NEITI: FG’ll Save N700b Yearly On Subsidy Removal

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Nigeria Extractive Industries Transparency Initiative (NEITI)
  • … As NNPC recounts removal of subsidy

The Nigeria Extractive Industries Transparency Initiative (NEITI) has given a nod to the proposed oil subsidy removal, stating that government would save N700 billion yearly from it.

According to statement from the Acting Director of Communications, Obiageli Onuorah, the Acting Executive Secretary of NEITI, Dr Orji Ogbonnaya Orji, who supported the proposal at a Roundtable on Subsidy Removal Debate Organized by Shehu Musa Yar’Adua Centre in Abuja gave a breakdown of what the country had spent in the last six years on subsidy.

Orji, who stated that the proposal to remove fuel subsidy was consistent with the recommendations contained in NEITI’s independent audit reports conducted in the last six years, stated that, “From NEITI’s independent audit report, over N4 trillion has been paid as subsidy to marketers from 2006-2012. The breakdown of the subsidy shows that N2.197Billion was paid as subsidy in 2006. This rose to N236.64Billion in 2007 and N360.1Billion in 2008. In 2009 the country paid N198.1Billion as subsidy for petroleum products and in 2010 the subsidy payment rose to N416.45Billion. The payments skyrocketed to N1.9 trillion in 2011. Payments of oil subsidy declined to N690Billion in 2012 following the subsidy protests across the country in January of that year”.

Meanwhile the Minister of State for Petroleum and Group Managing Director of the Nigeria National Petroleum Corporation, NNPC, Dr. Ibe Kachikwu has denounced stating that fuel pump price would be increased to N97 next year.

Kachikwu at a press briefing in Abuja stated, “ I did not say that refined petroleum products will sell for N97 per litre next year. I said that between a band of N87 and N97 we are going to be looking at prices and today the prices are largely close to N87. So, there is no need to change the price”.

Kachikwu however explained that fuel price discourse has long left the realm of subsidy removal to a more scientific price modulation approach which entails an elastic price mechanism regime to be reviewed periodically to reflect the prevailing international price of crude, as he explained that when operational, the novel price modulation system will place a N97 per litre cap on the price of fuel to ensure that Nigerians are insulated from the vagaries of the global crude price.

Also, the Minister noted that to determine the price of petroleum products in future, the Petroleum Products Pricing Regulatory Authority, PPPRA, will undertake quarterly review of the crude market situation.

He said, “I have not put a static figure. PPPRA will have to do the calculation to be able to announce what price of PMS will sell for in January; but we do not anticipate any major shift because of the price of crude today.’’

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Orji, speaking on the benefits of fuel subsidy removal stated that Nigeria’s current challenges with the crash in the global oil price makes it more difficult to sustain the subsidy arrangements which appears to fund the lifestyle of the rich, while majority of the citizens wallow in poverty.

He said, “Removal of the subsidy will free over N700 billion annually which can be channeled to provision of infrastructure like roads, education, health service, power, security, creation of jobs and basic benefits for the poor in the society.

“In removing the subsidy, it is the position of NEITI that the government considers progressive measures to put the welfare of the ordinary citizen at the center of the implementation, by creation of palliative programmes to reduce the pain temporarily that may be experienced by the poor and vulnerable in the short term. It is also part of NEITI‘s recommendations that the government should take steps to either make the refineries work, privatize them or create the enabling environment for private refineries to thrive”. He underlined the need to ensure that the implementation of the proposal is gradual, slow but steady.

In her welcome remarks the Director General of the Shehu Musa Yar Adua Centre Jacqueline Farris explained that the policy dialogue was convened by the centre to seek the views of industry experts, development partners, the media and the civil society as well as the academia on the subsidy removal debates and the way forward.

Also at the Roundtable other participants agreed that the fuel subsidy should be removed. On his part, Professor John Adeoti of the Nigeria Institute of Social and Economic research advised the government to implement the removal of the fuel subsidy side by side with the safety net programmes that could grant relief to the poor.

Also the Director of the International Institute for International Development Peter Woods used international comparisms to draw attention on the various options available to the government on implementation, this include outright removal or adoption of a phased approach.

Further on the NNPC, the Group General Manager, Group Public Affairs Division, Ohi Alegbe has stated that the new wave of openness and transparency pervading the operations of the NNPC since the advent of the new administration was sustained with the announcement of 21 Off-takers as winners of the open bid exercise conducted in October. According to him, the exercise witnessed the unprecedented public harvesting of 278 bids submitted by indigenous and foreign firms seeking to secure contract for the sale and purchase of the 26 Nigerian crude oil grades on offer.

He gave a breakdown of the 2015/2016 crude oil term contract off-takers for the 991, 661 bpd Nigerian equity crude indicate that 240, 000 bpd representing 24 percent of the total volume on offer is awarded to four Refiners classified as major current receivers of Nigerian Crude with capacity to process all of Nigerian crude grades. The Off-takers in this category include: Emirates National Oil Coy, ENOC, Indian Oil Corporation, CEPSA Refinery Madrid and Sara SPA Refinery. Each of the Off-takers in this category was awarded 60, 000 bpd.

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Three notable International Trading Companies, namely Trafigura PT Ltd, Mercuria Energy Trading SA and Vitol SA won the bid for the lifting of 32, 000 bpd of crude based on their pedigree as large scale buyers of Nigerian Crude with structure for short term freight intervention and storage. The off-takers in this category represent about 10 percent of total crude volume on offer.

Trading Affiliates of International Oil Companies consisting of ENI Trading and Shipping SPA, TOTSA Total Oil Trading SA, Exxon Sale and Supply LLC and Shell Western Supply and Trading received term allocation of 32, 000 bpd each totaling 128, 000 bpd representing about 13 percent of total volume of crude oil on offer.

Nigerian downstream players with wide experience in crude trading and large asset base accounts for 405, 000 bpd representing about 41 percent of total crude volume on offer. In this category, Emo Oil & Petrochemical Coy/China Zhenhea- an NNPC long term trader is allocated 45, 000 bpd. Other off-takers in this category include: Northwest Petroleum and Gas Ltd, 45, 000 bpd, Forte Oil, 45, 000 bpd, Oando PLC, 60, 000 bpd, Sahara Energy Resource Ltd, 60, 000 bpd, A.A. Rano Nig. Ltd, 45, 000 bpd, Eterna Oil, 45, 000 bpd and MRS Oil &Gas Coy Ltd 60, 000 bpd.

NNPC Trading Companies Calson/Hyson 32, 000 bpd and Duke Oil Incorporated 90, 000 bpd account for combined off-take of 122, 000 bpd representing about 12 percent of total volume on offer.

Apart from ensuring transparency, the companies were carefully chosen based on their track records and trading experience to ensure that Nigerian crude cargoes are not left unsold.

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