House Of Representatives Rejects Fuel Subsidy Removal
The proposed removal of fuel subsidy hit a brick wall at the House of Representatives Thursday, as the lawmakers voted against the controversial policy.
The legislators held that the proposal on fuel subsidy removal as contained in the Medium Term Expenditure Framework (MTEF) and revised Fiscal Strategy Paper submitted to the National Assembly by President Goodluck Jonathan was premature. The House has therefore advised the executive arm of government to explore other sources of financing items for the deficit expected in the 2012 Appropriation Bill instead of relying on savings from the proposed subsidy removal.
The decisions came as the lawmakers considered the report of the Joint Committee on Finance, Appropriation, Legislative Budget and Research, National Planning and Economic Development on the 2012-2015 MTEF and Fiscal Strategy Paper of the Federal Government.
Also Thursday, the House mandated its Committee on Petroleum Resources (Down-stream) to conduct an investigation into the issuance of licences to private refineries, delays in the completion of construction works and commencement of refining of petroleum products in Nigeria. There was no debate on the subsidy removal before it was adopted except for a feeble attempt by two lawmakers who were uncomfortable with the decision.
Chairman, House Committee on Reform of Government Institutions, Hon. Matthew Omegara (PDP/Imo), raised an objection to the decision and wanted a full debate on the subsidy issue to enable lawmakers understand the implications of whatever position they chose. Hon. Nkoyo Toyo (PDP/Cross River) also prevailed upon the House not to evade a debate on the fuel subsidy removal.
Toyo observed that the MTEF and by extension the forthcoming national budget, were predicated on the assumption that petroleum subsidy would be removed and savings accruing from it ploughed into the budget. She said if the House failed to confront the issue now, it would definitely come back to it.
In a resolution adopted at the Committee of the Whole, the House asked the executive arm of government to exercise caution in the implementation of its Public Private Partnership (PPP) policy to avoid a situation where government would abandon its social responsibility. The lawmakers said PPP should be restricted to specialised areas where the private sector has comparative advantage and expertise to deliver results.
The House urged the Federal Ministry of Finance to provide comprehensive information to the National Assembly on the volume of capital projects to be funded through the PPP before the submission of the 2012 budget proposal. They also said that henceforth, the Federal Ministry of Finance should provide indicative envelopes for the various sector, as part of the main report, to enable the National Assembly assess to the level of alignment with top line investment priority areas as indicated in the first National Implementation Plan.
Apart from the benchmark price of crude oil, which was slashed to $70 per barrel and the exchange rate which was pegged at N155.00 to one United States dollar, there were no major alterations to the basic parameters of the MTEF. Crude oil production figures of 2.48mbpd, 2.55mbpd and 2.58mbpd for 2012, 2013 and 2014 respectively were recommended and approved by the lawmakers.
On debt sustainability, the House adopted the recommendation on the proposed N794 billion as domestic borrowing in 2012 as well as the provision for both external and domestic debt service, saying they were within sustainable levels. The lawmakers, however, advised that henceforth, the practice of lumping together all public debts should be stopped since it does not provide any meaningful information. “Data should be disaggregated since specific information is required to determine the extent to which the foreign and domestic debt levels can accommodate the proposed federal budget deficit financing options. “In the future, the Debt Management Office should provide an analysis of the impact of the private sector and measures to reduce domestic debt,” the adopted report said.
In a resolution on a separate motion sponsored by Hon. Rose Oko (PDP/Cross River), the lawmakers expressed worries that nine years after the initial grant of licences to private refineries, none of them had commenced operations in the country. In 2002, the Federal Government issued licences to 18 private investors for the purpose of establishing refineries to beef up domestic refining of petroleum products in the country. Two years later, the government extended the licences to eight additional private refineries, bringing the number to 26 companies.
Under the terms of the licence, the companies were expected to commence construction of the refineries within two years of getting the licence and begin refining four years from the date of commencement of the construction. Oko expressed dismay that about N1.256 trillion was being spent on fuel subsidy annually, adding that such huge amount would have been enough to build two new refineries and saved the country the current controversy of fuel subsidy.
Meanwhile, as the Senate public hearing on the operations of the fuel subsidy scheme resumed Thursday, the Senate Joint Committee on Petroleum, (Downstream), Appropriation, and Finance investigating the management of the fuel subsidy fund ordered the Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, to furnish it with audit reports of fuel imports from January till date.
The order was issued just as the Senator Magnus Abbe-led committee discovered a payment of N192.5 billion subsidy on excess petroleum product importation. Also, the Nigeria Extractive Industries Transparency Initiative (NEITI) has passed a damning verdict confirming that the subsidy fund has been badly managed.
Abbe, who gave the order at the resumption of the investigative public hearing, also said that should the minister fail to produce the required document within seven days, the panel might be compelled to issue a subpoena on her. In her presentation, the minister had told the panel that the quantum of fuel import was being captured by auditors engaged by the Federal Government and the committee insisted on access to the document to enable it carry out an inquest.
The minister asked for more time to enable her tidy up the records but the committee chairman retorted: “We are giving you seven days to do that; if not, we will issue a subpoena.” When the panel queried the differentials between the N245.9 billion earmarked for fuel subsidy in 2011 and the N1.34 billion spent on the scheme so far, Okonjo-Iweala replied that the Ministry of Petroleum Resources would be in a position to explain that.
She, however, insisted that removal of fuel subsidy remained the best option in the circumstance, stressing that the poor masses who should be the beneficiaries were yet to do so. She said: “We want the poor to benefit from the subsidy but as it is now, that is not the case. It is our neighbouring countries that now buy it at cheap price and sell at high price. We are subsidising for them. If we must subsidise, it has to get to the poor.”
Group Managing Director of the Nigeria National Petroleum Corporation, Austin Oniwon, had informed the committee that Nigeria’s daily consumption requirement of PMS was 40 million litres and had imported about 17 billion litres in the last 10 months. But further checks by the committee revealed that with a N40 million litre daily consumption, the requirement between January and September which is the period under consideration, would be 14.5 billion litres.
It was discovered for instance that NNPC had imported an excess of 2.5 billion litres of PMS, an action the committee considered was capable of substantially increasing the subsidy bill chargeable to revenues accruable to the Federal Government. The NNPC confirmed that it was paying N77 as subsidy per litre, bringing the total excess payment within the period to N192.5 billion.
The total amount provided in the 2011 budget for subsidy payments is N245 billion, but according to Okonjo Iweala, the subsidy bill had gone up to N1.54 trillion as at October 2011.While interrogating the NNPC GMD, Senator Abubakar Saraki (PDP, Kwara) noted that the excess importation was enough to increase the subsidy bill substantially, noting that the revelation was important to the investigation.
He said: “I think with this, we have achieved something today. This amount of products is in excess of what we require on a daily basis. We have only computed this for 10 months; we could go backwards and will see another area we can look into.” Defending the figures, Oniwon argued that the NNPC keeps a reserve of petroleum products that could last the country for 54 days as a back up in cases of lack of importation or other problems.
He said the excess of petroleum products imported was part of the 54 days reserve, adding that importation was also subject to other vagaries ranging from failure of marketers to import and delays in the arrival of products. The committee was queried for deducting at source a total of N1.3 trillion for the payment of subsidies in excess of what was provided in the budget 2011.
Although Oniwon defended the action on the grounds that it was empowered by the Appropriation Act of 2011 to deduct from the revenues accruable to the Federal Government before paying the balance into the federation account, the committee faulted the deductions in excess of what was provided for in the Act. He said: “We did not breach the Appropriation Act. NNPC has never taken any money from the federation account because by law no money comes to the NNPC from the federation account. “The Act allows us to deduct from source for the payment of fuel subsidies and that is what we follow.”
Also defending the deductions, Minister of State for Finance, Dr. Yerima Ngama, said what was provided for in the budget was only sufficient for the payments of subsidy for two months, which is January and February alone. He noted that the payments for the rest of the months had to be provided for some other way since it was not provided for in the budget.
In the same vein, the Nigeria Extractive Industries Transparency Initiative (NEITI) has passed a damning verdict confirming that subsidy fund has been badly managed. In a report presented to the panel by the management led by Mrs Zainab Ahmed, NEITI, in its observation, said: “Under normal process, subsidy payments should be made from the Central Bank of Nigeria (CBN) through the Petroleum Support Fund (PSF) on the approval of the Accountant General of the Federation based on claims approved by the Petroleum Products Pricing Regulatory Agency (PPPRA) but this was not so as revealed by NEITI audits.”
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