Senate kicks; NLC,TUC threaten showdown as FG plans petrol subsidy removal to pay Nigerians N5000 grant.

The Senate,  Trade Union Congress, TUC, and experts yesterday disagreed with the Federal Government’s plan to remove fuel subsidy next year and replace it with a N5,000 monthly transport grant to 40 million Nigerians.

While the Senate said there was no provision for such grant in the 2022 budget, TUC expressed shock that government could come up with this when negotiations on subsidy removal between government and the Labour movement is still ongoing, saying it is unacceptable.

Analysis has shown that the implementation of the proposed N5,000 monthly grant to 40 million Nigerians will cost the Federal Government N2.4 trillion annually, which is 81.71 per cent above the average annual subsidy payment from 2016 to 2019.

During the four years, the FG spent N2.93 trillion on fuel subsidies as follows: 2016  – N563.3 billion; 2017 – N144.53 billion; 2018 –   N730 billion and 2019 – N1.5 trillion.

Nigerians will spend about N6.732tn on the purchase of Premium Motor Spirit, popularly called petrol, within a period of 12 months once the Federal Government stops subsidizing the commodity from February next year, investigations have revealed.

This came to the fore on Wednesday as the Nigeria Labor Congress described government’s plan as a “penny wise-pound foolish” gamble.

The Senate and economic experts also faulted the Federal Government’s plan to pay N5,000 each to 40 million Nigerians to cushion the effect of fuel subsidy removal.

The Group Managing Director of the Nigerian National Petroleum Company Limited, Mele Kyari, had on Tuesday announced at a World Bank event in Abuja that petrol would sell for between N320 and N340 per liter from February 2022.

The current pump price of petrol at filling stations is between N162 and N165/litre, although the product is mostly sold at the upper N165/litre rate due to recent challenges in the downstream oil sector.

The N165/liter price is basically because the product is being subsidized by the Federal Government through the NNPC.

Going by the latest revelation of the NNPC boss that subsidy on petrol would end in February and the price jerked up to N340/liter, findings showed that Nigerians would spend about N18.7bn daily for the over 55 million liters of petrol consumed each day across the country.

Users of petrol would spend about N561bn for the average of 30 days in a month, while in the 12-month period, consumers would pay about N6.732tn.

In its most recently published monthly operational and financial report, which was for April 2021, the NNPC put the daily petrol consumption in Nigeria at 55.79 million liters.

“To ensure continuous increased PMS supply and effective distribution across the country, a total of 1.67 billion liters of PMS translating to 55.79 million liters per day were supplied for the month in the downstream sector,” the oil firm stated.

Working with 55 million liters daily consumption figure and the current price of N165/liter, consumers of petrol are estimated to be currently paying N9.075bn daily and about N277.25bn monthly.

By increasing the cost of petrol to N340/liter and matching it against the 55 million daily consumption rate, Nigerians would be paying N18.7bn daily for PMS, while their monthly spending would be N561bn.

This means that the annual fuel consumption bill of Nigerians will be in the region of N6.732tn.

From the foregoing, it implies that Nigerians would pay an additional amount of about N283.75bn every month on petrol when the new N340/liter price for PMS comes into effect.

Therefore within a period of 12 months, Nigerians would spend about N3.4tn extra on the  current N3.3tn for the purchase of petrol should the Federal Government halt the subsidy regime.

But the government promised on Tuesday that it had plans to cushion the economic effect of the planned subsidy removal, as it announced plans to replace fuel subsidy with a N5,000 monthly transportation subsidy to the poor.

According to her,  a monthly transport subsidy in the form of cash transfer of N5,000  will be given to between 30  and 40 million Nigerians.

The NNPC, being the sole importer of petrol into Nigeria for the past four years, has been subsidizing the commodity and has been incurring humongous cost as subsidy.

This development had severely depleted the oil firm’s remittances to the Federation Accounts Allocation Committee, hence, reducing the monthly allocations to the three tiers of government consistently.

But experts called on the government to be cautious in handling the removal of fuel subsidy considering the harsh economic climate in Nigeria already.

A renowned economist and Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, told one of our correspondents that the government must be tactical in handling the tricky nature of subsidy removal.

He said there was a need to creatively manage the transition from the current pricing regime to a fully deregulated arrangement.

This, he said, was  a tricky issue which could pose a serious challenge to government if not tactically managed.

Yusuf, who is a former director-general of the Lagos Chamber of Commerce and Industry, noted that if the policy transition was not properly managed, the risk of a social and political backlash could be quite high.

He stated that there was no doubt in the sound economic and business case in favor of fuel subsidy removal, “but the social and political contexts are equally critical.”

He said, “Certainly, the subsidy is not sustainable, which is why there is need to accelerate engagement with the relevant stakeholders to come up with a policy transition strategy that is sustainable, realistic and pragmatic.”

 

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