Minister of State for Petroleum Resources, Ibe Kachikwu, on Monday announced the federal government’s plan to revert to the old pump price of N97 per litre for Premium Motor Spirit, popularly known as petrol, in 2016. President Muhammadu Buhari is the substantive minister of petroleum resources.
When Kachikwu, was newly appointed by Buhari as the Group GMD of the NNPC, he made clear that he didn’t feel the subsidy regime should be made to continue. However, Buhari has never hidden his belief that citizens of an oil producing nation like Nigeria shouldn’t have to pay the same for fuel as others because of how it could affect prices.
It seems however that economic realities have finally convinced the president on the need to end the subsidy regime. As oil prices continue to drop, signalling the fact that tough times lie ahead for the nation on how to fund its expected N6trillion budget for 2016, the federal government said on Monday that spending over one trillion on subsidy as it did in 2015 is not a sustainable option.
Kachikwu stated this on Monday while defending the Petroleum Ministry’s projections contained in the 2016 to 2018 Medium Term Expenditure Framework,MTEF, and Fiscal Strategy Paper, FSP, before the Joint Senate/House of Representatives Committee on Finance, Appropriation and Banking, Insurance and other Financial Institutions.
The current pump price of N87 per litre was announced in January this year by the then minister of petroleum resources, Diezani Alison-Madueke. She said the N10 reduction was due to the fact that there had been a drop in oil prices at the international market. Considering how close it was to the 2015 general elections, many believed that the move was a political one by former President Goodluck Jonathan to win the heart of Nigerians.
Kachikwu said from 2016, the prices will go back to N97 per litre in what is seen as a gradual phasing out of subsidy. It is only if the increase to N97 per litre still comes at considerable cost to the government that the subsidy regime will be totally ended.
“The total subsidy figure for 2015, when taken along with the NNPC’s subsidy payment, will be in excess of N1tn. The current pricing work we are doing has shown that there shouldn’t really be subsidy. The government doesn’t need to fund subsidy.
“There is energy around the removal of subsidy. Most Nigerians we talk to today will say that’s where to go. I have since left the dictionary of subsidy by going to price modulation, which is a bit more technical.
“The price of refined petrol today is N87. It was N97 before it was reduced and we really have to go back to that because we don’t really have the finance to fund it. There are lots of safety barometers between the N87 and N97 per litre regime. The government does not have to fund subsidy and yet the prices would have been fairly close to what it is today.
“That is the first mechanism we are going to work with. It is when that mechanism fails that we will begin to look at a total subsidy exit. We believe we can achieve that.”