‘How Nigeria can save N705b from fuel subsidy removal’

Neil McCulloch

Neil McCulloch

As the nation awaits President Mohammadu Buhari’s stance on the fuel subsidy saga, the Federal Government has been urged to take a pragmatic approach that could save the nation about N705 billion this year.

However, the main subsidy claims which were earlier put at about N200 billion, is estimated to have shot up to about N291 billion as at May ending, showing that more costs are likely to be accumulated on fuel importation before the eventual announcement by the Federal Government.

A Nextier Advisory policy brief on ‘Fuel Subsidy Reforms’ made available to The Guardian yesterday, stated that Nigeria could save about N705 billion ($ 3.58 billion) in the current financial year, if the government adopts necessary approach. The report stated that fuel subsidy has given rise to allegations of corruption on a large scale and drained the national budget of a vast amount of money.

“The better-offs enjoy the benefits at the expense of the poor. The subsidy causes fuel shortages and discourages investment in in-country refining capacity,” it lamented.

The report presented by the Director of the Economic Policy Programme at Oxford Policy Management (OPM), Neil McCulloch and the Principal Partner at Nextier Advisory, Patrick O. Okigbo III, considered five options for reforming the fuel subsidy regime, adding it is important for the government to improve the transparency of the pricing regime and the quality of enforcement of any of the options.

The policy options include business as usual method; make a one-off increase in fuel prices; introduce a formula for price adjustments; fix the subsidy rather than the fuel price; and abolish the subsidy entirely at least for Premium Motor Spirit (PMS).

“The final option would be to abolish the subsidy immediately and entirely, at least for fuels consumed primarily by the better-offs, such as PMS. This would have the advantage of saving around N705 billion ($ 3.58 billion) in the current financial year.

“And the savings would happen every year because there would be no chance of the subsidy increasing again as a result of the oil price increasing; as a result, this option would generate the largest savings to the national budget,” it stated.

Besides, the report showed that the option would eliminate corruption associated with the fuel subsidy since there would be no fund to steal, adding that some countries such as Indonesia have adopted reform options similar to this.

Noting that the disadvantage of abolishing the subsidy is that it would require an immediate and substantial increase in the price of the fuels for which the subsidy was eliminated, it enjoined the government to encourage private refineries and revive the existing ones to boost the nation’s local output.

The report also suggested that government should also have some options for protecting the people through set up cash transfer programmes; free education programmes; free healthcare; transportation subsidies; pensions for the elderly; cash for work scheme; and fertilizer vouchers.

It however prescribed a social protection scheme that would be broad based, but focussed on the poor; based on what people need and what people want; built on successful existing schemes, and credible cost and fiscally sustainable

  • Maigari

    The lack of regular supplies and investment on fuel is nor a caused by the subsidy per e, no. It is factor of the huge bureaucratic monster that corruption nurtured and which to date Nigerian officialdom has either failed or refused to stop. In the power secretory for example enough funds have been injected to plan, build and establish four times the current available maximum yet to no avail. The reason is simple CORRUPTION which starts from the planning right through to the final launching. take the Abuja IPP Project, who were the companies that supplied the massive diesel needed and who are real owners? The answer here paints a sad and depressing picture of hoe deep the corruption monster has eaten. Until it is stopped no amount of market principles will work, not on Nigeria.

  • emmanuel kalu

    the subsidies should be ended immediately followed by a complete deregulation of the sector. any saving should be divided and used in three ways. one, use a part to provide something that would benefits the poor, transportation. the money could be used to purchase mass transit buses, that would be concession to individual ot operate and repay the govt. you are providing jobs and easing the cost of fuel. secondly,use a third of it to offset any fee or taxes added ot PMS for a period of time, one year. then after that you use the money to invest in expanding our gas infrastructure, so that gas can be provided to generation companies to increase electricity. finally, the last third should be used to import fuel to be sold at a small profit of not more than 5%. this would have the effect of flooding the market with fuel and driving down cost. if all these are done effectively, the increase of fuel cost would be quickly negated.

  • Perrymarvis2014

    Rubbish comment from agents of World Bank and IMF

  • Iskacountryman

    make una come remove am make we see canji dole…