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•Says it can’t sustain fuel subsidy
•Subsidy to gulp N6.7trn in 2023

By Emma Ujah, Peter Egwuatu & Udeme Akpan

THE Federal Government recorded a N3.09 trillion deficit in its 2022 budget implementation between January and April as subsidy on fuel gulped N1.94 trillion, exceeding revenue for the period by 19 per cent.

The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, disclosed this at the Public Consultative Forum on the draft federal government 2023 – 2025 Medium Term Fiscal Framework & Fiscal Strategy, in Abuja, yesterday.

According to her, the deficit underscored the fiscal challenges confronting the federal government.

Her words, “As of April 2022, FGN’s retained revenue was only N1.63 trillion, 49% of the prorata target of N3.32 trillion,” adding, “The actual spending as of April 31st was N4.72 trillion.”

Out of the N4. 72 trillion, Ahmed explained that N1.94 trillion was spent on debt service; N1.26 trillion on Personnel cost, including Pensions; and N773.63 billion on capital expenditure.

The Minister also announced that the Nigerian National Petroleum Company Ltd which had funded the petrol subsidy until last month would henceforth leave that responsibility to the federation.

This she said would even create a greater strain on the fiscal position of the federal government, describing petrol subsidy as unsustainable.

On revenue from the new NNPC, the minister explained, “NNPC will be paying loyalties, dividends and taxes. We will work out an arrangement with NNPC on how this will be paid and it is possible to work out an arrangement where the payment could be monthly or quarterly.”
Mrs. Ahmed lamented the low oil revenue which for the past eight months had been taken up by subsidy payments by the NNPC, with zero remittance to the Federation Account.

According to her, “the gross oil and gas federation revenue for full year 2022 was projected at N9.37 trillion; as at April 30, 2022, N1.23 trillion was realized out of the pro-rata projection of N3.12 trillion, representing a mere 39% performance.”

She added: “Despite higher oil prices, oil revenue under-performed due to significant oil production shortfalls for two main reasons: oil production shut-ins resulting from pipeline vandalism and crude oil theft; and high petrol subsidy cost due to higher landing costs of imported products.

“Actual average crude oil price is higher than the budget benchmark price of $73 per barrel. However, higher oil price is offset by lower oil output, which as of April 2022 stood at an average of 1.32 mbpd.

“NNPC attributes the fall in oil production to the high incidence of crude oil theft and pipeline vandalism.”

Subsidy could gulp N6.72trn in 2023

The minister presented the projected fiscal outcomes in the medium term under two scenarios, saying fuel subsidy would virtually gulp the entire revenue next year, if not eliminated.

Her words: “Scenario 1 – the Business-as-Usual scenario: This assumes that the subsidy on PMS, estimated at N6.72 trillion for the full year 2023, will remain and be fully provided for.

“Scenario 2 –Reform scenario: This assumes that petrol subsidy will remain up to mid-2023 based on the 18-month extension announced early 2021, in which case only N3.36 trillion will be provided for.”

She warned that if the nation insisted on fuel subsidy throughout 2023, the net revenue could fall to as low as N500. 566 billion.

According to the minister, in this scenario (1), given the severely constrained fiscal space, it is not feasible to make any provision for MDAs’ capital expenditure in 2023 beyond multilateral/bilateral loan-funded and donor-funded projects.

”The FGN’s 2023 aggregate expenditure is estimated at N16.98 trillion, which is N337.05 billion (1.9%) lower than the 2022 budget.

“The sums of N20.29 trillion and N22.73 trillion are projected to be spent by the FGN in 2024 and 2025, respectively.”

In his remarks, the Minister of State for National Planning, Prince Clem Agba, challenged Nigerians to be forthright on structural issues in the domestic economy and agree to eliminate petrol subsidy, arguing that the poor were actually subsidising the rich.
He said haulage trucks that mainly transport food and other products across the country had been buying diesel at deregulated prices and that opposition to petrol subsidy removal was usually funded by large companies for their selfish interests.

Factors impacting outlook

The Director-General of Budget, Mr. Ben Akabueze, identified factors impacting the medium term fiscal outlook to include: the Russia and Ukraine war with severe implications on food and energy prices; renewed elevated inflation in most economies, prompting monetary tightening in these economies with the inherent negative impact on capital inflow to emerging markets economies; challenging domestic macroeconomic and business environment; and the negative impact of insecurity on the domestic economy.

Subsidy, not sustainable — PetroHub

However, in a telephone interview with Vanguard, yesterday, the Lead promoter, EnergyHub Nigeria, Dr. Felix Amieyeofori, said petrol subsidy was not sustainable.

Specifically, he said: “Subsidy is not sustainable. The government knows it. It is eating deep into the purse of the federal government. This government does not have the time to solve the subsidy problem. The solution is to get our refineries, which have been under Turn Around Maintenance, TAM, working.”

Dr. Amieyeofori, who expressed fears that the petrol subsidy would continue to rise as the prices of crude oil continue to surge in the international market, said: “At the current crude oil price, they will continue to subsidise until their refinery works.”

Adopting CNG, LPG

Examining other options, he said: “But they can do a swap arrangement with an offshore refinery. The other solution is to popularize dual fuels like Compressed Natural Gas, CNG and Liquefied Petroleum Gas, LPG.

They can also embark on increased adoption of electric cars to reduce dependence on petrol as well as set up recharge points with solar power at various stations in most cities.

Electric cars can be made to drive within major cities. It is cheaper to do that in the interim than to build Refinery. Government can save a lot of money.”

Similarly, the Executive Director, Spaces for Change, Victoria Ibezim-Ohaeri, said: “In principle, the new emergence of the new NNPC Limited is gladdening. It is a very good idea, capable of opening up the market.

”But some stakeholders have their fears, which are well-founded. For instance, the power sector was opened up for public participation which has not been very successful because the political class ended up taking them over.

Fuel subsidy drains scarce resources —Prof Uwaleke

Uche Uwaleke, Professor of Capital Market and President Association of Capital Market Academics of Nigeria, said: “Fuel subsidy is a drain on the nation’s scarce resources and is at the expense of development spending. The opportunity cost is so high compounded by the non transparent nature of the subsidy regime.

“Till date, no government agency has accurate data on the volume of petroleum products consumed in the country. I think it is time that the government commenced the process of phasing out fuel subsidy. It should be a gradual process given the immediate negative impact of its implementation on inflation which is already too high.

Fuel subsidy’s albatross over Nigeria’s economy—Adonri

Analyst and Vice Chairman, HighCap Securities Limited, Mr David Adonri, said: “ Fuel subsidy is the albatross hanging dangerously over Nigeria’s economy. Whoever formulated this policy at its inception only did so to satisfy some political expediencies.

For a developing economy that needs to push every subsidy into production, consumption subsidy exemplified by fuel subsidy, makes no economic sense.

This bad policy will continue to haunt the economy if not discarded. It is because of fuel subsidy that FGN is borrowing so much and paying out virtually all revenue to service debt.

Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.