Nigeria: Federal Govt Confirms Plan to Stop Subsidy On Fuel
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Daily Champion (Lagos)
18 July 2008
Posted to the web 18 July 2008
Sopuruchi Onwuka
Lagos
Federal government yesterday confirmed plans to withdraw subsidy on retail prices of the fuel products still commercially regulated in the domestic market.
Minister of State for Petroleum, Mr. Odein Ajumogobia, who dropped this hint in Lagos, also said the new administration might review the award of oil blocks by the past administration.
But senior oil workers have kicked against any fuel subsidy withdrawal that would not be accompanied by a parallel plan to boost internal refining capacity.
Mr. Ajumogobia, who addressed participants at the National Executive Council (NEC) meeting of the Trade Unions Congress (TUC), said the subsidy withdrawal would take effect by January 2009.
He told the labour leaders that subsidy bills which he projected at N1.5 trillion by year end have become too heavy on the shoulders of the government and clearly unsustainable.
He added that the subsidy withdrawal dreaded to translate to exorbitant fuel prices became necessary for full deregulation of the market, industry liberalisation and guaranteed returns on private investments in the sector.
Daily Champion reports that following partial deregulation of the downstream petroleum market, government invited sponsored price subsidy to only the premium motor spirit, also called petrol, household and dual-purpose kerosene.
The two products are widely used for transportation and domestic purposes.
Other products, including aviation turbine kerosene (ATK), automotive gas oil (AGO), low pour fuel oil (LPFO), lubricants and other derivatives have since been deregulated.
In explaining the danger of retaining the subsidy on petrol and domestic kerosene, Mr. Ajumogobia said the unstoppable growth in global economy would continue to mount demand pressure on the international oil markets and drive up prices.
This, he explained, would continue to build huge subsidy bills that drain the funds needed to build and maintain social and economic infrastructure.
He said the oil price situation would continue to worsen and drag the subsidy beyond a level government could arrest.
He warned that it might be too late if the issues were not permanently addressed at this time to allow return of market forces to determine the value of the products.
He said a stakeholders' forum to work out the best option to ease out subsidy from the domestic fuel market would be convened in two weeks.
The forum, he said, would seek to address the concerns of diverse interests and achieve consensus on measurable implementation stages.
Deregulation, privatization and liberalization of the petroleum industry, he said, were informed by public sector inefficiency brought on by red-tapism.
He said the on-going industry reform was evolved to provide managers of Nigerian refineries the administrative and financial autonomy to respond to urgent needs.
In responding to the minister's presentation, the General Secretary of Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Mr. Bayo Olowosile, blamed the subsidy crisis on poor management of the nation's refineries.
He argued that Nigerian masses must not be exposed to the impact of shoring up international prices of crude oil by withdrawing the subsidy without any palliatives.
He demanded that any money to be realized from the subsidy withdrawal must be ploughed back into Greenfield refinery projects, to boost local production and weed out import associated costs.
Meanwhile, the minister said the committee set up to review the process of oil block awards by the past administration has submitted its findings. He however refused to give details, saying the report had not been considered by the president.
But inside sources told Daily Champion the report recommended revocation of the oil block awards on the grounds of sloppy playing field in favour of some bidders.
Relevant Links
Former Director of Department of Petroleum Resources (DPR), Mr. Tony Chukwueke, was sent on suspension to enable the investigation go uninfluenced.
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