Nigeria is spending more on a controversial fuel subsidy projected to hit N3 trillion by the end of 2021 than the sum of $4 billion the country raised through Eurobonds a few weeks ago, according to a new report by Bloomberg.
Oil prices have hit multi-year highs in recent days to over $84 per barrel from the $70 price level they were when Mele Kyari, the group managing director of state oil company, NNPC, put petrol subsidy figure at N150 billion monthly back in June 2021.
By December, it could reach N3 trillion and will be Nigeria’s largest energy intervention bill ever and under a government that claimed at the beginning that there was no subsidy on petrol.
The interventions would surpass the $4 billion the government raised through a Eurobond in September, the Bloomberg report reveals.
Recall in September, Nigeria raised $4 billion through Eurobonds, with investors demanding more than four times the amount on offer after an intensive two days of virtual meetings with investors across the globe.
“The economic case for the removal of Nigeria’s fuel subsidy regime is mounting by the day and the present administration seems undecided on how to proceed,” Joe Nwakwue, former chairman, Society of Petroleum Engineers (SPE), told BusinessDay.
Analysts have long said the subsidy cost is denying the country value that could have accrued from higher oil prices.
During a panel session at this year’s NES27 event, Shubham Chaudhuri, country director of World Bank for Nigeria, condemned the continued spending by Africa’s biggest economy on petrol subsidy, saying Nigeria could channel the money into upgrading primary healthcare, basic education, and rural roads infrastructure.
“I think the urgency of doing something now is because the time is going in terms of retaining the hope of young Nigerians in the future and potential of Nigeria,” Chaudhuri said.
Between January and August, a total of N905.27 billion had been incurred as subsidy cost, according to presentations to Federation Account and Allocation Committee (FAAC) meetings seen by BusinessDay.
According to the document, Nigeria incurred a subsidy cost of N60.40 billion in February, N111.97 billion in March, N126.30 billion in April, and N114.34 billion in May.
The subsidy cost rose from N143.29 billion in June to N175.32 billion in July, but fell to N149.28 billion in August, according to NNPC’s records.
The UN Children’s Fund (UNICEF) says Nigeria’s 13.2 million out-of-school children are the world’s highest. But the cost of subsidising petrol is 10 times larger than the entire 2021 budget of N94.4 billion meant to pay for free Universal Basic Education.
The implication of this is that Nigeria is spending less money providing basic education than it spends subsidising the cost of petrol, which experts have severally described “as economic waste amid scarce resources.”
Although the recently signed Petroleum Industry Act (PIA) provides for the deregulation of the downstream sector, President Muhammadu Buhari had ordered that petrol subsidy remain in place for the next five to six months to enable the government carry out wide consultations before reaching a final decision on the issue.
On Tuesday, Zainab Ahmed, minister of finance, budget and national planning, said the Federal Government had made provision for petrol subsidy for the first six months of 2022.
“In our 2022 budget, we only factored in subsidy for the first half of the year; the second half of the year, we are looking at complete deregulation of the sector, saving foreign exchange and potentially earning more from the oil and gas industry,” Ahmed said at a session at the 2021 NES27 summit.