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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