Petrol subsidy payments grew by 349.42 per cent from N350 billion in 2019 to N1.573 trillion in 2021, propelled by the rising price of crude oil in the international market and the falling value of the Naira.
The cost of subsidizing the product in 2020 was N450 billion. In 2022 alone, the total cost of subsidy in January and February was N396.72 billion, the latest data from the Nigerian National Petroleum Corporation, NNPC, has shown.
Federal legislators approved the sum of N4 trillion to be spent on petrol subsidies in 2022.
The Federal Government had previously disclosed through the Minister of Information, Alhaji Lai Mohammed, that it spent N10.413 trillion on fuel subsidies between 2006 and 2019.
With Nigeria importing all its petrol from refineries abroad, the low value of the Naira has had a significant impact on the pricing of the product in-country.
None of the three government-owned refineries is currently operational, despite huge investments in their Turn Around Maintenance (TAM) by the government.
The current administration has failed on its promise to make the refineries operational within a short period of assuming office.
Deregulation on hold
A plan by the government to deregulate the sector, following enactment of the Petroleum Industry Act (2021) that prescribes a free market for the downstream sector of the petroleum industry has been abandoned, with the government seeking and obtaining budgetary approval to spend N4 trillion on petrol subsidy.
The annual expenditures on petrol subsidy under the current administration contrast very sharply when compared with fuel subsidy under the government of former President Goodluck Jonathan, which was accused of fuel subsidy fraud.
According to data published by the defunct Petroleum Products Pricing Regulatory Agency, PPPRA, the Federal Government paid a total of N2,105.92 trillion in 2011, an increase of N1,437.84 trillion from the 2010 payment.
It also noted that in 2012, N1.35 trillion was paid as a subsidy, the highest within the period under review.
“A total of N 1, 316 trillion in 2013, N1,217 trillion in 2014 and N653.51 billion in 2015 was paid as subsidy claims,” it added.
It noted that the NNPC since 2016, had been the sole importer of the product to the country.
Determined to curb fiscal leakages associated with the fuel subsidy regime, President Jonathan had announced deregulation of the downstream sub-sector, with a view to eliminating fuel subsidy.
However, incumbent President Mohammadu Buhari, and other opposition party leaders, under the Save Nigeria Group, organised nationwide protests to stop Jonathan from going ahead with the decision.
Other notable Nigerians that led the mass protest included Pastor Tunde Bakare, who was Buhari’s running mate in Congress of Progressive Change (CPC) and Governor Nasir el-Rufai of Kaduna State.
The protests forced Jonathan to rescind the policy. When Buhari took over power in 2015, his government initially refused to pay fuel importers for products imported into the country.
It took a fuel crisis, characterised by long queues, to force the government to pay the debts, as the marketers insisted that they would not import more products unless their earlier bills were settled.
The Buhari administration was to later come to terms with the realities of the rot in the industry.
President Buhari made himself Minister of Petroleum and by so doing, has directly managed the petroleum industry. However, he has failed to make any policy changes.
‘Global price of crude determines petrol price here’
Speaking in a telephone interview from Ibadan, Director, Centre for Petroleum, Energy Economics and Law, University of Ibadan, Professor Adeola Adenikinju said the price of petrol is determined by the international price of crude and cost of foreign exchange.
Adenikinju noted that the government’s decision to continue subsidy payment was more political than economic, given the revenue challenges facing governments at all levels.
He pointed out that by retaining the petrol subsidy, the government would find it difficult to meet other commitments.
According to him, “It is a political decision, not an economic one. Economically, we know that subsidies have been very costly to the country and this is going to have serious implications on government revenue, particularly the state governments.
“The states are going to feel it more because they depend heavily on revenue from the Federation Account and secondly, they do not have the leverage to borrow like the Federal Government.
“If it goes ahead, the states are going to be hard-hit financially and it is going to be extremely difficult for them to meet all their commitments in terms of payment of salaries and keeping their obligations to pensioners”.
He noted that he would not be surprised later in the year if the states and local governments are unable to meet their commitments.
The university teacher also pointed out that the decision went beyond just revenue but would also have implications for the oil industry.
“It is also at the heart of the deregulation of the downstream sector. It will have implications for the implementation of the Petroleum Industry Act 2021 significantly because the decision on pricing is about market forces being at play to allow investment decisions to be made.
“This is going to hinder investment, so we can say that until the issue is resolved there is not going to be much private investment flow to the downstream sector.”
He blamed the middle class and the elite, who he said are the main beneficiaries of the petrol subsidy regime for mounting pressure on the government to retain the policy.
“Once you touch the middle class, the elite, they react. The argument is about the protection of the privileges of the middle class to which the labour unions belong. This is because kerosene was deregulated, nothing happened, diesel was deregulated, nothing also happened but once you touch something that affects the middle class, it becomes difficult to implement because they have access to the media”, he added.
‘Loss of confidence in govt by citizens’
He also blamed the resistance to the policy on citizens’ loss of confidence in the government, pointing out that over time Nigerians no longer trusted the government.
Adenikinju urged the government to intensify negotiations with organized labour, noting that ending the costly subsidy regime is critical to the financial state of governments at all levels.
On his part, Independent Oil and Gas Governance Consultant, Mr Henry Adigun, in an earlier interview with Vanguard, argued that it is impossible for Nigerians to expect to continue to pay the same rate for petrol while it was rising in other countries due to crude oil price in the international market.
Adigun noted that while the reluctance of the government to have petrol subsidies removed is understandable, Nigerians must know that the payment would have to come from somewhere.
According to him, “the challenge about PIA is not about the quality of the law but implementation, and so far the government has been very inconsistent in the implementation and they have not really allowed it to work.
“I understand that you cannot have subsidy removal now because the hardship on Nigerians would be immense. We have a situation whereby inflation is about 17 per cent and food prices have soared. Any attempt to increase petrol price will mean that a litre of petrol will probably sell at N270-N285.
“That would have a knock-on effect on inflation, food basket and on many other things, and at the point, we are in now, we cannot afford that as it might lead to social unrest. Our people are very angry because there is poverty in the land”.
How subsidy rose sharply, by MOMAN scribe
Speaking to Vanguard in a telephone interview, the Executive Secretary of Major Oil Marketers Association of Nigeria (MOMAN), Mr Clement Isong, explained that three factors were responsible for the astronomical rise in petrol subsidy.
Isong listed a rise in the international price of crude oil, foreign exchange rate and high rate of petrol smuggling across Nigeria’s borders.
He said: “The first is the international cost of crude oil and the derivative products like Premium Motor Spirit (petrol) has gone up significantly as a result of the Russian war in Ukraine. So the price of crude itself, and the price of petrol, diesel and all products that come from petroleum have gone higher than they normally would be because of the war and the sanctions imposed on Russia, which is a major exporter of crude.
“Secondly, the rate of foreign exchange is exceedingly high right now. That is to say, the exchange rate for the Naira is at its highest level. I’m not talking of the black market which is even higher, I’m talking about the Central Bank of Nigeria rate which is N411-N414 to the dollar. It is higher than it has ever been historically.
“Finally, and this is the most important reason because you have capped the price, at one third or one quarter, of the price that it is across the borders, the propensity for the product to move across the borders is at the highest.
“What I mean by that is that so many people, ordinary Nigerians, ordinary human beings on both sides of the border engage in moving the product from the Nigerian side to the other side. Whether we are talking about Cameroun, Chad, Republic of Benin, Niger or Equatorial Guinea, this product goes to the whole Central and West African regions.
“This is because it is a simple law of economics that the product will follow where the price is highest. The product will go there by itself. Now because there is so much product going out, and the government doesn’t want queues in Nigeria, the government has increased the amount of product that it is importing for the Nigerian people”, he added.
He explained that the combination of these factors has brought Nigeria to where it is at the moment.
Isong explained that ordinarily, the volume being imported into the country ought to be lower, but the activities of smugglers have shot up the volume.
“For all, you know, maybe our consumption in Nigeria is normally 30, 35, maybe 40 million litres per day, in the last couple of years it has been between 60 and 65 million litres per day which were already too high because of the price cap but now that the differential between the price in Nigeria and in neighbouring countries is even higher, the volume that will go outside Nigeria will be higher.
“So, this year, we are averaging between 70 and 80 million litres per day. That volume is not consumed in Nigeria. The solution is simply for Nigerians to put up their hands and say to the government, we no longer want subsidies. The subsidy is killing our country, subsidy is killing us”.
The MOMAN scribe noted that while he understood the argument behind the government’s decision, removing subsidies is in the best interest of the country.
“The position of the industry as a whole is this: the industry is against the subsidy. We have always been against it, we will always be against it. We are against the concept of price regulations which is what brings the subsidy”, he stated.
Subsidy widens FG’s deficit
The Federal Government said that the fuel subsidy was widening its deficit gap so much that it was considering tapping the 2 billion Euros it raised in the Eurobond sale last year to support its fiscal position.
Reuters reported the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, as disclosing this at the Arab-African Conference in Cairo, Egypt.
She said that the administration will target more local borrowing this year to help fund the budget deficit which has been exacerbated by rising oil prices, due to Russia’s war in Ukraine.
Mrs Ahmed was quoted as saying, “Rising oil prices have put us in a very precarious position … because we import refined products … and it means that our subsidy cost is really increasing.” The Federal Government had, in September last year, raised 4 billion Euros from the international capital market.
Although the President Muhammadu Buhari administration had announced plans to end fuel subsidies in June, it later reversed itself following a public outcry against the decision.
It then extended the subsidy by 18 months to avert any protests in the run-up to presidential elections next year, as part of its external borrowing plan.
Rather than being an advantage to Nigeria as a major oil producer, the high crude oil prices have become a burden for the country as the fuel consumed locally is imported.
The Buhari administration has failed in its promise to make the four refineries owned by the Nigerian National Petroleum Company Limited become operational, despite huge investments in their Turnaround Maintenance.
The NNPC has given the excuse of high under-recovery as the reason why it has not been remitting oil revenue to the Federation Account, from where the three tiers of government share federation revenue on a monthly basis.
Even the Monetary Policy Committee, MPC, recently aired its concern over NNPC’s non-remittance of oil proceeds at a time when oil prices have risen very high to the advantage of other oil-producing nations of the world.
The exact volume of Premium Motor Spirit, PMS, popularly known as petrol consumed in the country remains a subject of contention. The state governors had rejected the NNPC’s claim of 75 million litres of daily consumption.
The Minister of Finance had announced that a committee was working to reconcile the financial position of the NNPC, in respect of the under-recoveries, and the remittance into the federation coffers. The reconciliations have yet to be made public.
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Appeal Court Exonerate Zenith Bank, Upturns High Court Judgement Slam Fine on Real Integrated & Hospitality Limited
After several months of legal tussle between Zenith Bank Plc v Real Integrated & Hospitality Limited and State Universal Basic Education Board (SUBEB) Gombe State, a three-man panel in the Court of Appeal sitting in Lagos led by Justice Muhammed Sirajo in Appeal No:CA/LAG/CV/262/2022 – have unanimously upturned the Lagos State High Court judgment of Justice O. O. Abike-Fadipe over claims that; on March 8, 2022, there was a breach of contract because on October 7, 2011, Zenith Bank refused Real Integrated to withdraw from its Account No. 1012465427. In her judgment, she directed Zenith bank to pay an interest of 15 per cent per annum on the N872,780,522.84 from May 17, 2011, when the advanced payment guarantees expired till judgment and thereafter at the rate of 10 per cent per annum until final liquidation
Through Zenith Bank’s team of counsel led by Prof. Fabian Ajogwu, SAN and Mr Sylva Ogwemoh, SAN, the bank challenged Justice O. O. Abike-Fadipe’s decision of awarding N2,500,000 as the cost of the action in favour of Real Integrated. The legal team via valid argument backed by proofs argued and sought an order setting aside the lower court decision on the ground that it acted in full compliance with its contractual obligations in line with the Advanced Payment Guarantee (APG) contract and that the trial court was wrong. The Court of Appeal, in a unanimous decision on November 23, agreed with the bank’s submission and resolved all the issues raised in its favour. It was gathered that; the 1st Respondent, through its Counsel, E.O Jakpa, argued that the bank breached the contract while SUBEB Gombe State did not contest the Appeal.
Apart from the appellate court setting aside the judgment of Justice Abike-Fadipe, the judge also awarded a cost of N200,000 against Real Integrated & Hospitality Limited and in favour of Zenith Bank. The appeal court further stated that the lower court judgment was upturned on the ground that the trial court was wrong to have presumed that the bank withheld the full account statement of Real Integrated in the light of Exhibit C6 (the comprehensive Statement of Account of Real Integrated), which was tendered by the bank for a limited purpose, adding that there was no need for the lower court to have invoked Section 167 (d) of the Evidence Act, 2011 against the bank.
Dollar crisis: EFCC plans massive raid on forex dealers
The Economic and Financial Crimes Commission on Tuesday carried out simultaneous operations against Bureau de Change operators in Abuja and Kano, as the Naira slumped to N857 to a dollar at the parallel market.
The PUNCH gathered that the raids in the two cities, which netted a good number of illegal BDC operators and individuals suspected to be customers, would also be extended to Lagos, Onitsha, Ibadan, Port Harcourt and other major cities across the country.
Our correspondents learnt that the incident disrupted the day’s business as many of the BDC operators in Abuja went underground.
This is happening as the EFCC arrested the Kogi State House of Assembly candidate of the New Nigeria Peoples Party, Ismaila Atumeyi and two others with N326m and $140,500 cash.
The black market forex dealers were carrying on their business activity as usual when the EFCC operatives backed by armed policemen stormed their makeshift stalls located opposite the Sheraton Hotel in Zone 4, Wuse, Abuja and took many of them into custody.
An eyewitness noted that the arrested suspects were dragged into waiting vehicles as the incident stalled traffic in the area.
In the wake of the Central Bank of Nigeria’s announcement that the redesigned naira notes will replace higher notes to fight counterfeiting, inflation and insecurity with effect from December 15, the national currency has continued to be under pressure against the dollar.
The development was blamed on BDC operators and individuals desperate to convert their ill-gotten money into hard currency.
The EFCC Chairman, Abdulrasheed Bawa had endorsed the planned redesign of the naira and cautioned BDC operators against currency hoarders who would attempt to seize the opportunity to offload the currencies they had illegally stashed away.
Giving an insight into the raids in Abuja and Kano, a senior official explained that the EFCC has been monitoring the activities of forex dealers in the two cities, adding that the operations were intelligence-led.
He also disclosed further that the raids would be extended to Lagos, Port Harcourt, Maiduguri, Ibadan and other cities across the country to stop BDC operators from ‘destroying the naira.’
“Today’s (Tuesday) operations were successful as they were intelligence-led. We have placed various bureau de change points under watch since the CBN announced the redesign of the naira.
“So, we know that those with illegal wealth would want to take advantage of the development to off-load their stash and convert it to dollars. It is not a one-off operation; it would be extended to Lagos, Port Harcourt, Maiduguri, Ibadan, Onitsha and other cities,’’ the official disclosed.
“The EFCC spokesman, Wilson Uwujaren confirmed the raid on the forex dealers in Abuja and Kano but said he has no information on the planned operation in other cities.
“I can confirm that our operatives raided the Wuse Zone 4 area of Abuja today and arrested some BDC operators. However, I can’t confirm the number of suspects arrested yet,’’ he stated.
But speaking with The PUNCH after the raid, a forex dealer in Abuja blamed the EFCC for the crash of the local currency.
“We are all in hiding. We sell at N857/$ now. I told you it was N850/$ in the afternoon but that rate is no more possible at this time. The dollar is very scarce because the EFCC entered the market today. Maybe things will change tomorrow (today),” a forex dealer, Abubakar Attahiru, told one of our correspondents on the telephone at 6.12 pm on Tuesday.
Another BDC operator offered to buy a dollar bill at N855 as long as the seller had large sums of greenbacks.
“The more dollars you sell, the more money you make. If we buy at N850/$ from someone who has $100, we will buy at N852 from someone who has $10,000,” he disclosed.
But the Association of Bureau De Change Operators of Nigeria, Alhaji Aminu Gwaadabe, said he was fully in support of the raid.
“As an association, we are in support of the raid. We cannot be seeing a lot of irregularities and still support them. It is unlicensed people that have taken over the market. The licensed are not even allowed to operate in the market,” he complained.
He explained that his association was aware of the impact of the proposed naira redesign, which had forced many Nigerians to move towards converting their naira to dollars, noting, however, that it was not a justification for the level of uncertainties in the market.
Economists have said the only major solution to the naira devaluation and the dollarisation of the Nigerian economy is productivity .
According to them, the current situation would hurt all aspects of the economy.
For a Professor of Economics at the Nnamdi Azikiwe University, Awka, Anambra State, Uche Nwogwugwu, the major problem was the CBN’s naira redesign announcement.
“What you have seen in the parallel market is a spasm of fear in the people. Why do you need to change your currency at this time when you have inflationary pressure, falling reserves and an economic downturn?
“If all of a sudden you are compelling people to change their currencies, they will be afraid and you will certainly have this kind of situation,” he said.
The Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, explained that the current devaluation of the naira at over N800 to a dollar would take its toll on the budget deficit of the country.
“In this regard, it will affect the deficit. If we have depreciation in the currency, there will be a variation. So, we are likely to see contract variations by contractors. In some contractual agreements, there’s always a variation clause, such that if cost changes or some fundamental variables change, the cost of the contracts will change.
“So, the cost of government projects will increase. Operational costs will increase, just as it affects everybody because the depreciation of the currency has an effect on inflation.
“The main effects will be inflationary and if there is no adjustment to accommodate that increase, projects will not be completed because the value of the naira has been further eroded.”
Meanwhile, a senior lecturer and economist at Pan Atlantic University, Vincent Olusegun, emphasised that the Federal Government was turning deaf ears to the reality of the naira devaluation.
He said, “In Nigeria, the exchange rate is not a floated one, it is one we have fixed ourselves and not market-determined. So, the government is living in denial that as the naira depreciates every day, they can maintain the exchange rate.
“Also, the exchange rate regime in the country is not market-driven because the government can fix N400 plus to a dollar which is what we are doing. In reality, the ability of the government to meet up with the budget is becoming unrealistic because the purchasing capacity has been reduced heavily.’’
Buhari backs Emefiele over naira re-design
Amid controversies over the position of the Finance Minister, Mrs Zainab Ahmed, on the decision of the Central Bank of Nigeria, CBN, to embark on the redesigning of Naira notes, President Muhammadu Buhari said yesterday that the CBN has his support on the project.
Ahmed, at the weekend, declared that the CBN did not carry her Ministry along in the new Naira note plan, warning that the new notes could have dire consequences on the value of the Naira.
But Buhari in a statement by his Senior Special Assistant on Media and Publicity, Mallam Garba Shehu, said he is convinced the nation will gain a lot by doing so.
Speaking in a Hausa radio interview with Halilu Ahmed Getso and Kamaluddeen Sani Shawai, Buhari said reasons given by the CBN convinced him that the economy stands to benefit from a reduction in inflation, currency counterfeiting and the excess cash in circulation.
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He said he did not consider the period of three months for the change to the new notes as being short.
According to him, “people with illicit money buried under the soil will have a challenge with this, but, workers, businesses with legitimate incomes will face no difficulties at all.”
Experts call for harmony
Meanwhile, economists and financial experts have harped on the need for harmony between the fiscal and monetary policy authorities while maintaining the independence of the CBN.
David Adonri, Vice-Chairman, Highcap Securities, said that, while it is important for both the CBN and the Finance Ministry to synergise on policy-making in order to achieve a better outcome, the independence of the CBN as obtained in other economies does not require the permission of even the president to undertake a project such as the redesigning of the Naira.
In his words: “The economy is managed by the government through macro-economic policies (fiscal and monetary policies); while the Federal Ministry of Finance (FMoF) is the fiscal authority, CBN is the monetary authority. They are expected to work harmoniously in policy formulation and implementation. Any discord between these authorities is detrimental to economic management.
“Before any policy is formulated by any of them, there ought to be in-depth consultation between them and thorough analyses to know the sensitivity on either side of the economy.
“Although each authority has its areas of exclusivity, which it may exercise without recourse, carrying each other along will facilitate superior policy outcomes.
“In this particular instance, the reasons for changing of currency by CBN are justifiable but there is no reason for not carrying the FMoF along for them to be prepared for the change. Where the monetary authority is independent, which we clamour for, the Central Bank does not even require permission from the President to undertake any monetary action.
“Independence of a central bank is essential so that monetary policy will not be influenced by political expediency.”
Further insight from CBN
The CBN, reacting to the position of the Finance Minister at the weekend, said it was surprised by the minister’s outburst and that due process was followed in arriving at the Naira redesign project, including obtaining the approval of President Muhammadu Buhari.
Also, the apex bank doused concerns about the cost of printing the new notes, saying they will come at no outrageous cost, printed in the country and within the budget of the apex bank.
According to a statement from the CBN’s spokesman, Mr Osita Nwanisobi, the apex bank stressed that the CBN remains a very thorough institution that follows due process in its policy actions.
According to Nwanisobi, the management of the CBN, in line with provisions of Section 2(b), Section 18(a), and Section 19(a)(b) of the CBN Act 2007, had duly sought and obtained the approval of the President, Major General Muhammadu Buhari (retd.) in writing to redesign, produce, release and circulate new series of N200, N500, and N1,000 banknotes.
However, urging Nigerians to support the currency redesign project, he said it is in the overall interest of Nigerians, and that some persons were hoarding significant sums of banknotes outside the vaults of commercial banks. This trend, he said, should not be encouraged by anyone who means well for the country.
Why Naira redesign is necessary — Moghalu
Commenting on the issue, a former Deputy Governor of the CBN, Kingsley Moghalu, said that the decision of the CBN to redesign the naira notes is a ‘necessary step’ for the good of the economy.
Moghalu averred his support for the decision in a series of tweets on his Twitter account on Friday.
He explained that the CBN is trying to gain control over the money supply in the economy.
“I fully support the Central Bank’s redesign of the Naira,” he said. “If 80% of banknotes in circulation are outside the banks, that’s troubling. The CBN obviously wants to force all those notes back into the banking system. Those with the notes must surrender to get new ones or else it becomes illegal tender after January 31 2023.
“This is also a way to withdraw currency from circulation, an unorthodox way of tightening the money supply since the country is battling high inflation.
“The flip side is that people who are holding huge amounts of cash outside the banking system for nefarious reasons will go the parallel forex market to buy hard currency, putting further downward pressure on the value of the Naira as too much Naira will be chasing too few dollars.
“I doubt it will solve inflation because there also are other major reasons for inflation such as the forex crisis, which this new move could exacerbate, as well as impact of the security crisis on food price inflation. But overall it is a necessary step.
“I just think the time window for its implementation is rather short. This will put a lot of operational pressure on commercial banks and the financial system in general. A 90-day window would have been better, but one can understand the need to avoid interfering with the elections.”
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