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FG outlines palliatives for subsidy removal

By Omoh Gabriel
LAGOS — AS part of its plan to fully deregulate the downstream sector of thefuel-station1 the Federal Government has outlined some palliatives to cushion the effects of the petroleum subsidy removal on the people.
The envisaged sectoral interventions are meant to cushion the immediate, medium and long term effect of the subsidy removal.

According to government’s planned deregulation programme, it will intervene in the economy through the rehabilitation of the railway, power, textile, support to development financial institutions for lending to the real sector of the economy, with particular focus on Small and Medium Enterprises, low-income housing and for export-oriented industries.

The envisaged strategic interventions, according to government thinking, would help address infrastructure bottlenecks, unemployment and enhance growth potential of the economy through the diversification of the economic base of the country.

The Federal Government, it was gathered, believes that the implementation of these measures would begin by the fourth quarter of 2009 which it regarded as very important. The envisaged interventions, it was learnt, would cost about N124.3 billion which the President has to seek funding for through a supplementary appropriation bill to be sent to the National Assembly soon.

The Federal Government, it was further learnt, hopes that it would support ongoing mass transit efforts by states and local governments, especially those in urban metropolitan areas in a bid to ameliorate the pains that the envisaged deregulation would visit on Nigerians.

Government, it was gathered, believes that reduced ownership cost of means of transportation in the country should reduce the upward pressure on transportation fares when the subsidy is eventually removed. The Government, it was also learnt, is at the moment considering the budgetary implications of its intervention plan on transport.

This measure, it was learnt, is to be implemented as a 2009 supplementary budget or captured in the 2010 budget provision.

According to sources, government’s strategic intervention plan it is to invest in National Railway Networks and support/invest in Metro Rail projects.

Vanguard gathered that this government is expected to reduce the current pressure on roads and government’s maintenance expenses. It is felt that migrating Nigerians from road transportation to rail will reduce the demand for petrol and that inter-city rail will further reduce the cost of transporting goods, especially food products.

Rehabilitating the railway as a palliative may have a relatively long term effect, but may be tough to sell as an immediate palliative measure. The budgetary implications, it was gathered, is to be ascertained and the implementation will come in the 2009 supplementary budget proposal to the National Assembly or captured in the 2010 budget.

According to the Federal Government, subsidy removal intervention plan the government in collaboration with local governments will provide vans and trucks to farmers’ cooperatives to haul products to major distribution centres and cities which it believes will help mitigate the cost of hiring vans to haul agricultural produce and reduce the cost of transporting goods into cities.

The proponent of this argument say it will directly contribute to governments 7-Point agenda and will reduce the inflationary pressure arising from food prices. This is also billed for implementation through the 2009 supplementary budget or to be captured in the 2010 budget.

The Proposal of oil sector deregulation before the government is based on the current indicative price of the Petroleum Price Regulation Agency, PPPRA the price of PMS should be around N98.2 per litre.

The government it was learnt is considering that the price of PMS should be allowed to increase within the range of N89.78 per litre to N 93.73 per litre, depending on the location, coastal or inter land, reflecting cost-saving measures recently approved by the government and additional measures derived from the reports of two consultancy outfit on the review of the PPPRA template.

The Proposal from government, officials insist, will be a once-and-for-all  liberalisation of price based on the fact that phased subsidy removal could be affected by political constraints, costs of negotiations when time for review is due, which will not  give the right signals to potential investors in downstream refinery sector arguing that  the cost components of fuel products are quite dynamic, creating a “moving-target” situation.


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