By the time the Nigerian National Petroleum Company (NNPC) makes it projected N328 billion petrol subsidy deduction from the Federation Account for March this week, Nigeria will have spent N758.1 billion in the first three months of 2022.
Described as unsustainable by many economic experts, the country’s subsidy regime burden borne by the three tiers of government, the federal, state and local governments, has posed a huge leak on the country’s revenues.
In January the NNPC withheld N210.382 billion while in February it deducted N219.783 billion and is expected to again remove N328.004 billion, to hit over N758 billion in the first quarter of 2022.
Nigeria’s largely opaque long-running petrol subsidy, will see the country spend close to a quarter, that is N4 trillion, of its entire budget of roughly N17 trillion this year on the major subsidy cost centre.
the latest Federation Account Allocation Committee (FAAC) shows that the NNPC has been unable to contribute a Kobo into the joint account operated by the tiers of government in the whole of this year.
The Minister of Finance, Zainab Ahmed in an announcement which came as a shock to many economists last month, said the federal government will draw $2.2 billion from the Eurobond it issued last September, and add to the proceeds of fresh domestic borrowing this year to fund fuel subsidy.
In January, the government reneged on a previous decision to halt the subsidy regime, opting to prolong it by 18 months in what was seen as a move to forestall a potential civil resistance in the prelude to the 2023 presidential election.
For the umpteenth time last week, the World Bank Group urged Nigeria to rethink its fuel subsidy regime, with its boss, David Malpass, saying that resources being expended on the subsidy could be channelled to other sectors of the economy to accelerate growth.
“One is that they (subsidies) are expensive because they go to everyone and they are often used by people with upper incomes than by people with lower incomes so they are not targeted.
“So, we encourage that when there is need for subsidy, either food or for fuel, that it should be carefully targeted at those most in need of it. And so, we have encouraged Nigeria to rethink its subsidy effort,” he said.
Although the Minister of State for Petroleum Resources, Timipre Sylva, recently described the controversial subsidy regime as “a criminal enterprise,” Nigeria has continued to service it even as it doesn’t know the actual volume of petrol the country consumes.
Defending the position of the World Bank in a panel organised by Arise, Lead Economist for the bank in Nigeria, Mr Marco Hernadez, called for the reallocation of the country’s resources, echoing its long-held position that the situation cannot be sustained in the long term.
“The removal or non-removal of fuel subsidy is Nigeria’s decision to make, but all we do is lay the facts and lead the debate and ensure that political consensus is built that will ultimately be communicated to the Nigerian public. The opportunity cost of fuel subsidy is too high,” he opined.
In her comments, the immediate past President of the Nigerian Gas Association (NGA), Audrey Ezigbo , insisted that subsidy should be removed as over N10 trillion had been spend between 2006 to 2021. According to her, that’s more than what the 36 states generated last year.
Also an Energy Expert, Ronke Onadeko, described it as a scam, saying that Nigeria cannot even generate enough funds to cover the subsidy it pays. She submitted that subsidy should only be retained for the 3 per cent of Nigerians which data show actually need the subsidy.
But another oil and gas analyst, Zaka Bala, argued that subsidy is necessary to relieve the huge burden the current economic crisis places on Nigerians , saying that Nigeria would be making its biggest mistake by removing subsidy.
He noted that the subsidy on diesel, kerosene, jet fuel and gas which have all been removed have not helped the country in any way, adding that it is almost crashing the economy as banks now close before time due to high diesel prices.
In 2021, the country spent N1.43 trillion on what it terms under-recovery, which has almost tripled with the N4 trillion approved for the purpose in 2022 by the National Assembly recently.