EXCLUSIVE: Transition committee proposes removal of fuel subsidy

The All Progressives Congress (APC) transition committee has asked President Muhammadu Buhari to work out “detailed and coordinated” plan to remove subsidy on premium motor spirit (PMS), otherwise known as petrol.

The advisory body, whose report is expected to influence the policy direction of the new government, also recommended that kerosene subsidy should be scrapped immediately.

While kerosene is officially N50 per litre, the end users pay as much as N150 despite the existence of subsidy — a case of double jeopardy for the government and consumers but a source of massive income for marketers and fuel import contractors.

The committee also asked Buhari to privatise the nation’s four refineries by adopting the Nigerian Liquefied Natural Gas (NLNG) as a model.

NLNG is jointly owned by the Nigerian National Petroleum Corporation (NNPC) 49%, Shell Gas B.V. 25.6%, Total LNG Nigeria Ltd 15% and Eni International 10.4% — but it is not managed by the Nigerian government, unlike the nation’s refineries which are solely managed by the NNPC.

These recommendations, in a report seen by TheCable, are intended to “eliminate waste and redirect resources to fuel development, growth and job creation”, according to the committee headed by Ahmed Joda, former super perm secretary.

Fuel subsidy, which gulps billions of dollars every year, has been a very volatile issue in Nigeria’s political economy since the mid-1980s, leading to riots and demonstrations because of the resultant increase in pump prices of petroleum products.

But with dwindling oil revenue, ballooning subsidy claims and growing national debt, there is an emerging consensus that the expenditure can no longer be sustained.

Attempts by the administration of former President Goodluck Jonathan to remove the subsidy in 2012 were greeted with nationwide protests amidst allegations of scam in payments to marketers running into trillions of naira. Jonathan eventually reversed the policy.

Federal government currently owes oil marketers over N200 billion, a development that recently resulted in a nationwide fuel crisis as they cut down on importation.

With another N400 billion owed in salary arrears to federal workers, the Joda committee has asked Buhari to pay arrears of salary and fuel subsidy, “failing which it could lead to mass labour unrest which could undermine the goodwill of the Administration”.

The committee recommended that all outstanding subsidy liabilities should be audited and the verified claims paid to marketers to “ensure PMS is readily available to the market to avoid further fuel queues”.

Other key recommendations concerning the oil and gas sector include:

• Reviewing all Nigerian Petroleum Development Company (NPDC) operations and agreements especially the Strategic Alliance Agreements executed with third parties. This is to recoup any unearned royalties, taxes and any potential over-lifting under these agreements. This is one of the issues raised in the recent audit of NNPC.
• Reviewing all pioneer status and tax waivers, and renegotiating or revoking concessions granted in order to recoup unpaid taxes. The Nigerian Investment Promotion Council (NIPC) was recently accused of indiscriminately granting pioneer certificates which led to an estimated loss of  $20 billion revenue over five years.
• Commencing a full-scale reorganisation and restructuring of NNPC and its subsidiaries to reposition it as a globally competitive national oil company and “significantly enhance reserves, output and revenues while creating major linkages with other sectors of the Nigerian economy”.
• Incorporating the existing joint ventures (JVs) and reducing federal government stake to 49% “which should be on the listed on the Nigerian Stock Exchange”. This is expected to raise significant revenue from asset sale, relieve the government of the burden of cash call obligations and facilitate investment for accretion of reserves.
• Commencing an audit of all Offshore Processing Agreements and Crude Swap Agreements entered by NNPC to identify and claim any reimbursements for excess crude lifted vis-a -vis products delivered based on a fair and transparent audit process.
• Providing relevant security hardware and personnel to eliminate vandalism to critical pipeline infrastructure and unauthorised offshore vessel loading.

The Joda committee submitted its report on June 12, recommending, among other things, that Buhari should reduce the number of ministries to 19 from the current 28.