Government saves N139b from new fuel pricing policy

By pegging the price of Premium Motor Spirit (PMS) at N145 a litre, the Federal Government has in the last two months saved about N139 billion from subsidy removal.

Before the introduction of the current pricing template of the Petroleum Product Pricing Regulatory Agency (PPPRA), a litre of petrol was selling at N86.50, estimates showed that the government would have been subsidizing the product with about N58 per litre.

The country currently consumes about 40 million litres of PMS daily, which would have amounted to N69.6 billion in one month.

At a regulated price of N86.50, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu had said that government was paying about N16.4 billion monthly as subsidy.

Kachikwu said that the there was no provision for subsidy in 2016 appropriation, therefore the need to remove fuel subsidy.

According to him, the Federal Government spent N1 trillion in subsidizing petrol in 2015 alone.

Listing the benefits of the new pricing template, Kachikwu said that the new framework solve fuel scarcity crisis by ensuring availability of products at all locations of the country.

He added that the new fuel-pricing regime would also ensure market stability and improve fuel supply situation through private sector participation.

He believed that it would reduce hoarding, smuggling and diversion substantially and stabilize price at the actual product price.

It is also expected to create labour market stability, which will potentially created additional 200,000 jobs through new investments and prevent potential loss of nearly 400,000 jobs in existing investment.
The new system is expected to provide government more revenue to address social and infrastructural needs in the country.

Meanwhile, the International Energy Information Administration (IEA) said that fossil-fuel subsidies has reduced from $610 billion in 2014 to $490 billion in 2015.

IEA said in its July Energy report that recent changes prove that fossil-fuel subsidy reform is possible: low oil prices give net importers the room to reform, and reinforce the need for exporters to do so.

It stated: “Fossil fuels are reaping $550 billion a year in subsidies and holding back investment in cleaner forms of energy. Oil, coal and gas received more than four times the $120 billion paid out in incentives for renewables including wind, solar and biofuels.

“Fossil-fuel subsidies totalled $550 billion in 2013 – more than four-times those to renewable energy – and are holding back investment in efficiency and renewables. In the Middle East, nearly 2 mbpd of crude oil and oil products are used to generate electricity when, in the absence of subsidies, the main renewable energy technologies would be competitive with oil-fired power plants”.

According to the report, in Saudi Arabia, the additional upfront cost of a car twice as fuel-efficient as the current average would, at present, take about 16 years to recover through lower spending on fuel.

This payback period, it noted, would shrink to three years if gasoline were not subsidised. “Reforming energy subsidies is not easy and there is no single formula for success. However, as our case studies of Egypt, Indonesia and Nigeria show, clarity over the objectives and timetable for reform, careful assessment of the effects and how they can (if necessary) be mitigated, and thorough consultation and good communication at all stages of the process are essential”, the report said.