The Minister of Finance, Budget and National Planning, Zainab Ahmed, announced on Wednesday that the Federal Government has borrowed $800 million from the World Bank to use as palliative ahead of the total removal of petrol subsidy in June.
The loan is about N368.2 billion at the official rate or N596 billion in black market.
Specifically, she said the $800m, which is the first tranche, will be disbursed to the 10 million households (equivalent to about 50 million Nigerians) considered to be most vulnerable already captured by the National Social Register, to cushion the effect of the subsidy removal.
“This is a commitment in the Petroleum Industry Act. We are on course, we’re having different stakeholder engagements,” she said.
Details of the loan agreement between the Federal Government and the World Bank have a repayment plan which will be made from 2027 to 2051, twice a year.
Although the subsidy as it is being implemented in Nigeria is not viable, it is very unlikely if the N368.2 billion interventions will cushion the economic challenges that will come with the total removal of what the government called under recovery.
We hasten to say that subsidy wouldn’t have been an issue for long if past governments had tackled the root cause, because palliatives are akin to momentarily scratching the surface as the pain will soon return.
Our fear is that fuel prices may likely double as soon as the subsidy is removed and it will have a ripple effect on everything.
The plan to spend $800m on palliative measures will not be the first if eventually implemented after June 2023.
The Goodluck Jonathan government in 2012 spent over N16 billion on the Subsidy Reinvestment and Empowerment Programme for the Public Mass Transit Revolving Fund but most of that money was not recovered as loan from the beneficiaries.
According to reports, The Infrastructure Bank gave out the fund through mass transit vehicles to 31 beneficiaries, mostly commercial transport operators with 1,179 vehicles released under a four-year repayment scheme. It was later found that only a few firms like ABC Transport PLC and Young Shall Grow Transport Ltd fully repaid their loans.
The bank listed as “Chronic defaulters” 15 companies and organizations, owing N4.586bn as of December 2015. Among these, the National Union of Road Transport Workers got N2.3bn, the Nigerian Association of Road Transport Owners got N403.4m, and the Road Transport Employers Association of Nigeria got N370.7m.
Despite over N6 trillion subsidies funding for petrol in about 18 months so far, Nigerians have continued to buy the product at N195 per litre in Abuja and over N300 per litre in the states.
Nigeria has spent over N3.3tr on what it calls under recovery of petrol import through the Nigerian National Petroleum Company Ltd. It pegged another N3.35tr for the same purpose, which would serve till June 2023, a month into a new administration.
At least N200 billion is spent every month on the subsidy to keep the petrol price within limit previously but that keeps rising.
The pump prices have changed about three times in one year. From N165 per litre early in 2022, the pump price rose to N175 per litre, N185 per litre and now N195 per litre as the official rate in Abuja while it is high above N300 per litre across some states.
In February, the Group Chief Executive Officer of NNPC Ltd, Mele Kyari, said about N400bn is spent to subsidise petrol every month, which is about N202 per litre of petrol.
“It is worthy of note that over the past eight months, Nigerians have been buying petrol at different prices far above the approved price. We call on the Federal Government to fix the refineries and be deliberate about establishing the right institutional and policy framework to keep them running”
Kyari said the landing cost of importing petrol a few weeks ago was N315 per litre but that NNPC transfers to the marketers at N113 per litre and at 66 million litres daily multiplied by 30 days, it amounts to N400bn monthly.
“It is a strain on the cash flow of our company when you don’t get a refund from the ministry of finance. But we will continue to support the country and provide energy security to the country,” said Kyari.
The World Bank had repeatedly said that the subsidy regime in Nigeria only subsidises the rich (with many cars) and the economy of neighbouring countries like Niger Republic (due to petrol smuggling).
“The majority of the poor don’t benefit as much from the subsidy” compared to those who have ‘many cars’ or who take fuel across the neighbouring states,” said Shubham Chaudhuri, the Country Director of World Bank, Nigeria. Although we agree that the price of petrol has a direct correlation with the cost of living of the poor who are in the majority, we also note painfully that the subsidy is part of what is raising Nigeria’s borrowing for consumption and we should not continue to borrow to finance a budget that is not impactful on the economy.
There is no doubt that our country’s debt burden and high-interest rate will be worsened by this development.
Our point is that the Federal Government must fix our refineries and address the issue of the local refining capacity of Nigeria because previous palliatives had proved not to palliate the economic woes of the citizens.
While we commend the efforts of the Federal Government in its bid to provide support to millions of Nigerians who would be affected by the eventual subsidy removal, we must also commend the World Bank for considering Nigeria worthy of the grant.
It is without a doubt that an abrupt removal of the subsidy without any aid to cushion the hardship this would heap on the masses, especially the most vulnerable in the society, could lead to extreme forms of poverty.
The cost of living is already at a pace inconsistent with household incomes and the disposable income of workers and Nigerians, in general, has been eroded significantly by myriads of challenges.
While we support the removal of fuel subsidies and also commend the support of the World Bank, we believe the Federal Government should not shy away from the fundamental issues. These issues include fixing the refineries as a pre-condition for the removal of subsidies.
The questions that successive governments in Nigeria have refused to answer are: why can’t the refineries work? If millions of dollars had been expended on Turn Around Maintenance, why are the refineries still not working?
Why is it difficult to prosecute those that have collected money for the TAM and refused to fix the refineries? These questions beg for urgent answers.
It is worthy of note that over the past eight months, Nigerians have been buying petrol at different prices far above the approved price. We call on the Federal Government to fix the refineries and be deliberate about establishing the right institutional and policy framework to keep them running. We had hoped this would have been given attention first.
The Federal Government must stop using scarce resources to fix policy problems. It is both unrealistic and unsustainable. The subsidy regime is a scam and has not in any way benefited the so-called vulnerable citizens.
Nigeria’s debt profile is too high to add more to it.
