Fuel Subsidy Debate: Short Article By Osibanjo

Fuel Subsidy Debate: Short Article By Osibanjo

Vice President, Prof. Yemi Osinbajo, in a short article by him after observing the issues generated by the debate on fuel subsidy, noted that “The most important issue of course is how to shield the poor from the worst effects of the policy.” He hinted that President Buhari is “probably one of the most convinced pro-subsidy advocates,” but shedding light on the policy, Osinbajo said: “First, the real issue is not a removal of subsidy. At $40 a barrel there isn’t much of a subsidy to remove.

“What happened is as follows: our local consumption of fuel is almost entirely imported. The NNPC exchanges crude from its joint venture share to provide about 50 per cent of local fuel consumption. The remaining 50 per cent is imported by major and independent marketers. These marketers up until three months ago sourced their foreign exchange from the Central Bank of Nigeria (CBN) at the official rate.

“However, since late last year, independent marketers have brought in little or no fuel because they have been unable to get foreign exchange from the CBN. The CBN simply did not have enough. In April, oil earnings dipped to $550 million. The amount required for fuel importation alone is about $225million! Meanwhile, NNPC tried to cover the 50 per cent shortfall by dedicating more export crude for domestic consumption."

“Besides the short term depletion of the Federation Account, which is where the federal government and states are paid from, and further cash-call debts pilling up, NNPC also lacked the capacity to distribute 100 per cent of local consumption around the country. Previously, they were responsible for only about 50 per cent which is partly the reason for the lingering scarcity."

“We realised that we were left with only one option. This was to allow independent marketers and any Nigerian entity to source their own foreign exchange and import fuel. We expect that foreign exchange will be sourced at an average of about N285 to the dollar, (current interbank rate). They would then be restricted to selling at a price between N135 and N145 per litre."

"We expect that with competition, more private refineries, and NNPC refineries working at full capacity, prices will drop considerably. Our target is that by Q4 2018 we should be producing 70% of our fuel needs locally. At the moment, even if all the refineries are working optimally they will produce just about 40% of our domestic fuel needs. “This is therefore not a subsidy removal issue but a foreign exchange problem, in the face of dwindling earnings,” Osinbajo clarified.

But as labour poses for showdown, checks have shown that the average Nigerians is still waiting to know how the policy positively affects them. Not many are aware of the import of the new price regime on them, except that it brings hardship. The people need to be told that as in the case of mobile phones, with the policy, time will come that competition is expected to drastically push the price of petrol down.

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