Ololade Adeyanju/
As labour unions prepare to embark on a nationwide strike on September 28 over fuel price hike and high electricity tariff, the Federal Government (FG) today argued that the strike would do more harm than good, as it pleaded with Nigerians to have better understanding of government action.
Explaining why government had to take certain tough decisions, even as it is acting to mitigate the effect of the economic slowdown by adopting an Economic Sustainability Plan, the Minister of Information and Culture, Alhaji Lai Mohammed, told journalists in Lagos today that deregulation would end well as government action is in the best interest of Nigerians.
Alhaji Mohammed said “Ordinary citizens are not the beneficiaries of the subsidy on petroleum products that has lasted for years. Between 2006 and 2019, a total of 10.4 trillion Naira was spent on fuel subsidy, most of which went to fat cats who either collected subsidy for products they didn’t import or diverted the products to neighbouring countries, where prices are much higher.”
He said “the deregulation of the petroleum sector will save the country trillions of Naira, which can then be used to provide modern infrastructures for the benefit of the people. It will also spur investments in the petroleum industry, especially in the building of local refineries which will result in lower fuel prices.”
According to him, “the truth is that the government can no longer afford the cost of subsidy, especially under the prevailing economic conditions. Revenues and foreign exchange earnings by the government have fallen by almost 60%, due to the downturn in the fortunes of the oil sector. And there is no provision for subsidy in the revised 2020 budget. So where will the subsidy money come from? Remember that despite the massive fall in revenues, the government still has to sustain expenditures, especially on salaries and capital projects.”
The Minister further said that “even with the increase in the price of fuel due to deregulation, PMS is still cheaper in Nigeria than in the neighbouring countries, and indeed in the entire West/Central African sub-regions”, and he backed this up with current prices, converted to Naira, obtainable in these countries.
On the increase in electricity tarrif, the Minister said “The truth of the matter is that due to the problems with the largely-privatized electricity industry, the government has been supporting the industry. To keep the industry going, the government has so far spent almost 1.7 trillion Naira, especially by way of supplementing tariff shortfalls. The government does not have the resources to continue along this path. To borrow just to subsidize generation and distribution, which are both privatized, will be grossly irresponsible.”
Below is the full text of the Minister’s speech.
TEXT OF THE BRIEFING BY THE HON. MINISTER OF INFORMATION AND CULTURE,
ALHAJI LAI MOHAMMED, IN LAGOS ON
SATURDAY, 26 SEPT 2020 ON THE RECENT INCREASES IN PETROL AND
ELECTRICITY PRICES.
Good morning gentlemen, and thank you most sincerely for honouring our
invitation to this briefing.
As you are aware, the hike in the cost of fuel as a consequence
of deregulation and the higher prices, occasioned by service-based
electricity tariff adjustment, have led to various reactions,
especially from organized labour which has threatened a nationwide
strike. It has also led to accusation of insensitivity on the part of
government.
I want to assure Nigerians, through you – gentlemen of the press
– that the government is not insensitive to their plight. As a matter
of fact, the full deregulation of the petroleum sector and the
service-based electricity tariff adjustment will in the long run
benefit the ordinary people
Let’s start with deregulation. Ordinary citizens are not the
beneficiaries of the subsidy on petroleum products that has lasted for
years. Between 2006 and 2019, a total of 10.4 trillion Naira was spent
on fuel subsidy, most of which went to fat cats who either collected
subsidy for products they didn’t import or diverted the products to
neighbouring countries, where prices are much higher. Instead of
subsidy, ordinary Nigerians were subjected to scarcity of petroleum
products. They endured incessant long queues and paid higher to get
the products, thus making the subsidy ineffectual.
Apart from that, the truth is that the government can no longer
afford the cost of subsidy, especially under the prevailing economic
conditions. Revenues and foreign exchange earnings by the government
have fallen by almost 60%, due to the downturn in the fortunes of the
oil sector. And there is no provision for subsidy in the revised 2020
budget. So where will the subsidy money come from? Remember that
despite the massive fall in revenues, the government still has to
sustain expenditures, especially on salaries and capital projects.
Still on subsidy, as I said, from 2006 to 2019, fuel subsidy
gulped N10.4 trillion. That is an average of N743.8 billion
per annum. According to figures provided by the NNPC, the breakdown of
the 14-year subsidy is as follows:
– In 2006 Subsidy was 257bn
– In 2007 Subsidy was 272bn
– In 2008 Subsidy was 631bn
– In 2009 469bn
– In 2010 667bn
– In 2011 2.105tn
– In 2012 1.355tn
– In 2013 1.316tn
– In 2014 1.217tn
– In 2015 654bn
– In 2016 Figure Not Available
– In 2017 Subsidy was 144.3bn
– In 2018 730.86bn
– And in 2019 Subsidy was 595bn
The drastic fall in the revenues of the government explains why the government had to take certain tough decisions, even as it is acting
to mitigate the effect of the economic slowdown by adopting an
Economic Sustainability Plan. One of such difficult decisions, which
we took at the beginning of the Covid-19 pandemic in March – when oil
prices collapsed at the height of the global lockdown – was the
deregulation of the prices of PMS.
Recall that the benefit of lower prices at that time was passed
to consumers. Everyone welcomed the lower fuel price then. Again, the
effect of deregulation is that PMS prices will change with changes in
global oil prices. This means quite regrettably that as oil prices
recover, there will be some increases in PMS prices. This is what has
happened now. I am sure Nigerians will prefer to pay slightly higher
for PMS than to queue for hours just to get the products at higher
prices.
I also want to say that the effect of the changes in the
international prices of crude oil on local fuel prices will not last
forever. Modular refineries are beginning to come on stream in the
country, and this will help lower the cost of petroleum products. Next
month, the Waltersmith Modular Refinery in Ibigwe, Imo State, will be
commissioned, starting with refining 5,000 barrels of crude per day
and increasing rapidly to 50,000 barrels of crude. Many more modular
refineries are also in different stages of completion across the
country, in addition to the 650,000 barrels per day Dangote Refinery.
The deregulation will bring more investments into the sector, to the
benefit of Nigerians.
Gentlemen, even with the increase in the price of fuel due to
deregulation, PMS is still cheaper in Nigeria than in the neighbouring
countries, and indeed in the entire West/Central African sub-regions.
Here is a comparative analysis of petrol prices in the sub-regions
(Naira equivalent per litre);
– Nigeria – 162 Naira per litre
– Ghana – 332 Naira per litre
– Benin – 359 Naira per litre
– Togo – 300 Naira per litre
– Niger – 346 Naira per litre
– Chad – 366 Naira per litre
– Cameroon – 449 Naira per litre
– Burkina Faso – 433 Naira per Litre
– Mali – 476 Naira per litre
– Liberia – 257 Naira per litre
– Sierra Leone – 281 Naira per litre
– Guinea – 363 Naira per litre
– Senegal – 549 Naira per litre
Outside the sub-region, petrol sells for N211 per litre in
Egypt and N168 per litre in Saudi Arabia. You can now see that
even with the removal of subsidy, fuel price in Nigeria remains among
the cheapest in Africa. In the long run, deregulation will pay off and
Nigerians will pay less.
ELECTRICITY TARIFF
Another issue we want to address here today is the recent
service-based electricity tariff adjustment by the Distribution
Companies, or DISCOS. The truth of the matter is that due to the
problems with the largely-privatized electricity industry, the
government has been supporting the industry. To keep the industry
going, the government has so far spent almost N1.7 trillion, especially by way of
supplementing tariff shortfalls. The government does not have the
resources to continue along this path. To borrow just to subsidize
generation and distribution, which are both privatized, will be
grossly irresponsible.
But in order to protect the large majority of Nigerians who cannot
afford to pay cost-reflective tariffs from increases, the industry
regulator, Nigerian Electricity Regulatory Commission (NERC), has
approved that tariff adjustments had to be made but only on the basis
of guaranteed improvement in service. Under this new arrangement, only
customers with guaranteed minimum of 12 hours of electricity can have
their tariffs adjusted. Those who get less than 12 hours supply will
experience no increase. This is the largest group of customers.
Government has also noted the complaints about arbitrary
estimated billing. Accordingly, a mass metering programme is being
undertaken to provide meters for over 5 million Nigerians, largely
driven by preferred procurement from local manufacturers, and creating
thousands of jobs in the process. NERC will also strictly enforce the
capping regulation to ensure that unmetered customers are not charged
beyond the metered customers in their neighbourhood. In other words,
there will be no more estimated billings.
The government is also taking steps to connect those Nigerians who
are not even connected to electricity at all. As you are aware, under
its Economic Sustainability Plan, the government is providing solar
power to 5 million Nigerian households in the next 12 months. This
alone will produce 250,000 jobs and impact up to 25 million
beneficiaries through the installation, thus ensuring that more
Nigerians will have access to electricity via a reliable and
sustainable solar system.
Again, like PMS, despite the recent service-based tariff review,
the cost of electricity in Nigeria is still cheaper or compares
favourably with that of many countries in Africa.
HERE ARE COST IN NAIRA PER KWH IN SOME AFRICAN COUNTRIES.
– Nigeria 49.75
– Senegal 71.17
– Guinea 41.36
– Sierra Leone 106.02
– Liberia 206.01
– Niger 59.28
– Mali 88.23
– Burkina Faso 85.09
– Togo 79.88
TIMING OF THE PRICE INCREASES
Gentlemen, the timing of these two necessary adjustments, in the
petroleum and power sectors, has raised some concerns among Nigerians
and reinforced the false narrative that the government is insensitive
to the plight of the citizens. This is a mere coincidence. First, the
deregulation of PMS prices was announced on 18 March 2020, and the
price modulation that took place at the beginning of this month was
just part of the on-going monthly adjustments to global crude oil
prices.
Also, the review of service-based electricity tariffs was
scheduled to start at the beginning of July 2020 but was put on hold
so that further studies and proper arrangements can be made. Like Mr.
President said at the opening of the last Ministerial Retreat, this
government is not insensitive to the current economic difficulties our
people are going through and the very tough economic situation we face
as a nation. We certainly will not inflict hardship on our people. But
we are convinced that if we stay focused on our plans, brighter and
more prosperous days will come soon.
We thank Nigerians for their understanding and wish to appeal to
them to please bear with the government. The deregulation of the
petroleum sector will save the country trillions of Naira, which can
then be used to provide modern infrastructures for the benefit of the
people. It will also spur investments in the petroleum industry,
especially in the building of local refineries which will result in
lower fuel prices.
Also, the service-based electricity tariff adjustment and the
ongoing work by German company Siemens to boost power supply in
Nigeria will help end the perennial power problem in the country. Let
me remind you that under the three-phase Siemens deal, Nigerians will
enjoy 7,000 megawatts of reliable power supply by the end of 2021
(phase 1), 11,000 megawatts by the end of 2023 (phase 2) and 25,000
megawatts in the third phase.
Finally, we wish to appeal to organize labour to shelve its planned strike, which can only bring more hardship to ordinary Nigerians.
I thank you for your kind attention