Olusola Bello
As the price of crude hits $90 per barrel at the international market, the Nigerian National Petroleum Corporation(NNPC) Limited has come out with a demand for N3trn for Fuel Subsidy in the fiscal year 2022.
The implications of these are that revenue allocations to various governments from the federation account would shrink as more of the gains from the crude oil sales would be deployed to buying Premium Motors Spirit or petrol.
With the demand of NNPC, analyst says, it means there is already about N3 trillion budget deficits from the 2022’s N17 trillion budget even before its implementation starts.
NNPC sells Nigeria’s share of crude oil on behalf of the Federal Government. So whatever revenue that is realized from the sales of the crude oil, part of it is deployed to cover the cost of Premium Motor Spirit or petrol.
By this action, the government would this year concentrate on recurrent expenditure, paying subsidy for fuel and servicing loans mostly.
She may also result in going into the bond markets and begin to compete with the private sector.
This would subsequently lead to increased interest rates and inflation.
On the social side, there would be less attention on building more roads, fewer schools, and hospitals. Some states may even run into problems with salary payments
The Minister of Finance, Budget, and National Planning, Mrs. Zainab Ahmed, had disclosed to journalists at the State House after the Federal Executive Council meeting which was chaired by President Muhammadu Buhari on Wednesday that (NNPC) has requested the sum of three trillion Naira (N3,000,000,000,000) as fuel subsidy for 2022
“In 2022, because of the increased crude oil price per barrel in the global market, now at $80 per barrel, and also because NNPC’s assessment is that Nigeria is that the country is consuming 65.7 million litres per day, that we would end up with an incremental cost of N3 trillion in 2022,” the minister added.
According to Mrs Ahmed, by implication, the Federal Government will have to make an incremental provision of N2.557 trillion in order to meet subsidy requirements which currently averages about N270 billion per month.
The finance minister further disclosed that only N443 billion is presently available in the 2022 budget meant to accommodate subsidy from January to June.
She also stated that the current realities on the ground including lack of structures, for now, has necessitated the NNPC to make the request.
That request, she revealed, was considered by the council, which has directed the ministry to approach the National Assembly for an amendment to the fiscal framework as well as the budget.
Brent oil on Wednesday surpassed $90 per barrel to strike the highest level for more than seven years, rattled by geopolitical tensions in Ukraine and supply concerns in the Middle East.
European benchmark Brent North Sea crude rallied as high as $90.42 in afternoon London trade, attaining a level last seen in October 2014.
The contract later stood at $90.23, up 2.3 percent from Tuesday.
“This has been coming for a while and even over the last week when prices were easing a little, there was little hope that it would lead to any kind of significant pullback,” OANDA analyst Craig Erlam told AFP.
“With the price now above $90 and gathering momentum once more, it may just be a matter of time until it’s flirting with $100.
“The fundamentals (of supply and demand) remain bullish for oil prices and the prospect of a Russian invasion of Ukraine will only increase the risk premium.”
Meanwhile, the President’s Special Adviser on Media and Publicity, Femi Adesina, while answering some question during an interview on Channels Television’s breakfast programme, Sunrise Daily, on Wednesday, said, Nigeria may have to continue to borrow due to the suspension of the removal of fuel subsidy,
“Head or tail, Nigeria will have to pay a price,” he said. “It’s either we pay the price for the removal in consonance and in conjunction with the understanding of the people, but if that will not come, the other cost is that borrowings may continue, and things may be difficult fiscally with both the states and the Federal Government.
“You know how much could have been saved if the subsidy was removed and how it could have been diverted to other areas and spheres of national life. But if you do not go that way now – and I agree that it may not be auspicious to go that way, then we have to pay a price.”
Last year, the Senate approved some loan requests by the government. This included the approval of $6.1 billion, as well as the $16,230,077,718 and €1,020,000,000 loan requests in July and November respectively.
According to Adesina, oil prices have been fluctuating globally for years as a result of one reason or the other, particularly due to COVID since 2019.
He stated that the price witnessed a decline as low as $30 per barrel, but later rose above $80 per barrel.
.An initial announcement to remove fuel subsidy in June was rejected by individuals and groups accusing the government of inflicting more suffering on Nigerians.
On Monday, the Minister of Finance, Budget, and National Planning, Mrs Zainab Ahmed, said removing fuel subsidy at this time would be problematic, thus the decision has been suspended.
But many, including the President of the Nigerian Bar Association (NBA), Olumide Akpata, believe the suspension of the fuel subsidy removal has to do with the coming elections in 2023.
“It is a valid thing [to do],” Adesina said of the government’s suspension of the removal, adding, “but is this done because of elections next year? No.”
“It is done because as the minister (of finance) stated, the timing is not auspicious, inflation is still high. In the past eight months, we saw inflation reducing but the last month, it went up again; further consultations need to happen with all the stakeholders.”
For the President’s spokesman, the government across the world is always mindful of its actions and decisions in a pre-election year, citing the developments in the United States and their impacts on the country’s poll.
He also debunked claims that the present administration’s proposal to extend the removal of fuel subsidy by 18 months was intended to booby-trap the next president.
“That was not the intention, the intention was also stated – the timing is not right, it will exacerbate the hardship of the people and the President genuinely cares,” Adesina said.
“Politics is a part of our lives, but elections will just be one event in the life of the country. When elections come, they go, the country continues. This fuel subsidy, whether it stays or goes, is going to have a serious impact on
the economy.”
