The Presidential Steering Committee on the Global Financial Crisis has said that the Federal Government will no longer continue to subsidise the prices of petroleum products in the country
It also said the planned privatisation of the nation’s four refineries would be revisited since public funds would no longer be spent on them.
But the committee recommended that as substitute for the removal of subsidies, a review of the current pricing arrangement for petroleum products would be carried to ensure that market forces determined prices.
The Minister of Finance, Dr. Mansur Muhtar, and his Petroleum counterpart, Dr. Rilwanu Lukman, made these known to journalists after a six-hour meeting by the committee in Abuja on Thursday.
Already, a Steering Committee to work out ways of implementing the decisions has been constituted.
The committee is made up of Governor Adams Oshiomhole of Edo State, his Bauchi State counterpart, Alhaji Isa Yuguda; the Attorney-General of the Federation, Mr. Michael Aondoakaa (SAN); minister of Petroleum, Dr. Rilwanu Lukman; minister of National Planning, Dr. Shamsudeen Usman; and minister of Labour, Chief Adekunbo Kayode.
Others are Muhtar, the Chief Economic Adviser to the President, Mr. Tanimu Yakubu, a representative of the Nigeria Labour Congress and also a representative of the private sector.
Muhtar, who spoke first, said the Federal Government spent N1.6tn in the last three years on subsidies. Last year alone, about N640bn reportedly went into subsidies.
He said that government could no longer sustain the subsidies in view of the decline in its revenue and huge infrastructure gap.
The minister, who argued that subsidies did not benefit the average Nigerian, said government found out that they (subsidies) encouraged inefficiency and corruption in the petroleum industry.
Disclosing that no provision for subsidies was made in the 2009 budget, he said, “The conclusion was that the present arrangement (subsidy) was clearly unsustainable.
“It (subsidy) is a very complex issue; one that we have been grappling with over the years but we had to confront it today.
“We have to take this immediate step and start this journey today.”
Muhtar added that the government would undertake a comprehensive review of the activities of the Petroleum Products Pricing and Regulatory Agency to ensure effective and efficient regulation of the downstream sector of the petroleum industry.
The meeting noted that the operation of the PPPRA had been compromised, thereby making it inefficient.
The minister, however, explained that the PPPRA would be strengthened to ensure fair competition in order to avoid the emergence of cartels in the marketing chain.
To avoid monopoly, the PPPRA would be made to adopt the system of open general licensing.
The meeting, according to him, also agreed that the Nigerian National Petroleum Corporation should be encouraged to engage in offshore refining.
Reaffirming that the privatisation of the refineries would be revisited, the minister said the steering committee would soon commence meetings with all stakeholders to discuss the implementation of all the issues raised at the meeting.
Muhtar said, “Basically in the recent past, there has been concern about the huge amount of money being spent by government by subsidising inefficiencies in the fuel supply and distribution.
“The magnitude of this amount was very staggering, in the last year, we are talking about nearly N640bn that has been spent on subsidies on petroleum products.
“Now to put this in context, this is about one and half times actual capital spending of the government in the year.
“That is what the government gets and when you consider that not all of these is being expended given that there was delay released, that it was still work in progress.
“Over the last three years, an estimated amount of N1.63tn has been spent in relation to this.
“Now, in the context where revenue position of government has deteriorated considerably, given the decline in oil prices, given the difficulties we are facing in meeting our quotas, given the huge infrastructure deficits that we face, clearly we felt we had to look at this very carefully.
“This huge fiscal burden we cannot continue to meet. We have found out that we are really subsidising inefficiencies, fraud, racketeering in the whole production chain and in that context basically given the competing needs for scarce resources, government felt we needed to do something.
“We are also subsidising other countries. There have been substantial leakages to other countries in relations to these things and in that context basically, the conclusion was that the present arrangement, in relation to the present supply, marketing and pricing regime itself has been characterised by inefficiency and is clearly unsustainable.
“At the moment, there is a reality we have to face; we have not made any budgetary provisions for subsidising these inefficiencies in the system.
“The objective certainly is to reduce the unmerited and unwarranted costs because these are monies needed to undertake critical infrastructure spending, find a way of certainly attracting investments into the industry and ensure regular and affordable fuel, while diverting any resources to critical areas needed in the social and fiscal infrastructure.
“We have no choice but to confront this issue, we know that it needs to be handled very strategically, holistically involving all key stakeholders and broad-based consultations.
“We want to start with a comprehensive review to the PPPRA template. We believe that there are so many inbuilt inefficiencies there.
“In the first instance, the current system is characterised by the absence of competition, there are questionable risk allocation practices in which government is made to bear the brunt of exchange rate risks or interests rates risk.
“Demurrage charges are unacceptable, the way the system is organised it creates incentives for inefficiencies along the marketing chain.
“So, the first aspect is to review the template and make sure we are dealing with the correct figures because really I think the whole system has been compromised.”
In his own reaction Lukman said the government was looking at several possible options for the privatisation of the refineries.
However, he hinted that the government might not sale them outright.
He said, “The Federal Government is to review the ownership structure of the refineries to bring in people who can help us.
“We are not going to give them away but we are making sure that whoever buys into our refineries will run them efficiently.”
He denounced the managements of the refineries, saying, “Our refineries are not being run well, they have been mismanaged. We are not excluding any possibilities (on privatisation) now.”