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Analysts pick holes in FG’s plan to replace fuel subsidy with transport palliative

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EXPERTS in the energy sector have picked holes in the Federal Government’s plan to replace fuel subsidy with transport palliative.

Minister of Finance, Budget and National Planning Zainab Ahmed spoke of the Federal Government’s plan to replace fuel subsidy with transport palliative when she appeared on Channel’s Television on Tuesday.

She said the government is considering payment of transport allowance for six to 12 months to cushion the effects of subsidy removal.

Reacting to the development, industry experts say the government’s position is not well thought out and has several loopholes.

“Most households spend almost 65 per cent of income on food. Transport palliative in place of subsidy won’t make any sense. Transport is just an aspect which does not solve all the problems,” an oil sector governance expert Henry Ademola Adigun told The ICIR.

Noting that subsidy has both political and economic sides, Adigun stressed that the government needs to engage relevant stakeholders to ensure a swift transition to the end of the subsidy era.

“Subsidy has both economic and political sides. The economic side is that it pushes up prices and it has a strong correlation with the increase in inflation.”

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The political side, he noted, is that the government can no longer sustain its lies on subsidy due to economic realities on the ground.

“The political side of it is that every government has lied to Nigerians about subsidy to score a political point but always get stuck at some point,” he added.

An Associate Consultant with the British Department for International Development (DFID) Celestine Okeke told THE ICIR that the plan by the Federal Government to replace fuel subsidy with transport palliative reveals a poor understanding of current economic challenges.

Okeke said, “Transportation cost is just an aspect. Subsidy removal takes its toll towards the multiplier effects on food and other commodity pricing, even pushing up inflation.”

He stated further that the government has the bigger challenge of building trust and transparency with Nigerians on how to handle the effects of subsidy removal.

“The government needs to do a holistic engagement of all stakeholders on the overall impact of subsidy removal and not just going for transport palliative,” he said.

An economist and the Chief Executive Officer of Centre for Promotion of Private Enterprise (CPPE) Muda Yusuf told THE ICIR that there was a need to address the social and political context of subsidy removal.

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“Certainly, subsidy is not sustainable, which is why there is need to accelerate engagement with relevant stakeholders to come up with a policy transition strategy that is sustainable, realistc and pragmatic.”

“The conversation should not only be economic, but also social and political, he added.

The minister in her remarks on Channels Television explained that transport allowance would be paid to assuage the effect of subsidy removal on the masses for a short period.

“The Petroleum Industry Act has been passed and has a provision that says petroleum products should be deregulated, which means there should be no subsidy on any petroleum product. In making plans, we assume that this deregulation would take effect from July 2022.

“It is important that we exit the subsidy. It is costing us a significant amount of resources that we could have applied for education, health, and other critical infrastructure. It is a major waste and drain on the economy,” the minister said.

She explained that the transport allowance is to be transferred directly to the bank accounts of deserving Nigerians through the help of a bank verification number and national identity number.

“The transport subsidy would be given directly to individuals. What is constraining us is the issue of registration. The national identity registration process is going on and we want to make sure that this transport palliative goes into the hands of the right people.

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“Then we can make transfers to people using BVNs, account number and national identity number, and we know that it has gone to the right people,” the minister said.

Many analysts have spoken up against Nigeria’s subsidy payment, which gulps an average of  N120 billion monthly.

Former Central Bank of Nigeria governor Sanusi Lamido Sanusi had on several occasions questioned the rationale for subsidy payment.

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