Economy

Federal Government’s Fuel Subsidy Removal Yields Staggering N400bn in Just Four Weeks

In a surprising turn of events, the Federal Government of Nigeria has reportedly saved a staggering N400 billion within a span of just four weeks since the removal of subsidy on Premium Motor Spirit (PMS), commonly known as petrol.

Published

3 months ago

June 30, 2023

Temitayo Olukoya

This revelation was made by oil marketers on Thursday, highlighting the significant financial gains resulting from the initiative, which was officially implemented on May 31, 2023.

Additionally, these oil dealers have raised concerns about a potential rise in the cost of petrol in the coming month of July. Their apprehension is based on the recent decision by the Federal Government to allow the naira to float against the United States dollar, which could lead to market forces determining the exchange rate.

On June 14, 2023, the Central Bank of Nigeria unified the country’s exchange rates into the Investors and Exporters window, effectively relinquishing control over the exchange rate. This move marks a shift towards a more market-oriented approach, potentially impacting the prices of essential commodities such as petrol.

Various operators in the downstream oil sector have indicated that Nigeria has now saved hundreds of billions of naira by halting the subsidy regime. The Nigerian National Petroleum Company Limited (NNPCL) previously disclosed the exorbitant amount spent on subsidy each month. This newfound financial stability is a stark contrast to the losses incurred during the subsidy era.

The National President of the Independent Petroleum Marketers Association of Nigeria, Chinedu Okonkwo, commented on the government’s revenue surge, stating, “Right now they (the government) are making money. At least with this removal of subsidy, the government has raked in hundreds of billions, whether in naira or dollar. This is because every month we know how much they lose before.” Okonkwo’s statement underscores the financial burden previously shouldered by the government due to subsidy payments.

Oil sector operators were informed of the substantial monthly expenditure on subsidy by the NNPCL’s Group Chief Executive Officer, Mele Kyari, during a meeting held in February. These revelations have shed light on the dire financial situation the government faced and have justified the controversial decision to remove the subsidy.

At the meeting, Kyari had said, “Today, by law and the provisions of the Appropriation Act, there is a subsidy on the supply of petroleum products, particularly PMS imports into our country. In current data terms, three days ago, the landing cost was around N315/litre.

“Our customers are here; we are transferring to each of them at N113/litre. That means there is a difference of close to N202 for every litre of PMS we import into this country. In computation, N202 multiplied by 66.5 million litres, multiplied by 30 will give you over N400bn of subsidy every month.”

Commenting on petrol imports by independent marketers, Okonkwo stated that the oil dealers were holding meetings about this.

“We are holding meetings with a lot of people who are interested in commencing PMS imports. We are not resting on our oars about this,” the IPMAN president stated.

Although Okonkwo admitted that petrol price would rise in response to forex rates, he argued that the removal of subsidy would not only lead to a continuous increase in PMS cost.

“When there is deregulation and no subsidy, the price of petrol would either go up or come down. If you want to profiteer, those who bring in and sell at cheaper rates would put you out of business.

“So the market fundamentals will determine the pricing and capping. Therefore the floating of the naira at this time that Nigeria is beginning to make savings is not going to be a fixed thing,” he stated.

The IPMAN president added, “The exchange rate will also move up or down depending on how we manage our crude oil, which is our foreign exchange earner. By the time we begin to meet our OPEC quota and other areas of generating foreign exchange, the naira will begin to firm up.

“And this will result in cheaper fuel. So we should not be thinking that the cost of fuel will continue to rise. The floating of the naira is good because, at the previous level, you only access the dollar at the official rate based on who you know.”

As the Federal Government celebrates its significant savings, concerns continue to mount over the potential rise in petrol prices. The removal of subsidy, coupled with the floating of the naira, may lead to an upward trajectory in the cost of petrol, posing challenges for consumers already burdened by rising living costs.

It remains to be seen how the government will navigate these delicate circumstances. While the savings garnered from the subsidy removal are undoubtedly impressive, the impact on the general population and the overall economy must also be considered.

As Nigerians brace themselves for potential price increases, discussions surrounding alternative measures to support the populace amidst these changes are expected to gain momentum in the coming weeks.

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Economy

FG Pays N169.4 Billion for Subsidy in August to Keep Pump Price at N620/Litre

Published

2 days ago

September 21, 2023

Samed Olukoya

Amidst President Bola Ahmed Tinubu’s repeated assurances of subsidy removal, it has come to light that the Federal Government disbursed N169.4 billion as subsidy payments in August to maintain the pump price of petrol at N620 per litre.

This revelation has raised eyebrows and ignited discussions about the future of fuel subsidies in Nigeria.

Investigation, backed by a document from the Federal Account Allocation Committee (FAAC), reveals that the Nigerian Liquefied Natural Gas (NLNG) paid $275 million as dividends to Nigeria through NNPC Limited. Out of this, NNPC Limited allocated $220 million (equivalent to N169.4 billion at N770/$) to cover the Petroleum Motor Spirit (PMS) subsidy, keeping it artificially low.

This move effectively indicates a resurrection of the subsidy system, which the government had promised to eliminate.

Under former President Buhari’s administration, Nigeria saw record-high spending on petrol subsidies. Reports from the Nigeria Extractive Industries Transparency Initiative (NEITI) show that subsidies cost N1.99 trillion from 2015 to 2020.

In 2021 alone, NNPC reported a subsidy cost of N1.57 trillion, with an additional N1.27 trillion from January to May 2022. The government had allocated N3 trillion in the budget to cover subsidy costs from June 2022 to June 2023, amounting to N7.83 trillion spent on subsidies during Buhari’s tenure.

Global oil market dynamics are further complicating the subsidy issue. Brent crude prices exceeded $95 per barrel, while the naira depreciated against the US dollar, undermining Nigeria’s pledge to remove petrol subsidies.

Despite higher international crude prices and exchange rate pressures, the government has held the pump price at N620/litre.

The situation has also strained petroleum marketers, who face rising international prices, a weakening naira, and government-mandated price caps. International petrol prices, exchange rates, and additional costs have collectively driven up the landing cost of PMS to about N728.64 per litre.

The government’s strategy to sustain the N620 per litre price involved a $3 billion crude repayment loan with Afrexim Bank to bolster the naira. However, this loan has reportedly stalled due to the withdrawal of other lenders.

While the government claims the subsidy is a temporary measure to ease the economic burden on Nigerians, experts argue that it highlights the need for a functional refinery and currency stability.

Without these factors in place, petrol prices will remain susceptible to fluctuations in global oil markets and exchange rates, potentially impacting the masses.

Economy

The Federal Inland Revenue Service (FIRS) Reports Significant Growth in Nigeria’s Tax-to-GDP Ratio

Published

3 days ago

September 20, 2023

Investors King

The Federal Inland Revenue Service (FIRS) announced that it successfully increased Nigeria’s tax-to-Gross Domestic Product (GDP) ratio from 6.0 percent to 10.86 percent in 2022.

The revelation came during a sensitization program held yesterday in Lagos by the Director of Taxpayer Services at FIRS, Mrs. Saidatu Yero.

Mrs. Yero conveyed the agency’s commitment to further enhancing the nation’s tax-to-GDP ratio, with ambitious targets of 16.5 percent, aligning with the African average and subsequently aiming for 18 percent within the next three years.

Mrs. Yero proudly stated, “The FIRS Management has executed commendable reforms that have fundamentally transformed the landscape of tax administration in Nigeria, leading to a substantial increase in revenue collection for the government.”

The agency reported that its innovative measures have already culminated in the generation of N8.5 trillion as of September 14, 2023, demonstrating its unwavering commitment to achieving N12 trillion in revenue for the year 2023.

Elaborating further, Mrs. Yero said, “One of the primary objectives of the FIRS Management is to prioritize a ‘customer-centric’ approach, recognizing taxpayers as our key stakeholders within the tax ecosystem. To ensure that taxpayers comprehend their tax responsibilities and rights, it is imperative that we continuously inform, sensitize, engage, and educate them, facilitating their compliance without any hindrance.”

Addressing the event’s theme, “The Finance Act as an Innovation in the Nigerian Tax System,” Mr. Temitayo Orebajo, the Director of the Tax Policy and Advisory Department at FIRS, said that the 2023 Finance Act introduced substantial amendments to seven tax laws, four non-tax laws, and a total of 30 sections, signifying a significant leap forward in the country’s tax framework.

Economy

Euro-Area Inflation Eases, Fueling Debate on ECB’s Rate Hike Course

Revised Data Shows Modest Slowdown, But ECB Officials Divided on Further Hikes

Published

3 days ago

September 19, 2023

Investors King

In a surprising turn of events, revised data released today has revealed that inflation in the Eurozone moderated slightly in August, offering fresh fodder for the ongoing debate within the European Central Bank (ECB) on the necessity of further interest-rate hikes.

The latest figures show that consumer prices increased by 5.2% in August, down marginally from the initial reading of 5.3% while core inflation, excluding volatile elements like food and energy remained stable at 5.3%.

While the ECB recently raised the borrowing costs for the tenth consecutive time to 4%, the new data is reigniting discussions on whether this tightening cycle has concluded.

ECB Vice President Luis de Guindos, along with Madis Muller of Estonia and Peter Kazimir of Slovakia, have expressed their belief that the latest data supports the idea that no more interest-rate hikes are needed.

However, President Christine Lagarde has pushed back against such assumptions, and other hawkish officials from Austria, Latvia, and Slovenia argue that further moves may still be required to combat inflation effectively.

Economists, including Maeva Cousin of Bloomberg Economics, anticipate a marked deceleration in both headline and core inflation for September, potentially offering the ECB’s Governing Council the reassurance needed to assess whether the hiking cycle should indeed come to an end.

As Bank of France Governor Francois Villeroy de Galhau noted, the current rate is a “plateau,” and decisions will hinge on how inflation evolves as the economic “illness” diminishes.

In the face of these ongoing debates, patience remains key, with the ECB closely monitoring economic developments to determine the appropriate course of action for monetary policy.