FG To Begin Gradual Withdrawal Of Fuel Subsidy Begins By 2016
SAN FRANCISCO, December 15, (THEWILL) – Having come to the realisation that the funding of fuel subsidy which gulped over N1trn in 2015 was no longer sustainable in the years ahead, the federal government has announced its intention to begin a gradual withdrawal of the controversial subsidy by next year.
The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu revealed the government's decision while appearing before the Joint National Assembly Committee on Finance, Appropriation and National Planning on the consideration of Medium Term Expenditure Framework, MTEF.
The decision of the federal government to stop paying for fuel subsidy coincided with reports that tumbling crude oil prices might adversely affect the nation's 2016 budget.
Reuters reports that crude oil price recently tumbled four per cent to $36-40 per barrel, coming close to its 11-year low, and potentially endangering the implementation of the 2016 budget, which is predicated on oil price of $38 per barrel and output of 2.2 million barrels of crude per day.
The sharp drop on crude oil prices, it said, followed growing fears that the global oil glut would worsen in the months to come in a pricing war between the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC producers.
Kachikwu, however, at a press conference in Abuja, said OPEC might convene an emergency meeting earlier than its June 2016 scheduled meeting to assess the measures it had put in place to check further slide in crude oil prices.
At the Senate, the minister of state said the gradual removal strategy would begin with the nation’s return to the pump price of N97 per litre from the current N87 because the government has no money to sustain the current price.
Stressing that the government would be compelled to consider total withdrawal of fuel subsidy if the strategy was not effective, he said, “The total subsidy figure for 2015 when taken along with the NNPC will be in excess of N1 trillion. We can get this specifics but the point is largely that it does not involve NNPC because the agency takes its off-cuff. We will work towards taking those figures off our budget in 2016.”
Kachikwu maintained that with the federal government's current pricing work, it was clear that subsidy was no longer sustainable, adding that “The government doesn’t need to fund subsidy. There is energy around the removal of subsidy. Most Nigerians we talk to today would say, that’s where to go”.
According to the minister, “I have since left the dictionary of subsidy by going to price modulation, which is a bit more technical. Price of refined products today is N87. It was N97 before it was removed and we really have to go back to that because we don’t really have the finance to remove it. There are lots of safety barometer between the N87 and N97 per litre regime between which government does not have to fund subsidy.
“Yet the prices would be fairly close to what it used to be today. That is the first mechanism we are going to work on. It is when that mechanism fails that we will begin to look at a total subsidy exit. We believe we could achieve that.”
Kachikwu, who further explained the mechanism being put in place to increase oil production volume in 2016, said with the projection by OPEC, stated that government expects an increase in oil price from $38 per barrel in early January to between $45 and $50 per barrel, adding that “We expect it to hit $70 per barrel in 2017”.