‘We Had No Choice Than To Remove Subsidy’- Vice President Osinbajo Explains

Yemi Osinbajo

The removel of fuel subsidy has been generating a flurry of debates. It has left millions of Nigerians in anguish. The labour union is threatning an industrial action. Conversely, the financial markets and investors are seeing the positives in the scenerio.

The Nigerian government after announcing through the minister of state for petroleum resources, is putting one of its brightest forward to explain to Nigerians why total removal of fuel subsidy is inevitable.

Through his Twitter handle , Professor Yemi Osinbajo, Vice President of Nigeria explained in details why Nigeria is left with no option than to do a away with subsidy on fuel.

See excerpts below:

I have read the various observations about the fuel pricing regime and the attendant issues generated.

You have all certainly raised strong points.

The most important issue of course is how to shield the poor from the worst effects of the policy. I will address this in another note.

Permit me to explain the policy.

First, the real issue is not a removal of subsidy. At $40 a barrel there isn’t much of a subsidy to remove.

In any event, the President is probably one of the most convinced pro-subsidy advocates.

What happened is as follows: our local consumption of fuel is almost entirely imported.

The NNPC exchanges crude from its joint venture share to provide about 50% of local fuel consumption.

The remaining 50% is imported by major and independent marketers.

These marketers up until three months ago sourced their foreign exchange from the Central Bank of Nigeria at the official rate.

Since late last year, marketers have brought in little or no fuel because they have been unable to get foreign exchange from the CBN.

The CBN simply did not have enough.

In April, oil earnings dipped to $550 million. The amount required for fuel importation alone is about $225million!

Meanwhile, NNPC tried to cover the 50% shortfall by dedicating more export crude for domestic consumption.

Besides the short term depletion of the Federation Account, which is where the FG and States are paid from and further cash-call debts pilling up, NNPC also lacked the capacity to distribute 100% of local consumption around the country.

Previously, they were responsible for only about 50% which was partly the reason for the lingering scarcity.

We realised that we were left with only one option.

This was to allow independent marketers and any Nigerian entity to source their own foreign exchange and import fuel.

We expect that foreign exchange will be sourced at an average of about N285 to the dollar, (current interbank rate).

They would then be restricted to selling at a price between N135 and N145 per litre.

We expect that with competition, more private refineries, and NNPC refineries working at full capacity, prices will drop considerably.

Our target is that by the 4th Quarter of 2018, we should be producing 70% of our fuel needs locally.

At the moment, even if all the refineries are working optimally, they will produce just about 40% of our domestic fuel needs.

You will notice that I have not mentioned other details of the PPRA cost template.

I wanted to focus on the cost component largely responsible for the substantial rise, namely foreign exchange.

This is therefore not a subsidy removal issue but a foreign exchange problem, in the face of dwindling earnings.”

 

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