Nigeria to Amend Oil Law as Buhari Suspends Fuel Subsidy Removal for 18 Months

Nigeria’s federal government finally failed in its efforts to remove the highly contentious subsidy on petrol on Tuesday  when it disclosed plan to recommend an 18-month extension of the Petroleum Industry Act (PIA) to the National Assembly.

This clearly means that the burden of the policy which has been described as a major drain and waste of resources would be shifted to the next administration from May 29, 2023, if the National Assembly approves an extension of the PIA’s implementation.

The government’s inability to take the tough decision on the subsidy issue is bound to have massive consequence on the overall implementation of the PIA.

The implementation of the PIA which stipulates the removal of petrol subsidy ought to be in February 2022 and was later shifted to July 2022. However, due to pressure and threats of protests by the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC), the decision was on Monday suspended.

Speaking with journalists in Abuja, the Minister of State for Petroleum Resources, Timipre Sylva, who spoke after a closed-door meeting with President Muhammadu Buhari, said the president graciously okayed the suspension of the removal of fuel subsidy until further notice.

But the International Monetary Fund (IMF) on Tuesday reiterated the need for Nigeria to remove subsidies on petrol and channel such funds to health, social development and other critical sectors of the economy.

The Nigeria Labour Congress (NLC) also announced the suspension of its nationwide protest.

This was just as the Lagos Chamber of Commerce and Industry (LCCI) has advised the federal government to adopt a phased removal approach to the dilemma it was facing over the subsidy issue and the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) called for wider consultation on the matter.

According to Sylva, the executive would propose 18 months extension to National Assembly for the implementation of the PIA.

On the possible legal implications after the assent to the PIA by President Buhari, Sylva said: “We also see the legal implications. 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, as I said earlier, we will engage the legislature.

“We believe that this will go to the legislature, we are applying for some 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. We would approve an 18 months extension and then it is up to the national Assembly to look at it and pass the amendment as they see it.

“We are going to see how to rejig the law, this is not going to be the only amendment to the PIA. A few months ago, the President already proposed an amendment to the law. Mr. President already proposed some amendment.

“Now we are going to propose this amendment. There might be other amendments that will be proposed because that is the way the law is; we will continue to adjust it as we see fit, as we operate it.”

The minister explained that the suspension of the subsidy removal was to give all stakeholders time to ensure that the implementation was carried out in a manner that guarantees that all necessary modalities are in place to cushion the effect of the planned removal.

The modalities, he said, included getting the refineries to work, introducing an alternate fuel for cars in form of auto gas and possible palliatives for Nigerians.

“President Muhammadu Buhari has agreed to an extension of the statutory period for the implementation of the removal of subsidy on petrol in accordance with extant laws.

“However, following extensive consultations with all key stakeholders within and outside the government, it has been agreed that the implementation period for the removal of the subsidy should be extended.

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

“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.

“All our refineries, 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 steam later this year.

“Of course, you’re also aware that the rehabilitation of the refineries are ongoing, I already said that. Dangote Refinery is already on, we are hoping that by the end of this year, the refineries will be functional, at least to a great extent, not necessarily the nameplate capacity, Port Harcourt Refineries especially, will be producing. We are also expecting that Dangote Refinery will also have come on stream,” he explained.

Speaking further he said: “Also, there is discussion of introducing an alternate fuel for cars in the form of auto gas and somebody asked, what has happened since launching. A lot has gone on there, in fact, even today, if you had noticed, I briefed Mr. President on the progress that has been made on auto gas. We are hoping that in March or April, the conversion processes will begin.

“We promised that one million cars will be converted initially, and of course, the corresponding amount of gas filling stations will also be built. That is in progress and I want to assure you that it will happen very soon. That also has to be in place before we say okay, we want to take out subsidies.

“We’re also looking at palliatives. The Minister of Finance and her team are looking at possible palliatives for Nigerians as well. So, because all these have to converge before we announce the complete removal of subsidy, because Mr. President, especially wants us to ensure that this doesn’t have too much impact on the people, we are now extending the time for subsidy removal.

“I will not want to specifically mention the time of extension because that will be a product of a discussion with the National Assembly, because it is likely to involve an amendment of the PIA to extend extended time and I always do not want to preempt what timeframe the National Assembly will allow. But definitely at this moment, fuel subsidy removal is not on the card.”

Commenting on the likely effect of the subsidy removal on livelihoods of the poor, the Minister said: “The President assures that his administration will continue to put in place all necessary measures to protect the livelihoods of all Nigerians, especially the most vulnerable.’’

On queues at petrol stations that had resurfaced, he advised Nigerians to stop hoarding fuel nor engage in panic buying as government has no plans remove subsidy, Sylva said: “We don’t intend to remove subsidy now. That is why we are making this announcement.”

Asked if the suspension has anything to do with 2023 general elections, he said: “Of course not. It’s just the human face of the government, Mr.  President especially wants certain structures in place. And he insisted if we want to remove subsidy, we must make sure that we put every measure in place to protect the suffering masses of Nigeria. That is the President’s insistence. So we are now taking steps to ensure that these processes are in place.”

The minister also assured that government would continue to engage the labour unions on the fuel subsidy issue saying, “we are already talking with labour, and our discussion with labour is also around this palliatives and mitigations.”

He added: “Engagement with labour, of course, this will continue. This is an ongoing process; we want to start. We’ve been engaging labour for a long time, if you are aware and that engagement will be ongoing.

“It’s a development process and maybe by July 2022, we’ll be able to get back to you and give you additional developments from here.

“So all these will have to come together. That’s why we decided at this time, especially since we are running against time, with the legal timeframe approaching very quickly, we thought we should come to you and let you know that we are taking steps to amend the law and to ensure that we are within the law.”

On the possibility of gradual increase in fuel price the, Sylva said: “Gradual or increment in whatever guise is not on the table.”

A THISDAY’s analysis of documents from the Nigerian National Petroleum Company (NNPC) showed that between January and December 2021, the federal government spent over N1.43 trillion on what it terms under-recovery on petrol.

A breakdown of the various payments last year, indicated that the subsidy burden has increased progressively, growing from N24.3 billion in February 2021, to N60.3 billion in March and N61.9 billion in April this year.

Furthermore, in May, the NNPC removed N126 billion as subsidy, while June came next with N164.3 billion.  In July, the analysis showed that N103.2 billion was spent on under-recovery.

Hitherto, August had last year’s lion’s share of N173.1 billion, but was overtaken by the deduction in November of N200 billion, while September’s deduction stood at N149.28 billion and the October figure was N163.709 billion, before the highest deductible amount yet of N270 billion in December.

Nigeria has not been able to reap the full benefits of rising international oil prices, which is now about $88 per barrel because it doesn’t refine a drop of the fuel it consumes locally.

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

IMF Urges Nigeria to Remove Subsidy, Channel Funds to Health, Social Devt

The IMF has stressed the need for Nigeria to remove petrol subsidy and channel such funds to the health and social development sectors.

The Washington-based institution gave the advice in response to a THISDAY question during a media briefing on its latest World Economic Outlook (WEO).

The IMF however left its 2022 economic growth projection for Nigeria at 2.7 per cent, but raised the country’s 2023 growth projection from 2.6 per cent to 2.7 per cent, which represented a 0.1 percentage points increase.

The Division Chief, Research Department, IMF, Mr. Malhar Nabar, said: “In terms of subsidy, we have for long not just for Nigeria, but for many low-income countries that have these programme of subsidy schemes in place, called for scaling back of poorly targeted subsidies to create fiscal space that can then be repurposed for meeting vital health and social spending needs. That recommendation applies in the case of Nigeria.”

 Speaking on Nigeria’s growth projection, he said: “We have an unchanged growth projection for Nigeria for 2022 and this reflects offsetting effects that we had a slightly stronger outcome in the second half of last year, especially in the non-oil sector and this this momentum is expected to continue into 2022.

“But now with the external headwinds with the impacts of Omicron, we do expect some drag going forward which will counterbalance a strong momentum going into this year.”

 Furthermore, he noted that Nigeria’s debt-to-GDP ratio was low which if properly harnessed could put the country on a path to sustainable recovery.

 Nabar added: “In terms of the debt situation, among low-income countries, Nigeria in terms of its public debt to GDP ratio, is actually relatively on the low side compared to other low-income countries.

“So, going forward, that is certainly providing a little bit more space to provide the needed support for combating the health emergency and also putting Nigeria on the path to a sustainable recovery.”

NLC: Why We Suspended Protest

The labour movement said it’s decision to suspend the protest was based on the policy reversal by the government which was formally communicated to it on Monday.

Addressing journalists shortly after a virtual National Executive Council (NEC) meeting of the NLC yesterday, its President, Mr. Ayuba Wabba said: “NEC after vigorous debates took a decision to suspend the planned nationwide protest scheduled for 27″ January 2022 and the national protest scheduled for 2″ February 2022.”

He said NEC met Tuesday morning virtually to consider the new position of the government and that at the end of the meeting, it resolved to suspend the protest and to direct the state chapters and all affiliates to discontinue mobilisation for the protest.

He said: “At the peak of very rigorous mobilisation of Nigerians by the NLC and a host of her civil society allies, the government through the Minister of Finance yesterday, 24” January 2022 made a public announcement reversing the plans to increase petrol pump price.

“The position of the government was also officially communicated to the Congress with calls for further engagement. Following the reversal and reapproach by government, the National Executive Council of the Nigeria Labour Congress met this morning virtually to consider the new position of the government.”

Wabba said going forward, labour would continue to engage with the government on the very critical issues of ensuring local refining of petroleum, creation of sustainable jobs and affordable price of petrol for Nigerian workers and people.

When asked about the steps labour would take to ensure that federal government does not renege on its pledge to shelve the policy on removal of fuel subsidy, Wabba said organised labour has a traditional of holding authorities accountable to their words, adding that NLC and its allies would use all instruments available to them to ensure that no policy measure that is injurious to workers and their families is allowed to go unchallenged.

LCCI Calls for Phased Removal of Fuel Subsidy

The LCCI urged the government to do all it could to avoid truncating the implementation of the Petroleum Industry Act (PIA), which it said has suffered a flip-flop as some of its provisions are being suspended.

The Director General of the LCCI, Dr. Chinyere Almona, who expressed the chamber’s reaction yesterday in a statement titled: “LCCI Statement on the Suspension of Fuel Subsidy Removal,” said: “In the face of this dilemma, we recommend that the removal is phased and with a complement of heavy investment in critical infrastructure that supports production in the economy. More production means more job creation, poverty reduction, and improved economic growth.

“The federal government must consider doing all that is possible not to truncate the implementation of the PIA 2021, which has already brought so much hope for industry watchers as a big game-changer for the oil and gas sector.

“There is a need for stakeholders’ consultations on addressing the implications of lapsed provisions of the Act and forging the way ahead towards the full implementation of the PIA.”

Almona pointed out that the major implication of the suspension was that it would increase the 2022 national budget’s deficit by N1.5 trillion and constrain the federal government to borrow more than it has projected within the fiscal year.

She said: “With a monthly payment of about N250 billion to subsidise fuel consumption, the implication is that an additional N1.5 trillion expenditure has to be provided for in the 2022 federal budget.

“With additional expenditure against the projected revenue, deficit financing will be needed to support the budget expenditure. We are likely to see government borrow more than projected to finance the bloated expenditure in the face of revenue mobilization challenge.”

The LCCI stated that while it supported the full implementation of the PIA and the total deregulation of the oil and gas sector, “we are not insensitive to the plight of the masses that may feel the pains of some of the provisions like the removal of fuel subsidies.”

NACCIMA Calls for Wider Consultation

NACCIMA has described the federal government’s suspension of the implementation of fuel subsidy removal as a welcomed development, adding that it was not surprised by the development.

It said: “We acknowledge government’s dilemma and difficulties for an enduring solution to the issue of removal of petroleum subsidy especially the prices of PMS. This decision to move the date and suspend subsidy removal beyond June is therefore not surprising. It appears as kicking the can down the road again. It is a welcome development.

“On one hand is the issue of problem of relieving itself of the onerous burden of a burgeoning petrol subsidy. On the other hand, is how to come up with commensurate benefits to cushion the effect of removal of subsidy on the people or economy at large.”

The Director General of NACCIMA, Ambassador Ayo Olukanni, said yesterday that, “it is absolutely necessary to consider a practical and acceptable implementation plan in the quest to gradually weaning the public off petrol subsidy and cushion the impact with appropriate palliatives.

“This can only be done in consultation with organised labour and other stakeholders including the private sector. Such an implementation plan must take into account appropriate timing aligned with the MTEF of government, as well as other concerns related to security.

“It is equally important that all efforts must be made not to overheat the polity either by commission or omission especially as we move ahead to an election year. We need a peaceful Nigeria for businesses to thrive, and attract foreign investment. The decision to temporise on subsidy removal, such as contemplated by government, deserves support and we hope this step will give the required time for extensive and wide consultation.”

 Deji Elumoye, Onyebuchi Ezigbo, Emmanuel Addeh in Abuja and Nume Ekeghe and Dike Onwuamaeze in Lagos

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