State governments will support total removal of fuel subsidy – El-Rufai

 

The Governor of Kaduna State, Malam Nasir El-Rufai, says state governments are ready to support the Federal Government in the elimination of fuel subsidy regime.

El-Rufai gave the assurance on Tuesday in Abuja, at the presentation of the World Bank Nigeria Development Update, November 2021 edition titled “Time for Business Unusual”.

El-Rufai, a panelist who joined virtually, said that if the regime of fuel subsidy was not eliminated, 35 out of the 36 states of the federation may not be able to pay salaries in 2022.

According to him, kerosene which matters most to the masses had been regulated without any hitches, while diesel which was most important to transporters had also been regulated for a long time.

“This hullabaloo about petrol is something that we must as a country have a conversation and agree that it has to end.

“We cannot continue to provide petroleum to our neighbouring countries, which is what we are doing.

“Why are we doing this? For whom are we doing it? Who is the beneficiary? Which is the cabal that is the beneficiary of this and why should they hold this country to ransom and bankrupt the Nigerian economy?

“Right now, we are losing N250 billion a month and this has to end. State governments are committed to supporting the Federal Government on this.

“We do our bit, engage stakeholders and put the facts on the table so that everyone understands the danger the country is in if the subsidy continues, as well as the benefits that will accrue.

“Not only to the budgets of the states and their capacity to deliver social services, but also what will go directly to the pockets of the poorest Nigerians that will bear the brunt of any withdrawal of subsidy.

“This is the position of the state governments and we met just a few days ago to take this position.”

El-Rufai said that the governors saw the dangers in continuing on the path of petroleum subsidy and support policy measures needed to improve the fiscal situation, such as price stability.

This, he said, was by ensuring that there was alignment of the exchange rate and good coordination between fiscal and monetary policy.

Mr Shubham Chaudhuri, the World Bank Country Director, said even though Nigeria’s economy exited a pandemic-induced recession, several challenges persist including double-digit inflation, declining incomes, and rising insecurity.

“While the government took bold policy measures to mitigate the impacts of the COVID-19 crisis, the reform momentum has slowed which hinders Nigeria’s ability to reach its growth potential,” Chaudhuri said.

According to him, the issues of insufficient supply of foreign exchange, exchange rate management, unsustainable petrol subsidy, trade restrictions and sizeable fiscal deficit financing by the Central Bank of Nigeria (CBN), were undermining the business environment.

He added that they were also compounding underlying constraints on domestic revenue mobilisation, foreign investment, human capital development and the delivery of public services.

Mr Marco Hernandez, World Bank Lead Economist for Nigeria and co-author of the report, said while in 2022 the Federal Government plans to spend about N3,000 per person for health, the cost of petrol subsidy for 2022 could reach N13,000 per person.

“Not only is the petrol subsidy costly, but it mainly benefits richer households.

“Nigeria has the opportunity to establish a “compact” with citizens that eliminates the subsidy and uses the savings to provide targeted cash transfers to lower-income-households, invest in job-creating programmes, and improve its fiscal position.”

According to the report, under a business-as-usual scenario, Gross Domestic Product (GDP) per capita will continue to decline, but reforms could accelerate growth.

“Thus, Nigeria faces a critical choice: it can continue to pursue a business-as-usual policy approach while its economy and job market deteriorates, or it can undertake bold measures that put Nigeria on a robust and sustainable long-run growth trajectory.”

The report, however, highlights urgent policy priorities that could be implemented over the next three to six months in four key areas.

It suggests eliminating petrol subsidy while protecting poor and vulnerable households from any inflationary impact and reducing inflation through a coordinated mix of exchange rate, trade, monetary and fiscal policies.

It also said Nigeria could catalyse private investment by enhancing foreign exchange management, easing trade restrictions and fostering a better business environment, as well as addressing fiscal pressures through enhanced domestic revenue mobilisation and reducing reliance on CBN deficit financing.

Mrs Zainab Ahmed, Minister of Finance, Budget and National Planning, said that ahead of the target date of mid-2022 for the complete elimination of fuel subsidies, the Federal Government was working to cushion the impact on Nigerians.

“We are working with our partners on measures to cushion potential negative impact of the removal of the subsidies on the most vulnerable at the bottom 40 per cent of the population.

“One of such measures would be to institute a monthly transport subsidy in the form of cash transfer of N5,000 to between 30 to 40 million deserving Nigerians.

“I agree with the report that with the expansion of social protection policies during the pandemic, the government has an opportunity to phase out subsidies such as the petroleum subsidy while utilising cash transfers to safeguard the welfare of poor and middle-class households.

“Towards this end, we intend to accelerate our structural reforms, particularly in the power sector, in governance, in business environment to unlock the huge potentials of the economy, scale up social safety net and deepen financial inclusion to reduce poverty and inequality gaps.”

Malam Mele Kyari, Group Managing Director and Chief Executive Officer of Nigerian National Petroleum Company Limited, said that subsidy would have been eliminated in 2020 but certain factors prevented it.

He, however, said that the law provides that by the end of February 2022, the nation should be out of the subsidy regime.

“There will be no provision for it legally in our system, but I am also sure you will appreciate that government has a bigger social responsibility to cater for the ordinary and therefore engage in a process that will ensure that we exit in the most subtle and easy manner.”

Kyari assured that fuel subsidy removal would definitely be achieved in 2022 as it was now fully backed by law, adding that the price of the product may range between N320 and N340 per liter.

On the hike in prices of cooking gas, he said that it was a demand and supply issue as there was a global crunch on supply of gas and many countries were now threatened by lack of supply in December.

He added that the product was not under any subsidy regime and therefore irrespective of where it was produced, would follow the global trend.

Kyari, however, assured that the company was working on increasing local production to meet the needs of consumers.