How subsidy gains will be spent, by Okonjo-Iweala
The Coordinating Minister of the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, has assured Nigerians that this time around, removal of fuel subsidy would have a positive impact on their lives. Speaking at the NPAN Town Hall Meeting Thursday, she explained that the subsidy removal would allow for more transparency in the system, adding that it would make the sector attractive to potential investors.
Okonjo-Iweala said: “The funds that would be saved from that would be used for the development of many pressing social and infrastructural facilities. We are also concerned about borrowing. This year, we borrowed N852 billion to fund the budget. For the proposed budget for 2012, we would have borrowed over N1.1 trillion, which is almost the total of our capital expenditure.”
The finance minister also said that President Goodluck Jonathan has outlined programmes where all the resources that would be saved from the fuel subsidy removal would be invested.
“The revenue from these subsidies will be used to produce social safety net programmes for the poor in the society. These are programmes designed to touch the poorer people in our society. So we are looking at youth employment programmes. There are many unemployed youths. The Federal Government has introduced a youth programme: You-Win, where we are looking at empowering the youths. Some of the money would go towards that. The other is urban mass transit, which is to improve the services of people within the society as well as to enable them move around.
“There is also plan for development of vocational training skills. In this country, typically, when we are building a house, we find out that the carpenters, plumbers; most of them that we engage are foreigners from Togo, Niger and other neighbouring countries. Why? When we have our youth who are unemployed? Why can’t we train them to be able to render such services? We are going to train them. These are projects we are going to look at. So you (Nigerians) should be able to hold government accountable,” she said.
She also said government intends to set up a board that would monitor the projects that had been outlined, declaring that the board would be made up of “reputable Nigerians that when you hear their names, you will respect them”. “They would be the ones responsible to monitor the delivery of the projects. That board will have representation from market women, civil society, labour and so on. These are some of the mechanisms we are talking about to build trust,” she added.
The finance minister explained further: “The price of fuel as it is now is not determined by the forces of demand and supply and when you look at the landing cost of a litre of PMS that we import, N123 per litre. If you add the distribution, shipping and profit margin of N15.72 and when you add the two together, the actual cost of a litre of petroleum is N139 per litre, compared to the N65 per litre that you do buy.
“When we look at 2012, where we are projecting an average crude oil price of $90 per barrel, the landing cost in Nigeria for a litre of refined petrol is N104 per litre and if you add the N15.72 distribution cost, that brings it to N120 per litre. Now the difference between the actual cost and the current market price of N65 per litre is what is known as subsidy. At the present price, government contributes about N73 to every litre of fuel consumed.”
She insisted that fuel subsidy removal would lead to liberalisation of the sector, even as she cited the case of the telecommunications and aviation sectors. “From 2006 to 2010, we spent over N3.7 trillion on fuel subsidy. In 2011 (up to October), we have spent over N1.38 trillion on subsidy and by the end of this year, we would have spent N1.48 trillion on subsidy. Now why does this matter? It matters because it is eating more and more of our revenue. Thirty per cent of Federal Government’s expenditure goes to fuel subsidy and that has been increasing yearly,” she argued.
Governor of the Central Bank of Nigeria (CBN), Malam Sanusi Lamido Sanusi, expressed dissatisfaction that between January and November this year, the total amount of forex demand at the Wholesale Dutch Auction System (WDAS) by oil marketers was $8 billion, just as he disclosed that the total amount of fuel subsidy that was granted to oil marketers within the same period was $8 billion.
“If the Federal Government continues to subsidise fuel, the next government would face crisis that may even be worse than the euro crisis. Our reserves have fallen to the extent that if oil prices drop, we may not have a shock absorber to withstand any shock. Subsidising imported petroleum products only create jobs for the country where the product is being imported from,” Sanusi said