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No sunny side for Nigeria despite $66 oil price

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Nigeria may not totally reap the gains of the rising oil price in the global oil market, following the Federal Government’s inability to deal with the overburdening subsidy regime which, alongside multiple exchange rate, rising debt concerns and insecurity, has put the nation’s economy on the edge.

Brent crude sold for $66.68 on Wednesday in the global oil market, which naturally gives the nation $26.68 more than  oil price the budget benchmark of $40per barrel.  However, the Nigerian National Petroleum Corporation (NNPC) has already issued an alarm reminding the nation that states may not have any federal allocation to share in May despite rising oil price.

The corporation said its projected monthly remittance to the Federation Accounts Allocation Committee (FAAC) in May would be zero, stressing that closing the gap of underpayment of premium motor spirit by Nigerians would put its financials under distress.

“The price could have been anywhere between N211 and N234 to the litre. The meaning of this is that consumers are not paying for the full value of the PMS  that we are consuming and therefore someone is paying that cost, ” Group Managing Director of the NNPC Mele Kyari said in a recent statement.

Mele Kyari, NNPC Group Managing Director

Nigeria is currently engulfed in subsidy payment in both  electricity and gasoline. These subsidies have raised the cost of governance, putting pressure on government’s already distressed finances.  There have been several unsuccessful attempts to prune down governance cost, but this has not happened, in line with Steven Oronsanye report on rationalisation of Nigeria’s civil service.

The Federal Government  has relied on $1.5 billion World Bank Support Facility to help the federating states cushion the effects of coronavirus pandemic on the country’s revenue, and support the federating states to drive their fiscals. This development, however, has not yielded the desired result as several states still rely on federal allocation from proceeds of crude oil sales for payment of workers’ salaries.

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Analysts stress that  the lingering negotiation between  the Nigerian Labour Congress (NLC)  and the Nigerian government on subsidy removal both in gasoline and electricity sector has been a major issue stretching the already  distressed finances, causing the government to go on borrowing spree amid scarce resources to fund the unsustainable subsidy.

For instance, each month, more than N120 billion is pumped into an unsustainable subsidy regime amid dwindling revenue resources confronting Africa’s most populous nation. The Nigerian government confronted by internal conflict printed N60 billion to augment March allocation to states -reflecting the precarious finances of the country.

Nigeria has no budget for subsidies, but has been paying subsidy for petroleum. The situation, analysts say, breeds corruption in the already opaque sector that makes little efforts to  show records of  imports done through direct sales and purchase agreement.

“It is no longer sustainable and we have been saying it. I don’t know why we keep mixing politics and the economy in a very bad way,”  President of Major Oil Marketers Association of Nigeria Adetunji Oyebanji told The ICIR.

“The result is what the GMD has already revealed to us, that there would be zero allocation from the corporation in May. By implication, those states with poor internally generated revenue (IGR) may not be able to pay salaries to state workers and other municipal workers.”

Oyebanji said the labour union needed to be more strategic in its demands, stressing that they were more political than economical.

The number of PMS trucks shipped per day is estimated at 80.23 million litre, as confirmed by the Petroleum Product Pricing Regulatory Agency (PPPRA), pushing up the subsidy costs. Energy experts allege that some Nigerian petroleum products find their way to neighbouring West African countries which benefit largely from a corruption-ridden subsidy regime.

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Industry stakeholders blame the NNPC for this, raising concerns on the opacity that characterise its sole importation role, which boosts the rising unsustainable subsidy.

The present administration has pledged to lift 100 million people out of poverty through several of its initiatives, emphasing that it is strengthening existing social safety nets by increasing access to enrollees who fit into its numerous programmes  in the scheme.

To achieve this plan, the government needs financial resources which are in short supply at the moment. Unemployment is 33.3 per cent at the moment and almost half of the population are extremely poor. Insecurity is also ravaging the country, including poor infrastructure. All these require money, which subsidies do not allow Nigeria to have.

“We must be able to create the right balance between subsidy payment and and lifting people out of poverty. It is by doing that we would be able to achieve tangible results and create opportunities for the masses,” Governor Kayode Fayemi of Ekiti State said in a monitored Television programme on Tuesday.

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