Stakeholders in the downstream segment of the oil and gas sector as well as some members of the private sector have projected that the country’s spending on subsidy may exceed the N3 trillion appropriated for it going by oil futures and landing cost of the commodity.
With the landing cost of premium motor spirit (PMS) already hovering over N400 a litre at the official exchange rate (N416.45), marketers noted that the figure may be higher if the parallel market price is used as a benchmark.
Specifically, the Lagos Chamber of Commerce and Industry (LCCI) yesterday, predicted that Nigeria would borrow more to finance its monthly payment of subsidising fuel consumption in the country.
Indeed, the Chamber stated that with a monthly payment of about N250 billion to subsidise fuel consumption and the sum of N3 trillion already provided in the 2022 Federal Government budget and an additional expenditure against the projected revenue, deficit financing has increased significantly.
Yesterday, Reuters stated that the Minister of Finance, Zainab Ahmed said the country plans to tap two billion euros ($2.2 billion) this month or next of the money it raised in a eurobond sale last year and target more local borrowing in 2022 to help fund its costly petrol subsidies as oil prices rise.
Ahmed said the country will not tap the eurobond market this year.
“Rising oil prices has put us in a very precarious position … because we import refined products … and it means that our subsidy cost is really increasing,” she said on the sidelines of an Arab-African conference in Cairo.
LCCI President, Dr Michael Olawale-Cole, at the LCCI Fuel subsidy awareness seminar, said the implication of the deficit financing would mean for the government to borrow more in 2022 to finance this bloated deficit at a time when the government is battling with revenue mobilization challenges.
In his words: “The World Bank had recently opined that Nigeria’s decision to postpone the full deregulation of the downstream sector of the petroleum industry by 18 months may cost the country over N4tn in subsidy payments on petrol in 2022.”
He added that the signing of the Petroleum Industry Bill into law by President Muhammadu Buhari, was well-received by all major stakeholders and seen as a commendable act by the government, noting that the political will to sign the Bill into law was highly applauded because of the expectations of many on the full exploitation of the inherent potential of the oil and gas sector.
“The Chamber issued a statement commending the Federal Government and made a strong case for best practice in implementing the Petroleum Industry Act 2021. Less than a year into the signing of the Act, the implementation suffered a flip-flop as some of the provisions of the Act were suspended.
“While we support the full implementation of the PIA and the total deregulation of the oil and gas sector, we are not insensitive to the plight of the masses that may feel the pains of some of the provisions like the removal of fuel subsidies.”
He advised that the federal government must consider doing all that is possible not to truncate the implementation of the PIA 2021 which has already brought so much hope to industry watchers as a big game-changer for the oil and gas sector.
He said the price of diesel, mostly used in industrial production and other heavy-duty operations, has risen above N720 per litre, warning that the situation has implications for production downtimes, rise in prices, and eventually loss of jobs if not curtailed on time.
“The most sustainable way to go is to increase our local refining capacity and save the huge spending of our forex on importation of fuel,” he added.
Also speaking, the Managing Director and Chief Executive Officer, 11 Plc, Tunji Oyebanji, Oyebanji, said Nigeria is a major producer of crude, but stated that the nation’s refining capacity is virtually non-existent as the country has continually depended totally on importation.
“As we speak today, virtually 100 per cent of our consumption is imported and therefore, we are totally exposed to the vagaries of the international market.
“I keep telling people that the only reason why there is subsidy in Nigeria is because we have crude oil. If there had been no crude oil, I can assure you that the issue of subsidy would never have come up because they would not be able to afford it,” he said.
An Energy Lawyer and Partner, AELEX, Olusina Sipasi, said if Nigeria goes ahead to implement subsidy, it may spend up to N4 trillion on fuel subsidy in 2022, adding that if the plan for fuel subsidy is implemented, about 18 per cent of the nation’s budget would be spent on fuel subsidy.
He added that removing fuel subsidy or not, the country is still likely to experience inflation, saying that maintaining the status quo is likely to make matters worse.