Lagos Chamber of Commerce and Industry (LCCI) has opposed borrowing to fund petroleum subsidies, warning it could cripple the economy.
The chamber’s position follows the smuggling of about 30 per cent of the fuel being subsidised by the government through the porous borders to Togo, Benin and other West African countries.
The body hence advised the Federal Government to apply the N6 trillion being proposed to subsidise Premium Motor Spirit (PMS) to fund other critical sectors of the economy.
The chamber’s opposition came on the heel of the disclosure by the Minister of Finance, Budget and National Planning, Zainab Ahmed that the Federal Government will apply $2.2 billion of the fund raised via Eurobond to subsidise petrol cost in the country.
She hinted further that government would target more local borrowing in 2022 to fund subsidy payments.It would be recalled that Nigeria in September 2021 raised $4 billion through Eurobond issuance and part of the proceeds is now for subsidy payment.
Subsidy or under-recovery is the underpriced sales of premium motor spirit (PMS), better known as petrol.
At the LCCI’s Fuel Subsidy Awareness Seminar in Lagos. the chamber explained that Nigeria was currently spending 18 per cent of her national budget on fuel subsidy, noting that no country could grow its infrastructure and other key sectors when fuel subsidy funding was greater and being sourced through borrowing.
President, LCCI, Michael Okawale-Cole noted that the government’s decision to source N6trillion for fuel subsidy was a flip flop against the passage of the Petroleum Industry Act noting that this would have profound consequences on the country’s economy and even Foreign Direct Investment (FDI) as prospective investors would think twice before investing in the country’s oil and gas industry because of government’s policy summersault.
The LCCI president said that the fact that subsidy payment increased by 447 per cent in seven years when capital expenditure remains underfunded signifies that opportunity costs, which by the way, was the real cost of the petrol subsidy payment were very expensive.
The resources that could have been used to provide standard road infrastructure, quality health care system, quality education and social safety net had gone into subsidising petrol consumption.
“With a monthly payment of about N250 billion to subsidize fuel consumption, the sum of N3trillion has been provided in the 2022 Federal Government budget. With additional expenditure against the projected revenue, deficit financing has increased significantly.
“The implication is that government will borrow more in 2022 to finance this bloated deficit at a time when the government is battling with revenue mobilization challenges.”
Chairman, Downstream Group, LCCI and Managing Director, 11 Plc, Oyetunji Oyebanji said that the basis for building block for gasoline was crude oil that forms the biggest component of the product.
He noted Nigeria was a major producer of crude oil, saying, however, that her refining capacity was virtually in distress.
“We are dependent totally on fuel Importation. As we speak today, virtually 100 per cent of our consumption fuel is imported. And therefore, we are exposed to the dynamics of the international market.”
On petrol smuggling via the borders, the LCCI Downstream group Chairman said all the countries that surround Nigeria do not have control over fuel so the result is that close to 30 per cent estimate of the products that we are importing into Nigeria and subsidising at extremely great costs are finding their ways across the borders.
“When you put this into context, they think of trucks of 30,000 or 40,000 litres, No. It’s usually more than that. As a young man in this industry, visiting many petrol stations across the borders of Nigeria I used to witness a situation whereby a car that normally would have storage for 30 or 40 litres or 50 litres would come to the station and the attendant would start to sell and you will be amazed this small car whose tank should be only 70 litres, has a bigger tank that can take 300 litres”.
“What happened is that the car tank has been adjusted such that a tank of 70 litres can now take 250 litres and the man aims is to drive across the Nigerian borders discounted the fuel and make a peaceful money”.
Speaking with Reuters on the sidelines of an Arab-African conference in Cairo, Zainab Ahmed, said Nigeria would not tap the Eurobond market this year.
“Rising oil prices have put us in a very precarious position … because we import refined products … and it means that our subsidy cost is increasing,” she said.
The government is working with lawmakers to boost revenues and that the rise in oil prices means that borrowings will increase more than planned.
Oil prices have jumped since Russia invaded Ukraine, raising petroleum landing costs, widening market price and actual cost per litre.
The government had targetted stoppage of subsidy payments on petroleum products from July this year — but reversed its decision in January, extending it by 18 months instead.
This led to a budget of N3 trillion for petrol subsidy in 2022.
