BY Bunmi Aduloju
Zainab Ahmed, minister of finance, budget and national planning, says the federal government will halt the costly petrol subsidy in June 2023.
Ahmed spoke on Thursday when she appeared before the house of representatives ad hoc committee investigating petrol subsidy.
The FG had projected to spend N6.7 trillion on petrol subsidy payments for the year 2023.
But Ahmed said the projected amount was reduced to N3.35 trillion as contained in the 2023-2035 medium term expenditure framework and fiscal strategy paper (MTEF&FSP).
According to her, the federal executive council (FEC) and the national economic council (NEC) had approved the new figure.
However, she said the federal government was awaiting the approval of the national assembly.
“One thing that stands out in the MTEF was that if the nation holds on to fuel subsidy as it is designed now, we will be incurring — from January to December — a subsidy cost of N6.4 trillion. But we suggested to the federal executive council (FEC) and the council approved that, maybe, we could look at the option of exiting the subsidy regime half-year. So, if we did that, then the cost would be N3.35 trillion, which is half of the N6.7 trillion,” she said.
The finance minister said the subsidy regime was not sustainable, adding that it might force the government to increase borrowing in 2023.
“The federal executive council (FEC) approved the second option. That is the option that was conveyed by his excellency, the president, to the national assembly. But let me also say that even though this is a reduced option, it would mean that we are borrowing more than we would have borrowed if we did not have fuel subsidies. In 2022, we are carrying the cost of subsidy throughout the whole year,” she said.
She noted that the subsidy arrangement was “putting the country in dire financial situation” adding that “we do hope that we will be able to exit this subsidy regime in the shortest time possible”.
“The N3.35 trillion in the approved MTEF that is now before the national assembly for consideration could have been funds that would apply to other vital sectors of the economy such as health, education and social protection,” she added.
SUBSIDY PAYMENT SO FAR
Ahmed also gave a breakdown of withdrawals from the consolidated revenue fund (CRF) and the excess crude account (ECA) for payments to oil marketers under the subsidy regime.
“Deduction of PMS under recovery shortfall by NNPC for the period 2013 to 2022: We are reporting that there is a total sum of N4.436 trillion which was deducted as PMS under-recovery by NNPC for the period January 2013 to December 2021,” she said.
“In this report, we are reporting the sum of N1.774 trillion has been paid to independent oil marketers as subsidies from 2013 to 2016.
“I will like to call the attention of the committee to note that the total sum of N6.210 trillion – that is the N4.4 trillion plus the N1.774 trillion – was expended on PMS under-recovery by NNPC as well as payment of subsidy to independent oil marketers from 2013 to 2021.
“I want to report on the funding of subsidy payments to independent oil marketers for 2013 to 2016. Payments that have been made to them were directly from the domestic excess crude account (ECA) through the reduction of sovereign debts instruments that we call the SDIs.
“The SDIs are negotiable short-term instruments that were issued by the government at that time to give marketers comfort and enable them access financial support from their bankers for the importation of PMS. The instrument was approved by the then president in 2010.
“It is also important to note that there were instances where funds were transferred from the consolidated revenue fund (CRF) to the domestic excess crude account for subsidy payments.
“For 2015, there are two instances: N31 billion from the FGN’s excess domestic account, transferred from the CRF. Again in 2015, N156.1 billion transferred from the CRF in another instance to the domestic excess crude account.”