The announcement made by the Minister of Finance, Budget and National Planning, Zainab Ahmed, that the Federal Government has borrowed $800 million (about N368.2 billion in official rate or N596 billion in black market) from the World Bank, to use as palliative ahead of the total removal of petrol subsidy in June, has caused an outrage.
While saying subsidy as it is being implemented in Nigeria is not viable, pundits in the areas of economy and finance said it is very unlikely that the N368.2 billion interventions will cushion the economic challenges that will come with the total removal of what the government called “under recovery.”
They said subsidy wouldn’t have been an issue for long if past governments had tackled the root cause, insisting that palliatives were akin to momentarily scratching the surface as the pain will soon return.
Marketers and other groups in the downstream sector of the petroleum industry have said that fuel prices may likely double as soon as the subsidy is removed, causing a ripple effect on everything.
The finance minister at a press briefing after the Federal Executive Council (FEC) meeting presided over by President Muhammadu Buhari, on Wednesday, said the government had met with members of the incoming administration as well as the newly established Presidential Transition Council (PTC) on the palliative issue.
“This is a commitment in the Petroleum Industry Act…We are on course, we’re having different stakeholder engagements,” she said.
The announcement has not gone down well with experts as some argued that the debt profile of Nigeria at N36 trillion is too high to add more to it.
According to the National Bureau of Statistics (NBS), Nigeria’s public debt stock stood at N44.06 trillion or $101.91 billion in the third quarter of 2022.
This could however reach N77 trillion with the addition of the Ways and Means expenses of the Central Bank of Nigeria (CBN), which has stirred controversy so far.
According to the latest data, the debt, which was N42.84 trillion or $103.31 billion in the second quarter of 2022, went to N44.06tr in the third quarter, growing by 2.84 per cent in just three months.
Speaking to Daily Trust, a public affairs analyst, Jameel Muhammad, blamed the government for the lack of transparency in the petrol subsidy issue.
He said: “My initial impression has always been the lack of transparency. 800 million dollars is about N362 billion (official rate), and that is about 5 to 6 per cent of what the government now claims to be spending on subsidy, which is about N6 trillion.
“If you remove N6 trillion from the system, you are cushioning the effect with 6 per cent of it.”
He argued that there is already a framework to fund the social investments and not for the government to engage in fresh borrowing. Muhammad also said it is wrong for the government to borrow to subsidize consumption.
He said: “Why is the government going to the World Bank to get a loan again? I am sure it is at a certain interest rate, which is draining resources.
“There is already a lack of transparency in the operation and then the administration of the removal too, this is a very big problem.”
According to reports, The Infrastructure Bank (TIB) 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, according to an investigation by The ICIR in 2016.
The bank lists as “Chronic defaulters 15 companies and organizations, owing N4.586bn as of December 2015. Among these, the National Union of Road Transport Workers (NURTW) got N2.3bn, the Nigerian Association of Road Transport Owners (NARTO) got N403.4 million, and the Road Transport Employers Association of Nigeria (RTEAN) 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/l in Abuja and over N300 per litre in the states.
The country spent over N3.3tr on what it calls under-recovery of petrol import through the Nigerian National Petroleum Company (NNPC) 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/l early in 2022, the pump price rose to N175/l, N185/l and now N195/l as the official rate in Abuja while it is high above N300/l 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.
Kyari said the landing cost of importing petrol three days ago was N315 per litre but that NNPC transfers to the marketers at N113/l 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, Chaudhuri had said when he visited Daily Trust office in 2021.
But some experts have a different opinion, saying the price of petrol has a direct correlation with the cost of living of the poor who are in the majority. An economist at SPM Professionals, Paul Alaje, said the subsidy is part of what is raising Nigeria’s borrowing for consumption.
Alaje said: “The question again is, should we continue to borrow to finance a budget that is not impactful on the economy? The answer is no.”