The federal government has projected to spend N6.72 trillion on subsidy for Premium Motor Spirit (PMS) otherwise called petrol for the 2023 fiscal year.
The projected expenditure is N2.53trn higher than the current petrol subsidy figure, expected to roll till May next year.
With the amount of subsidy projected, governments at all levels may not get any allocations from oil revenues, which could jeopardise the capital expenditure budget. The situation is also likely to deepen governments’ borrowing spree.
The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, who disclosed the projections at the public presentation of the 2023 – 2025 Medium Term Expenditure Framework and Fiscal Strategic Paper (MTEF and FSP), in Abuja, however, advocated the option of truncating the subsidy payment by May, next year.
She gave two scenarios as to how the 2023 budget will be implemented.
In the first scenario, the minister said, “The subsidy on PMS is estimated at N6.72 trillion for the full year 2023”. This amount, she said, “Will remain and be fully provided for by the NNPC on behalf of the federation”.
This first scenario will leave little or no savings to be shared by the Federal Account Allocation Committee (FAAC) thus limiting the shareable revenue to tax warnings, and royalties. This might impact the health of many states and local governments because of the huge reduction in the monthly FAAC allocations.
For the second scenario, the minister said: “Petrol subsidy will remain up to mid-2023 based on the 18-month extension announced early 2022, in which case, only N3.36 trillion will be provided for”.
The minister cautioned that “Both scenarios have implications for net accretion to the Federation Account and projected deficit levels”.
She said the government might have a total budgetary estimate of about N17trn for 2022 in one of the scenarios and about N16trn in the other.
The minister noted that “The draft 2023-2025 MTEF/FSP has been prepared against the backdrop of continuing global challenges occasioned by lingering COVID-19 pandemic effects, as well as higher food and fuel prices due to the war in Ukraine”.
On revenue implications, the minister said: “The new arrangement has indicated that NNPC will not be contributing monthly to the Federation as they used to in the past. But NNPC will be paying royalties, dividends and taxes. So, while the revenue might not be monthly, we will work on an arrangement on how this will be paid.
“And it is possible to work out an arrangement where the payments could be monthly or quarterly. So, I was just saying that in a new arrangement regime NNPC will not be contributing to the FAAC on a monthly basis, but NNPC will still be paying taxes, royalties and dividends,” she explained further.
The minister clarified why NNPC has not remitted funds to FAAC for about eight months while it was transiting to NNPC Limited which took effect on Tuesday.
“Why are we not receiving any revenues from the Federation? Because the NNPC has been instructed to cover the cost of fuel subsidy on behalf of the federation. So NNPC is not paying the subsidy on its account and I mean, they were not paying the subsidies that would have been remittances distribution and this is the arena that we seek to continue in 2023,” she said.
To ward off this looming crisis, Ahmed said subsidy removal remains the best option.
“And that’s why it’s important for us to consider this issue of removal of subsidies very seriously because no marketer is willing to buy PMS after sourcing their foreign exchange and competing with subsidies, it can only be a government agency,” she stated.
Daily Trust reports that President Muhammadu Buhari had at various times suggested his disapproval of withdrawing the fuel subsidy, which he said, would worsen the condition of the poor.
Revenue challenges soar as debts, salaries gulp N4.7trn in 4 months
Meanwhile, the government admitted on Thursday that the country is in severe revenue challenges and must find sustainable strategies to boost revenue and revive the economy.
Ahmed, during the consultative forum, said figures so far have shown that Nigeria spends about 90 per cent of its revenue on debt servicing.
This is further compounded by the rising inflation, which is now 18.60 per cent according to the latest figures from the National Bureau of Statistics (NBS).
The country’s debt service has also worsened in the first quarter of 2022 as the country’s debt service to revenue ratio rose to 80 per cent, implying an increase of 400 basis points when compared to the 76 per cent obtainable last year.
A debt service to revenue ratio of 8 per cent implies that for every N100 earned by Nigeria, N80 is spent servicing debt.
Further checks by Daily Trust show that Nigeria’s total debt stock as at the first quarter of 2022 had risen to N41.60trn against N39.56trn in December 2021, which represents a N2.04trn increase in three months.
The minister said the federal government has so far released the sum of N4.72trn to finance some of the expenditure items contained in the 2022 budget.
The 2022 N17trn budget was signed into law on December 31 last year by President Muhammadu Buhari.
The breakdown of the budget includes N869bn for statutory allocation, N3.8trn for debt servicing, N6.9trn and N5.4trn for recurrent and capital expenditure respectively.
Speaking during the event, Ahmed said “Out of the N4.72trn spending, the government released N1.9trn for debt service while personnel costs and pensions gulped the sum of N1.26trn,”
She said the balance of N773.63bn was spent by the federal government on capital projects.
On revenue generation, the minister explained that “Between January and April this year, the federal government generated the sum of N1.63trn. Out of the N1.63trn, N285.38bn came from oil revenue, which represents 39 per cent performance, while non-oil revenue collection was put at N632.56bn representing about 84 per cent.”
Corroborating the position of the minister, The Director -General of the Budget Office of the Federation, Ben Akabueze said that Nigeria is currently going through significant fiscal challenges.
Akabueze said while Nigeria had improved transparency and accountability in the oil sector, more work needed to be done in boosting revenue.
Nigeria recorded its best performance in the open market improving by 24 points in transparency in the latest Open Budget Initiative Report.
Despite new petrol price, fuel scarcity returns to Abuja
Even with a price increase for petrol, this week, queues for the product have persisted in Abuja.
Daily Trust observed yesterday that vehicular queues have returned at fuel stations said to be selling cheaper and whose pumps are perceived as accurate.
Last weekend, petrol stations in the capital city jerked up the pump price almost uniformly to N185/litre a development, which cleared the long queues suffered by motorists for weeks.
On Tuesday, some petrol marketers released a new price template, which contains official approval for petrol to sell above N165 per litre across the country. The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), which fixes rates, did not confirm or refute the new price regime.
According to the regional price list, the rate rose to N169 in Lagos and N174 for Abuja.
However, there were varied prices for the six geopolitical zones with the South West, South South, southeast and north central regions getting a hike of N14 from N165 to N179/l.
The price was raised to N184 in the North West and N189 in the North East being a N24 increase, the highest in the new adjustment. Petrol will now sell at N179 in the North Central region.
The upward price review also affected ex-depot prices in the Lagos axis, rising from N148.17 to a range of N160 and 162. Depots in Warri/Ogbarra have their rates adjusted to N162-N165 while Port Harcourt depots will sell for N165-167.
However, in spite of this raise, motorists were shocked to see that the queues have sprung up again. According to a cross section of them found along some major stations in the nation’s capital, the resurfacing of the queues was something to worry about.
Hamisu Usman, a mechanic, said he was at a station to buy petrol in the Dutse area of Abuja on Thursday and although he bought the product for N175, he spent two hours in the queue.
In Jabi, some fuel stations sold the product for N175 while others were shut indicating they were yet to receive a fresh consignment of the product. Around the Wuse area, the few stations operating had vehicles besieging both their entrance and exit points.
Just opposite the NNPC Limited headquarters, the stations sold the product for N174/l with a winding queue of vehicles spanning over a kilometre on the Conoil side.
On the cause of the scarcity, a marketer, Samuel Okon, said it was barely 48 hours after the new price template came into effect.
He said, “It will take almost a week for this issue to normalise because the marketers who had stopped buying the product will have to mobilise funds to go to the depots and buy at the new rate knowing that they will get a profit margin.
“So, from next week, some of the stations that were shut earlier will begin to resume operations and that will ease the queues,” noted Okon.
But a pump attendant supervisor in one of the prominent stations in Abuja, Aliyu Musa, gave another view to the rising queue for petrol.
He said this is the first time in years that Nigerians are witnessing separate but ‘official’ prices of petrol and that it will take time for them to adjust.
“You know that the prices in Abuja and Lagos are cheaper than those in all other states and the geopolitical zones. What we have observed among the motorists we serve since Wednesday is that most of them who live in Suleja (Niger State) and Mararaba (Nasarawa) prefer to buy in town because they said stations are selling at N179 there while it is N174 officially in Abuja.”
Musa also said long distance and interstate drivers fill up their vehicles in Abuja rather than buying a little and that was adding to the queue. “If you make your observation in Lagos, you may see this same trend too,” he noted.
By Chris Agabi, Philip S. Clement & Simon E. Sunday
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