Doubts as FG plans to reimburse ‘poor’ Nigerians, cancel fuel subsidy

The Federal Government will from next year transfer about N2.4 trillion to about 40 million Nigerians as transportation grants as government begins move to totally remove subsidy on Premium Motor Spirit (PMS).

Most stakeholders are, however, uncertain of the feasibility of the plans, raising doubts on the source of fund and impact on volume of money in circulation, as well as transparency and accountability issues.

The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, who announced government’s plans yesterday at the launch of the World Bank Nigeria Development Update (NDU), titled ‘Time for Business Unusual’ in Abuja, said 40 million poorest Nigerians would benefit from the allowance.

By transferring about N5,000 to 40 million Nigerians monthly that are regarded as the ‘poorest of the poor’ by Federal Government, it would need about N200 billion every month and nothing less than N2.4 trillion yearly if the plan would become feasible.

The governor of Kaduna State, Malam Nasir el-Rufai, has said state governments are ready to support the Federal Government to remove the fuel subsidy regime.

El-Rufai, a panelist, who joined virtually the NDU presentation, said if the fuel subsidy regime was not eliminated, 35 out of the 36 states of the federation may not be able to pay salaries in 2022.

According to him, kerosene, which matters most to the masses, had been deregulated without any hitches, while diesel, which was most important to transporters, had also been deregulated for a long time.

“This hullabaloo about petrol is something that we must, as a country, have a conversation and agree that it has to end. We cannot continue to provide petroleum to our neighbouring countries, which is what we are doing.

“Right now, we are losing N250 billion a month and this has to end. State governments are committed to supporting the Federal Government on this. This is the position of the state governments and we met just a few days ago to take this position,” he said.

El-Rufai added that the governors saw the dangers in continuing on the path of petroleum subsidy and support policy measures needed to improve the fiscal situation, such as price stability. This, he said, was by ensuring that there was alignment of the exchange rate and good coordination between fiscal and monetary policy.

Recall that el-Rufai had led the 2012 Occupy Nigeria protests with other opposition figures, which ended former President Goodluck Jonathan’s plan to remove petrol subsidy to save about one trillion naira in 2012 alone.

The Kaduna governor has also not updated himself with kerosene and diesel, which he claimed have been deregulated.

Mr Shubham Chaudhuri, the World Bank Country Director, said even though Nigeria’s economy exited a pandemic-induced recession, several challenges persist including double-digit inflation, declining incomes and rising insecurity.

“While the government took bold policy measures to mitigate the impacts of the COVID-19 crisis, the reform momentum has slowed which hinders Nigeria’s ability to reach its growth potential,” Chaudhuri said.

According to him, the issues of insufficient supply of foreign exchange, exchange rate management, unsustainable petrol subsidy, trade restrictions and sizeable fiscal deficit financing by the Central Bank of Nigeria (CBN), were undermining the business environment.

Group Managing Director and Chief Executive Officer of Nigerian National Petroleum Company (NNPC) Limited, Malam Mele Kyari, said subsidy would have been eliminated in 2020 but certain factors prevented it.

He, however, said the law provides that by the end of February 2022, the nation should be out of the subsidy regime.

Kyari assured that fuel subsidy removal would definitely be achieved in 2022 as it was now fully backed by law, adding that the price of the product may range between N320 and N340 per liter.

On the hike in prices of cooking gas, he said that it was a demand and supply issue as there was a global crunch on supply of gas and many countries were now threatened by lack of supply in December.

He added that the product was not under any subsidy regime and therefore, irrespective of where it was produced, would follow the global trend. Kyari, however, assured that the company was working on increasing local production to meet the needs of consumers.

Although subsidy removal, according to stakeholders, may address key economic situations in the country, especially conservation of foreign exchange, increase in external reserves, boost for local refineries and related industries, as well as job creation, the concerns for many stakeholders border on the uncertainties surrounding the cash transfer initiative.

Just last week, the International Monetary Fund (IMF) advised the Federal Government to remove fuel and electricity subsidies early 2022, noting that the subsidies benefit only the rich.

However, there are concerns the government may not have the courage to remove the subsidy because the time is too close to election year. There are also concerns about the implications it would have on rising inflation in the country, considering how the price of fuel affects logistics as well as other associated costs.

Amid transparency issues on existing cash transfers to poor Nigerians, stakeholders, who spoke with The Guardian, yesterday, were unsure how Nigerians would validate who has received the money or not. They also raised concerns if the money would be paid directly to bank accounts, when most poor Nigerians are unbanked.

Expected to come a few months ahead of the 2023 election, most stakeholders noted that it would be another means of bribing voters in favour of the current administration, adding that similar development trailed the TraderMoni initiative.

Executive Director, CISLAC, Auwal Ibrahim Musa (Rafsanjani), noted that the transport grant is a terrible move to contemplate, particularly, at this crucial time of post-COVID recovery, when the increasing cost of governance underpinned by high personnel and overhead costs are weighing down on the federation purse.

“It is, thus, really worrisome that we are doing away with subsidy by incurring a recurring annual net cost of N2.4 trillion (if N5,000 is disbursed to 40 million ‘poor’ people monthly as proposed) not to mention the overhead cost that will be incurred in the administration of these funds,” he said.

Rafsanjani insisted that similar measures have failed, stressing that the new plan will not be different as it seems impulsive and lacks sincerity of purpose.

According to him, Nigerians have witnessed the inefficiency and lack of transparency that trailed interventions like the Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL), Microfinance Bank SME/Household loan, which is still under review as well as the COVID-19 palliatives, just to mention a few.

Director, Centre for Democracy and Development (CDD), Idayat Hassan, also, does not believe that the move will alleviate the suffering of Nigerians. According to her, the cost of fuel, food and services are already up while salaries remain the same.

“The mode of sharing the N5,000 will be a problem and almost all Nigerians require a subsidy. I wonder how these will play out but it’s not clearly thought out. I am particularly worried that Nigeria currently feel they receive nothing from their government and hopefully this increase does not alienate them further,” Hassan said.

An energy expert, Henry Adigun, noted that although achieving N5,000 transfer to poor Nigerians is complicated, in 2022 as it was now fully backed by law, adding that the price of the product may range between N320 and N340 per liter.

On the hike in prices of cooking gas, he said that it was a demand and supply issue as there was a global crunch on supply of gas and many countries were now threatened by lack of supply in December.

He added that the product was not under any subsidy regime and therefore, irrespective of where it was produced, would follow the global trend. Kyari, however, assured that the company was working on increasing local production to meet the needs of consumers.

Just last week, the International Monetary Fund (IMF) advised the Federal Government to remove fuel and electricity subsidies early 2022, noting that the subsidies benefit only the rich.

However, there are concerns the government may not have the courage to remove the subsidy because the time is too close to election year. There are also concerns about the implications it would have on rising inflation in the country, considering how the price of fuel affects logistics as well as other associated costs.

Amid transparency issues on existing cash transfers to poor Nigerians, stakeholders, who spoke with The Guardian, yesterday, were unsure how Nigerians would validate who has received the money or not. They also raised concerns if the money would be paid directly to bank accounts, when most poor Nigerians are unbanked.

Expected to come a few months ahead of the 2023 election, most stakeholders noted that it would be another means of bribing voters in favour of the current administration, adding that similar development trailed the TraderMoni initiative.

Executive Director, CISLAC, Auwal Ibrahim Musa (Rafsanjani), noted that the transport grant is a terrible move to contemplate, particularly, at this crucial time of post-COVID recovery, when the increasing cost of governance underpinned by high personnel and overhead costs are weighing down on the federation purse.

“It is, thus, really worrisome that we are doing away with subsidy by incurring a recurring annual net cost of N2.4 trillion (if N5,000 is disbursed to 40 million ‘poor’ people monthly as proposed) not to mention the overhead cost that will be incurred in the administration of these funds,” he said.

Rafsanjani insisted that similar measures have failed, stressing that the new plan will not be different as it seems impulsive and lacks sincerity of purpose.

According to him, Nigerians have witnessed the inefficiency and lack of transparency that trailed interventions like the Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL), Microfinance Bank SME/Household loan, which is still under review as well as the COVID-19 palliatives, just to mention a few.

Director, Centre for Democracy and Development (CDD), Idayat Hassan, also, does not believe that the move will alleviate the suffering of Nigerians. According to her, the cost of fuel, food and services are already up while salaries remain the same.
“The mode of sharing the N5,000 will be a problem and almost all Nigerians require a subsidy. I wonder how these will play out but it’s not clearly thought out. I am particularly worried that Nigeria currently feel they receive nothing from their government and hopefully this increase does not alienate them further,” Hassan said.

An energy expert, Henry Adigun, noted that although achieving N5,000 transfer to poor Nigerians is complicated, the need to remove petrol subsidy remained the right way to go. He noted that the development would help local refining business in Nigeria as that would stimulate the economy and provide jobs.

He also noted that the removal of subsidies would reduce burden on foreign exchange, help boost foreign reserves, strengthen naira and help other industries to grow.

A political economist, Dr Kachi Ononuju, said he doubts the ability of the government to follow through with this promise.

According to him, “this government has made so many promises, which it has not been able to keep. I don’t have any faith in the government actually removing the fuel subsidy, even though that is what we have always asked for, let alone paying N5,000 to poor Nigerians as transport allowance.”

He said he will maintain a position of sit and watch because he does not believe the government has the political will to do what it said it would do.

For a former President of the Association of National Accountants of Nigeria (ANAN), Dr Sam Nzekwe, the removal of fuel subsidy is long overdue. He said his worry is how credible the data the government would be using to distribute the allowance is.

In his words, “our major challenge in this country is getting accurate data. We don’t have that. So, how the government is going to get the data for the distribution of the monthly N5,000 is what I am worried about. Before you know it, people will start putting the names of their children, grandchildren, uncles and aunties, it is a big problem.”

The Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said it is a sound economic decision to remove fuel subsidy.

Yusuf said: “Subsidy is not sustainable. I also feel there is sense in direct transfer of cash to the vulnerable segment of the society, but the credibility of the database must be assured and the database must be inclusive.”

Other stakeholders argued that for the Federal Government to truly deregulate the subsidy on Premium Motor Spirit (PMS), it must abrogate the equalisation programme that guarantees uniform pump price of PMS nationwide.

An economist, Tope Fasua, said setting up another cash transfer to the poorest of the poor will engender corruption.

His argument: “Paying the poorest of the poor is also a mirage because the poorest of the poor do not have a voice in the matter. Where are the poor? How will they benefit? From N5,000 monthly transport allowance? The poorest of the poor are not workers. They are not found in the cities. They are not in air-conditioned offices. If four litres of oil palm is about N600 per litre, one litre of PMS is N165 per litre. So, why not subsidise oil palm that everyone uses to cook?”

He also questioned the daily consumption of PMS that has been bandied around at various times, saying, “why is it that all of a sudden, Nigeria moved from consuming 42 million litres to 90 million litres per day. The argument that most of our PMS are smuggled does not hold water because the entire consumption of Cameroun, Chad, Niger and the Republic of Benin does not come near to what Nigeria is losing on a daily basis. How did we move from 42 to 90 million litres? I don’t think the government is ready for all these things.”

While urging the Federal Government to be careful about the narratives it pushes out in the next few months alongside that of deregulation to the citizens, Fasua said the social fabric must not be threatened in any way.

He said: “In 2011, when President Goodluck Jonathan tried this, the opposition pitched the rich against the poor by painting the picture of the rich being the sole beneficiaries of the subsidy. Now, that has taken us to the era where drivers and the poor are now kidnapping their bosses and their relatives. We sowed the seed of discord in 2012. I said that narrative was dangerous.” (The Guardian)