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Government will borrow more as states struggle to survive, OPS warns

By Collins Olayinka, Terhemba Daka (Abuja), Bertram Nwannekanma (Lagos) and Rotimi Agboluaje (Ibadan)
26 January 2022   |   4:30 am
There would be dire consequences, the Organised Private Sector (OPS) stated, yesterday, in reaction to Federal Government’s suspension of the planned withdrawal of the subsidy regime announced on Monday.

Senior Special Assistant to the President on Strategic Communication, Oge Mordi (left); Group Managing Director, NNPC, Mele Kyari and Minister of State for Petroleum Resources, Timipreye Sylva at the weekly State House Briefing at the Presidential Villa in Abuja…yesterday PHOTO: NAN

• Buhari suspends PIA by 18 months, NLC shelves protests • Says no law is cast in stone
• Aremu urges sustenance of negotiations • Panic buying as petrol queues return to Abuja
• Oyo CSOs vow to go ahead with protest • Suspension of fuel subsidy removal is suspension of
dooms day, says retired army general • NMDPRA to partner NLNG to solve nation’s energy challenges

There would be dire consequences, the Organised Private Sector (OPS) stated, yesterday, in reaction to Federal Government’s suspension of the planned withdrawal of the subsidy regime announced on Monday. The warning came from the Lagos Chamber of Commerce and Industry (LCCI) and the Centre for the Promotion of Private Enterprise (CPPE).

This is as President Muhammadu Buhari, yesterday, approved the suspension of the removal of fuel subsidy until further notice and proposed an 18 months extension to the National Assembly for the implementation of the Petroleum Industry Act (PIA) that was billed to go into effect this February.

With this, President Buhari would be abdicating responsibility of taking a decision on the removal of petrol subsidy, five months after signing the PIA into law on August 16, 2021.

The Minister of State for Petroleum Resources, Timipre Sylva, disclosed this to newsmen after he met with the President, stating that no law is cast in stone.

He further disclosed that government was working to ensure that proper structures were on ground, including palliatives, before such a decision would become inevitable.

LCCI said that with the suspension of the planned phase-off of the fuel subsidy regime, Nigerians should expect more borrowings from government to enable it carry out its projects.

Its Director-General, Dr Chinyere Almona, in a statement yesterday, argued that, with a monthly payment of about N250 billion to subsidise fuel consumption, an additional N1.5 trillion expenditure would have to be provided for in the 2022 Federal budget.

She added that with the additional expenditure against the projected revenue, deficit financing would be needed to support the budget expenditure, which might likely result in government borrowing more than projected, to finance the expenditure in the face of revenue mobilisation challenge.

Almona, however, advised government to embark on phased removal of the subsidy, and complement it with heavy investments in critical infrastructure, so as to cushion the effects of such removal on Nigerians.

She further cautioned government on the need to shun any action capable of truncating the implementation of the PIA, already seen as a big game-changer by stakeholders in the oil and gas sector.

Also, CEO of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, has said government’s capitulation is expected to come at weighty economic costs for Nigeria, as states heavily dependent on FAAC allocations may struggle to pay salaries.

He said: “The capitulation on the subsidy removal did not come as a surprise. There were too many odds against the move. There were obvious concerns about the potential political cost to government and the ruling party. There were worries about the social cost given the excruciating poverty in the country. There was also the waning goodwill required by government to enlist the support of the people.

“The whole subsidy story became a political economy matter,” citing that the matter moved from the realm of economics and investment to the political realm. “The outcome was predictable, especially with an impending general election next year,” he said.

He warned: “We should expect the cost of funding the subsidy to be much higher this year because of the surge in crude oil price. The petroleum products smugglers, beneficiaries of the fiscal leakages in the fuel subsidy ecosystem and their collaborators will continue to smile to the banks for the next one and half years.

“Some states would struggle to pay salaries, especially states that are heavily dependent on federal allocation. Some may have to lay off some of their workforce. Many will struggle to meet their financial obligations as sub nationals.”

On other macroeconomic risks, he stated that it would be elevated by fiscal deficit and borrowing significantly surpassing projections in the 2022 budget, warning that the CBN may have to continue to cover financing gaps through ways and means.

“This of course has serious inflationary implications. The macroeconomic outcomes would adversely impact on the exchange rate, leading to further depreciation of the currency,” he said, adding that prospective investors in the downstream oil sector will withhold their investments until the policy environment becomes conducive.

“Additionally, a major confidence crisis has been created around the PIA as a result of this capitulation. These are the prices we would have to pay as a country for the policy reversal.”

A retired army general, Larinde Laoye, yesterday, decried the suspension, describing it as a suspension of Nigerians’ sufferings and their doom’s day.

Laoye, who spoke as a guest lecturer at the 17th Adekunle Kukoyi Memorial lecture, organised by Lagos State Branch of Nigerian Institution of Surveyors (NIS) in Lagos, said the fuel subsidy regime favours few individuals, who are less than five per cent of the nation’s population at the detriment of others.

According to him, President Buhari, whom, he had the privilege to work under, has good intention for the country but varied interests are constituting a clog in the wheel of progress.

THE removal of petrol subsidy was earlier scheduled for July 2022, but the organised labour comprising the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) had begun mobilisation nationwide for a total shutdown of the country effective from January 28 to protest the subsidy removal, saying it will further worsen the living standards and destroy livelihoods of Nigerians, especially the poor.

Sylva said: “All those structures are not right now in place. One of those is to ensure that the refineries are working and you’re all aware that steps are being taken for all the refineries to be functional very soon.

“The Dangote Refinery is expected to come on stream at the end of this year. The Port Harcourt Refinery is expected to be performing at a certain capacity, not full capacity, by end of this year. There are some modular refineries that are also going to come on stream later this year.

“This extension will give all the stakeholders time to ensure that the implementation is carried out in a manner that guarantees all necessary modalities are in place to cushion the effect of PMS subsidy removal in line with prevailing economic realities.

“We don’t intend to remove subsidy now. That is why we are making this announcement. We also see the legal implication. There is six months provision in the PIA, which will expire in February and that is why we are coming out to say that before the expiration of this time, we will engage the legislature. We are applying for amendment of the law so that we would still be within the law.

“We are proposing an 18 months extension but what the National Assembly is going to approve is up to them. Somebody mentioned the possibility of gradual increase, that is not on the table. Gradual or increment in whatever guise is not on the table.”

On the fuel queues that have suddenly resurfaced, he advised Nigerians to stop hoarding fuel or engage in panic buying, as government has no plans to remove subsidy.

THE NLC has suspended its proposed nationwide protests slated for tomorrow and February 1 to allow for negotiation with the Federal Government.

Announcing the suspension in Abuja, yesterday, NLC President, Ayuba Wabba, added that the relevant organs of the congress suspended the protests following what he called ‘reversal and re-approach’ by the government. He said: “The National Executive Council (NEC) of the NLC had an emergency virtual meeting this morning (yesterday) to consider the new position of government. After vigorous debates, NEC decided to suspend the planned nationwide protest.”

NLC stated it has also communicated the decision to its civil society allies, just as it reiterated its readiness to engage government, saying, “we will continue to engage with the government on the very critical issues of ensuring local refining of petroleum, creation of sustainable jobs and provision of petrol at an affordable price for Nigerian workers and people.”

The Director-General of Michael Imoudu Institute of Labour Studies, Ilorin (MINILS), Issa Aremu, who lauded labour for reciprocating the Federal Government’s gesture by suspending the protest, said the disagreement and the organised labour’s decision to hold protest rallies across the country is an opportunity for the government to feel the pulse of the society before carrying out a policy.

The news of a possible increment in the pump price as a result of the planned subsidy removal caused long queues at filling stations across Abuja metropolis, yesterday. Most stations owned by independent marketers did not dispense petrol while a few that were dispensing had long queues.

However, the Joint Action Forum (JAF) of civil societies in Oyo State, yesterday, vowed to hit the streets of Ibadan and other parts of the state on Thursday, notwithstanding the suspension of the removal of fuel subsidy.

The scribe of Oyo State JAF, Abiodun Bamigboye, who addressed journalists, yesterday, in company of other activists, said members of the labour movement would continue with the protest.

Bamigboye said: “We are going ahead with the protest notwithstanding the suspension of the subsidy removal. We are ready for them.”

MEANWHILE, the Authority’s Chief Executive (ACE), Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), Farouk Ahmed, has said the Authority was ready to partner with the Nigerian Liquified Natural Gas (NLNG) towards solving Nigeria’s energy challenges and increasing gas use in cooking, transportation and power generation.

Ahmed, who stated this in Abuja when he received the management of NLNG on a courtesy visit, commended NLNG for its focus on prioritising domestic supply, which has had a significant impact on deepening gas consumption in the country.

The NMDPRA helmsman reiterated the Federal Government’s goal of deepening LPG/CNG, especially for autogas as an alternative to Premium Motor Spirit (PMS) to cushion the effect in a situation of upward spike in oil prices.

The ACE assured that as the regulator of the midstream and downstream, it would put in place policies that will not stifle businesses but rather level the playing field and stimulate economic growth and job creation in the industry.

Speaking earlier, the Managing Director, NLNG, Dr Philip Mshelbila, said the company would continue to prioritise the growing domestic LPG market and increase utilisation by supplying 100 per cent of its propane and butane production to the domestic market. He pledged the company’s dedication and commitment to making Nigeria an energy-sufficient nation.