The Nigerian National Petroleum Corporation (NNPC) has presented a bill of N3 trillion to the federal executive council (FEC), as payment for petrol subsidy in 2022.
Tension was brewing between the federal government and organized labor unions over the former’s attempt to remove the petrol subsidy by June. The Nigerian Labour Congress had threatened to embark on indefinite nationwide strike, citing the amount of suffering the petrol subsidy removal will bring upon Nigerians.
Backing down from the lingered standoff, the federal government had suspended its plan to remove the subsidy and proposed an 18-month extension for the implementation of the petroleum industry law to cater for subsidy shortfall.
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The Minister of Finance, Budget and National Planning, Zainab Ahmed, said on Wednesday at the end of the FEC meeting in Abuja, that a request was presented to provide additional funding to meet the incremental petrol subsidy request in the 2022 budget.
She explained that the sum of N443 billion was originally allocated for fuel subsidy in 2022, which was scheduled to last from January till June. But with fierce opposition from organized labor unions fueled by the concern that there are no structures in place to cushion the effect of the subsidy removal, the only option is to adjust the budget to accommodate the N3 trillion for the petrol subsidy.
“What this means is that we have to make incremental provision of N2.557 trillion to be able to meet subsidy requirement which is averaging about N270 billion per month. We also presented to Council today a request for Council’s consideration to make additional funding provisions to enable us to meet incremental fuel subsidy request in the 2022 Budget.
“You’ll recall that in the 2022 Budget, as appropriated, we have made a provision of N443 billion for a subsidy for January to June. Having taken into account the current realities; increased hardship in the population, heightened inflation, and also that the measures that needed to be taken to enable a smoother exit from the fuel subsidy are not yet in place, it was agreed by Council that it is desirable to exit fuel subsidy.
“The Nigerian National Petroleum Company (NNPC) has presented to the ministry a request for N3 trillion as fuel subsidy for 2022. What this means is that we have to make an incremental provision of N2.557 trillion to be able to meet the subsidy requirement, which is averaging about N270 billion per month.
“In 2021, the actual under-recovery that has been charged to the Federation was N1.2 trillion, which means an average of N100 billion, but in 2022, because of the increased crude oil price per barrel in the global market, now at $80 per barrel, and also because an NNPC’s assessment is that the country is consuming 65.7 million litres per day, now we’ll end up with the incremental cost of N3 trillion in 2022.
“So, this has been considered by Council and we’ve also been asked to approach the National Assembly for an amendment to the fiscal framework as well as the Budget, to also further discuss with NNPC on how to make provisions for this and also how to rationalize this expenditure,” she said.
Ahmed also explained that the new turn of events means that the Petroleum Industry Act (PIA) and the budget will be revisited to include the changes.
“The PIA had required that all petroleum products should be deregulated within six months of signing the PIB into law. And the six months would have meant from August to February. But when we were doing the budget we stretched that to June. So it means technically that from September, there will be a new fuel subsidy.
“But having to step back and take into account the realities of today, what it means is we have to go back and amend the PIA, so the ministry of petroleum resources will be leading on that. They had indicated that they will be asking for an amendment to extend it to 18 months from six months. And then it means we can now also amend the budget. So the two processes will go side by side.
“In the case of the budget, we’re looking at extending to December in the first instance, because this budget year is January to December and we’re going to engage NNPC to further interrogate the request that they presented with a view of trying to see how we can scale it down so that the country is not incurring N3 trillion for a fuel subsidy.”
The N3 trillion budgeted for the subsidy accounts for 17.5% of the N17.126 trillion 2022 budget, which opens further room for budget deficit. The 2022 budget already has a deficit of N6.39 trillion, which amounts to 37% of the budget. The N3 trillion also amounts to 55% and 43% of the capital component and recurrent expenditure of the 2022 budget respectively.
The presidential spokesman, Femi Adesina, has said the federal government will continue borrowing to fund the budget since Nigerians don’t want it removed. This means, as oil prices rise, a bigger deficit is expected in the implementation of the 2022 budget.