLC, Ayuba Wabba, said: “At the last meeting the organised labour had with the Federal Government, government team presented its position and labour presented its too but there was no agreement reached and the meeting was adjourned sine die. There was no conclusion on the model of deregulation of the downstream sector that the country should adopt.

“With the inflation rate at an all-time high and most Nigerians slipping into extreme poverty amid other economic and social challenges, I think the government needs to be very careful not to inflict more pains on Nigerians because there are lots of issues that must be sorted.

“During our engagement with government, labour disputed the claim that Nigerians consume 90 million litres daily. We disputed this figure after we compared our data with countries that are larger than Nigeria and we found that what they consume is much lower than the figure the government is brandishing. After the February meeting, there has been no other meeting that was held and that February meeting was adjourned sine die.”

According to the National Bureau of Statistics (NBS), the 36 states and the Federal Capital Territory (FCT) generated a sum of N1.31 trillion internally in 2020, representing a marginal decline compared to N1.33 trillion recorded in 2019, and an increase compared to N1.17 trillion in 2018.

The COVID-19 pandemic had huge impact on the economies of the states. With the determination of the Federal Government to begin the deduction of the loans granted to states by the CBN, the lamentations of state governments are not about to abate.

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