President Muhammadu Buhari, yesterday, foreclosed any further consideration for a return of subsidies in the energy sector, insisting that Nigeria can no longer afford it. Buhari stated that it will be irresponsible to borrow to subsidise fuel and electricity given the poor state of the economy.
The President, who made this assertion at the first year ministerial performance review retreat at the Presidential Villa, Abuja, disclosed that Nigeria lost 60 per cent of her revenue projections in the current fiscal year as a result of the coronavirus (COVID-19) pandemic and the resultant crash in the price of crude oil which is the nation’s main source of foreign exchange.
Buhari, who was represented at the retreat by the Vice President, Prof. Yemi Osinbajo, said that following the drastic reduction in revenue and the consequent review of the 2020 budget, it became evident that government can no longer afford the subsidies on petroleum products and electricity for the citizens.
He said that continuation of these subsidies could trigger serious negative consequences as the government would be unable to fund education, health, infrastructure development and other critical sectors of the economy.
He explained that the recent hike in the pump price of premium motor spirit (PMS), otherwise known as petrol, and increase in electricity tariff were painful, but inevitable decisions. The government, last week, announced the increase of ex-depot price of petrol to N151.56k per litre, which has now pushed the price of the petroleum product to between N158 and N162 per litre.
Also, the Nigerian Electricity Regulatory Commission (NERC) approved a sharp increase in electricity tariff within the same period.
According to Buhari, the increase in electricity tariff and deregulation of the petroleum sector were crucial decisions that were taken at the beginning of the year, preceding the COVID-19 pandemic.
“One of the steps we took at the beginning of the crisis in March, when oil prices collapsed at the height of the global lockdown, was the deregulation of the price of PMS such that the benefit of lower prices at that time was passed to consumers. This was welcome by all and sundry. “The effect of deregulation though is that PMS prices will change with changes in global oil prices.
This means, quite regrettably, that as oil prices recover, we would see some increases in PMS prices. This is what has happened now. When global prices rose, it meant that the price of petrol locally would go up. “There are several negative consequences if government should even attempt to go back to the business of fixing or subsidizing PMS prices. First of all, it would mean a return to the costly subsidy regime.
Today, we have 60 per cent less revenue, we just cannot afford the cost. The second danger is the potential return of fuel queues – which has, thankfully, become a thing of the past under this administration.
“Nigerians no longer have to endure long queues just to buy petrol, often at highly inflated prices. Also, as I hinted earlier, there is no provision for fuel subsidy in the revised 2020 budget, simply because we are not able to afford it, if reasonable provisions must be made for health, education and other social services. We now simply have no choice.
“Nevertheless, I want to assure our compatriots that government is extremely mindful of the pains that higher prices mean at this time, and we do not take the sacrifices that all Nigerians have to make for granted. We will continue to seek ways and means of cushioning pains especially for the most vulnerable in our midst. We will also remain alert to our responsibilities to ensure that marketers do not exploit citizens by raising pump price arbitrarily.
“This is the role that government must now play through the Petroleum Products Pricing Regulatory Agency (PPPRA).
This explains why the PPPRA made the announcement a few days ago setting the range of price that must not be exceeded by marketers. The advantage we now have is that anyone can bring in petroleum products and compete with marketers. That way, the price of petrol will be keep coming down,” he said.
On electricity, the President said that the recent service-based tariff adjustment by the Electricity Distribution Companies (Dis- Cos) had also been a source of concern for the government.
“Let me say frankly that like many Nigerians, I have been very unhappy about the quality of service given by the DisCos, but there are many constraints, including poor transmission capacity and distribution capacity. I have already signed off on the first phase of the Siemens project to address many of these issues,” he said.
President Buhari said that because of the problems that arose from the power sector privatization exercise, government has had to keep supporting the largely privatized electricity industry. He disclosed that so far, the government has spent almost N1.7 trillion, especially by way of supple menting tariffs shortfalls.
“We do not have the resources at this point to continue in this way and it will be grossly irresponsible to borrow to subsidize generation and distribution which are both privatized.
“But we also have a duty to ensure that the large majority of those who cannot afford to pay cost reflective tariffs are protected from increases. NERC, the industry regulator, therefore, approved that tariff adjustments had to be made, but only on the basis of guaranteed improvement in service. “Under this new arrangement, only customers who are guaranteed a minimum of 12 hours of power and above can have their tariffs adjusted.
Those who get less than 12 hours supply, or the Band D and E Customers must be maintained on lifeline tariffs, meaning that they will experience no increase,” he said. The President noted that the timing of implementation of both tariffs was a coincidence, contrary to the perception in some quarters.
“There has been some concern expressed about the timing of these two necessary adjustments. It is important to stress that it is a mere coincidence in the sense that the deregulation of PMS prices happened quite some time ago, it was announced on 18th March 2020 and the price moderation that took place at the beginning of this month was just part of the on-going monthly adjustments to global crude oil prices.
“Similarly, the review of service-based electricity tariffs was scheduled to start at the beginning of July, but was put on hold to enable further studies and proper arrangements to be made. This government is not insensitive to the current economic difficulties our people are going through and the very tough economic situation we face as a nation, and we certainly will not inflict hardship on our people.
“But we are convinced that if we stay focused on our plans, brighter, more prosperous days will come soon,” he said. Buhari charged ministers and other senior government officials to ensure vigorous and prompt implementation of the Economic Sustainability Plan (ESP) programmes, which will give succour to Nigerians. He acknowledged that many Nigerians were yet to be connected to electricity, assuring that the ESP will provide solar home systems to five million Nigerian households in the next 12 months.
The President said the government had continued to support the agricultural sector, which is the key to diversification of the economy, through schemes such as the CBN Anchor Borrowers Programme and the Presidential Fertilizer Initiative programme. On security, President Buhari said the law enforcement agencies have significantly scaled up their operations across the country.
The Federal Government, he said, has increased investments in arms, weapons and other necessary equipment as well as expanded the National Command and Control Centre to 19 states of the federation.