FG’s no plan to remove fuel subsidy may cause hard landing for Dangote fuel
Considering the fact that Dangote Refinery which is expected to pump products into Nigerian market from next year is coming with sulphur-free fuel which is currently over one dollar in the international market, there are strong indications that the Federal Government may run bankrupt if it tries to subsidise it and still remain pump price at N145.
Globally, whereas the price of dirty fuel which Nigeria buys now hovers around N200, price of clean sulphur-free fuel is over N370.
Analysts say if the Federal Government is bleeding while paying about N55 per litre of fuel consumed in Nigeria, can it afford to pay N225 per litre?
Recall that as the fear of surreptitious subsidy removal rumours were gaining ground, the Federal Government gave assurance that there are no plans to remove fuel subsidy now.
This was made public by the Minister of Finance, Ms Zainab Ahmed, during a ministerial press briefing at the just ended 2019 International Monetary Fund and World Bank Spring Meetings in Washington DC.
Flanked by the Minister of Budget and National Planning, Senator Udo Udoma and the Governor, Central Bank of Nigeria, Mr. Godwin Emefiele, during the briefing, Ms Ahmed explained that there are processes that need to be followed ahead of subsidy removal which may not have started and noted that government will continue to subsidize pending when it is deemed fit.
Before now, players in the nation’s downstream petroleum sector had called for removal of subsidy so as to boost deep pocket investments arguing that no meaningful investment can come in when there remains a price cap for petrol.
Trouble and fears of subsidy removal had started since crude oil price crossed $60 mark which jump started higher product landing cost at the ports. The trouble, however, was further driven by the recent advice coming from the Managing Director of International Monetary Fund (IMF), Christine Lagarde that the Federal Government needs to remove fuel subsidy to free funds for in her lead argument, Lagarde had said that with the low revenue mobilisation that existed in Nigeria in terms of tax to Gross Domestic Product, it was important for the country to remove fuel subsidies and move available funds into improving health, education, and infrastructure, among others.
Recall that the IMF had earlier its 2019 Article IV Consultation on Nigeria noted that phasing out implicit fuel subsidies while strengthening social safety nets to mitigate the impact on the most vulnerable would help reduce the poverty gap and free up additional fiscal space in the country.
According to her, “We believe that removing fossil fuel subsidies is the right way to go. If you look at our numbers from 2015, it is no less than about $5.2tn that is spent on fuel subsidies and the consequences thereof.
“I would add as a footnote as far as Nigeria is concerned that, with the low revenue mobilisation that exists in the country in terms of tax to GDP, Nigeria is amongst the lowest. A real effort has to be done in order to maintain a good public finance situation for the country and direct investment towards health, education, and infrastructure,” IMF chief averred.
