By Henry Olujimi Boyo
One of the decisions taken by the National Assembly before the Christmas break was the appropriation of an additional sum of N161.6 billion to augment the initial N888.1 billion voted for subsidy in the budget of the outgoing year. This would bring total fuel subsidy claims for 2012 to over N1.05 trillion; i.e. the equivalent of over 20 per cent of the 2012 expenditure budget of N4.7 trillion. The budget allocation of over N500 billion for interest and service charges for domestic debt comes a distant second to fuel subsidy. Consequently, fuel subsidy and debt service charges may account for over 30 per cent of total expenditure this year.
In contrast, consolidated vote for the critical sectors of education, health and agriculture regrettably account for less than 15 per cent, well below the UNESCO recommendation for the dedication of over 26 per cent of total expenditure specifically to education. Our decrepit educational infrastructure and the ill-equipped products of our institutions are the result of the anti-social disparity in our spending profile.
The Executive Secretary of the Petroleum Pricing and Regulatory Agency (PPRA) has defended the additional requirement for N161 billion fuel subsidy as in order and noted that the N888 billion initially approved included arrears of N451 billion from processed 2011 claims! In any event, PPRA’s Reginald Stanley also observed that the consolidated allocation of N1.05 trillion in 2012 budget was a major improvement on the alleged total subsidy payment of N2.09 trillion in 2011.
However, the PPRA boss confirmed that “the processed claims up to July 2012 for PMS alone stood at N605 billion, and exceeded the approved balance of N437 billion after the deduction of arrears from 2011”. (Punch 18/12/2012, pg. 23).
Indications are that subsidy payments for kerosene, according to the PPRA, may not have been captured in the already processed claims of N605 billion! Consequently, when ultimately approved, kerosene subsidy up to July 2012 may also notch up another N605 billion as kerosene claims historically, regularly exceed subsidy payments for PMS.
Thus, processed claims for PMS and kerosene may probably have surpassed N1.2 trillion by July, and may ultimately exceed N2.4 trillion by December 2012.
So, in spite of the presumed “thorough and extensive audit” of claims, total subsidy payments for 2012 would be higher than the contentious 2011 figure of about N2 trillion and may account for over 40 per cent of the 2012 expenditure budget! Indeed, the N161 billion for which fresh approval was sought in mid December 2012 may just be the tip of the iceberg, as the N437 billion cash backed processed claims and this fresh appropriation only add up to about N600 billion, whereas processed claims for PMS alone already exceeded N605 billion by July 2012.
Certainly, the Federal Executive would again inevitably come up early in the first quarter of 2013 with a bill seeking approval for hundreds of billions of naira more to pay for arrears of 2012 processed claims!
The revelations from the National Assembly hearings confirmed that kerosene subsidy values may account for the lion’s share of subsidy payments. Nonetheless, it is generally easier to purchase PMS at the official price of N97/litre than to purchase kerosene at the official price of N50/litre!
The reason for the perennial scarcity of kerosene nationwide is not farfetched; investigations by the Standards Organisation of Nigeria (SON) recently revealed that many power-generating sets have been unnecessarily damaged by the product of deliberate mixture of subsidized kerosene with diesel by some unscrupulous oil marketers, in order to boost their profit margins.
Furthermore, some marketers clandestinely also sell the cheaper kerosene at the much higher price of aviation fuel to airline operators! Thus, another government policy that appears overtly targeted to support the poor has become another cash cow for milking by a handful of well-positioned and favoured Nigerians.
Some marketers may rationalise their unscrupulous profiteering with the extended delays of between 3 – 6 months before settlement of their fuel subsidy claims, while interest payments on the hundreds of billions of naira borrowed to import fuel increased daily. Thus, their additional profit from cutting corners with subsidised kerosene may cover some, if not all, of the unanticipated bank charges!
Ultimately, it would appear that the subsidy imbroglio and heavy social burden would only be averted if crude oil prices fall, as this would reduce the landed cost of both kerosene and PMS respectively. But this is a prayer that is counter-productive, as our foreign earnings would automatically be depleted rapidly; in any such event, with negative impact on the naira exchange rate. Meanwhile, a weaker naira would further pump up the domestic price of fuel!
In addition, any significant drop in export revenue as a result of tumbling crude oil prices may also instigate a bigger appetite for government borrowing to supplement revenue shortfalls; such loans, inevitably come with an attendant oppressive interest rate burden.
Conversely, while higher crude prices would benefit the economy, they would also increase the domestic fuel price and inadvertently increase subsidy values above the current annual average of over N2 trillion. Ultimately, we may need to dedicate over 50 per cent of total expenditure budget for subsidy payments alone! Indeed, if debt service charges also increase above the current level of about N600 billion annually, our economy may approach the point of no return, where subsidies and interest charges account for over 65 per cent of total expenditure! It seems we have a dilemma in which neither higher nor lower crude oil prices will subdue the necessity for subsidy!
However, in reality, this apparent no-win situation needn’t be so, if crude dollar earnings are infused directly into the economy with the instrument of dollar certificates. The prevailing system of substituting bloated naira sums for dollar earnings instigates the disruptive ‘eternal’ cash surfeit, which instigates heavy government borrowing, high rate of interest and inflation, and a weaker naira, all of which support rising fuel prices, which make subsidy inevitable.
Indeed, our export revenue will increase and make the naira stronger as crude oil prices rise, under a reformed payment model, which adopts dollar certificates; a stronger naira will depress domestic pump price of fuel! In this manner, fuel prices will ultimately fall below the current N97/litre, such that government could raise additional revenue from fuel sales tax/litre, just like other oil-producing countries such as the U.S. and the UK.
Conversely also, with a reformed payment system, when crude prices fall, domestic fuel prices will similarly fall and still make subsidy payments unnecessary, since prices are falling anyway!
• Boyo is a public commentator on financial matters.
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