Finally, Fuel Subsidy Begins Gradual Exit

-FG may not be able to subsidise import

The Federal Government’s decision to concede on Tuesday, to the demand of state governments, to stop direct deductions for subsidy from the crude oil revenue, before crediting the Federation Account with the net revenue, could push it into struggling to meet its obligation on petroleum supply, as well as throw the nation into another bout of fuel scarcity.

The agreement, which one petroleum industry stakeholder says has potentially ended petroleum subsidy, was reached after a marathon meeting that spanned several hours on Tuesday. The agreement also allowed the Federal Government to make a deduction of N100 billion only, this month, from the account, after which there will be no further deductions. The additional N100 billion will bring the total deductions this year to N800 billion spent on fuel subsidy.

Analysts say that the impact of the stoppage of deductions from the Federation Account for subsidy, will begin to manifest from next month, when the Federal Government will no longer be able to make any deductions.

Industry operators say this move could force government into printing more local currency, to continue to finance the fuel subsidy and meet its other obligations, including salary payments, because the burden of fuel importation as well as paying traders for fuel importations, definitely now falls directly on government’s laps.

Subsidy on petroleum products, has for some years now been the largest single item of annual national expenditure and was brought to the fore again recently, when the Federal Government said it planned to deregulate the petroleum sector completely, come January 2012.

The state governments rode on the back of this constitutional implication to make a case against the deductions.

Meanwhile, an industry analyst and chief executive officer of International Energy Services (IES), Diran Fawibe, said the action of the government to stop the deduction, might not necessarily mean that there would be scarcity of premium motor spirit (petrol) but rather, the Federal Government would have to bear the brunt of importation alone.

He said if the Federal Government allows fuel scarcity, it might not be able to contain the crisis and incidents that would follow it.

“The governors however do not have any reason for taking the actions they have taken but because they are thinking that the federal government takes the lion’s share of the federation account, the tendency is for the governors to feel that they need more money to execute their projects at the state level,’’ he argued.

 

CHARLES IKE-OKOH & OLUSOLA BELLO - BUSINESS DAY