Nigerian Govt defends increase in petrol, electricity prices

Nigerian Govt defends increase in petrol, electricity prices

Monday, September 7, 2020 11:02 pm


Vice President Osinbajo speaking at the presidential retreat on behalf of President Muhammadu Buhari

Ayorinde Oluokun/Abuja

The Federal Government on Monday moves to quell rising agitations over recent increases in prices of premium motor sprit, popularly known as petrol and electricity by putting arguments on why the prices of the two products should go up in the public domain.

First, it was President Muhammadu Buhari who at the First Year Ministerial Performance Review Retreat at the State House Conference Centre in Abuja put up reasons indicating that the government simply cannot continue subsidizing both products with the reduction in its revenue by about 60 per cent as a result of the COVID-19 pandemic.

Speaking in the same vein, the Minister of Information and Culture, Alhaji Lai Mohammed told journalists that the cost of the two products in Nigeria remain one of the cheapest in Africa and indeed, the world.

However, while both men described the decision to allow the jack up of the prices of the product as painful, they however expressed hope that there will be succor for consumers in the long run.

Speaking at the retreat,  the President said the COVID-19 pandemic led to severe downturn in the funds available to finance the nation’s budget.

“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 Premium Motor Spirit (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% less revenues, 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.’’

On electricity, the President added that the recent service based tariff adjustment by the Discos 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.

“Because of the problems with the privatization exercise, government has had to keep supporting the largely privatized electricity industry. So far to keep the industry going we have spent almost 1.7 trillion, especially by way of supplementing 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 a 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.

“Government has also taken notice of the complaints about arbitrary estimated billing.  Accordingly, a mass metering program is being undertaken to provide meters for over 5 million Nigerians, largely driven by preferred procurement from local manufacturers – creating thousands of jobs in the process. NERC has also committed to strictly enforcing the capping regulation which will ensure that unmetered customers are not charged beyond the metered customers in their neighbourhood.’’

The President noted that the timing of implementation of both tariffs was a coincidence.

“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 18 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.  Ministers and senior officials must accordingly ensure the vigorous and prompt implementation of the ESP programmes, which will give succour to Nigerians.

President Buhari said many Nigerians were yet to be connected to electricity, assuring that the Economic Sustainability Plan will provide Solar home systems to five million Nigerian households in the next 12 months.

“We have already begun the process of providing financing support through the CBN for manufacturers and retailers of Off Grid Solar Home Systems and Mini-Grids who are to provide the systems. The Five million systems under the ESP’s Solar Power Strategy will produce 250,000 jobs and impact up to 25 million beneficiaries through the installation. This means that more Nigerians will have access to electricity via a reliable and sustainable solar system.

“The support to Solar Home System manufacturers and the bulk procurement of local meters will create over 300,000 local jobs while ensuring that we set Nigeria on a path to full electrification. The tariff review is not about the increase, which will only affect the top electricity consumers, but establishing a system which will definitely lead to improved service for all at a fair and reasonable price.’’

Minister of State, Petroleum, Timipreye Sylva, Ministers of Information and Culture, Lai Mohammed, Power, Saleh Mamman at a media briefing in Abuja on Monday.

Speaking at a press conference on Monday, the Minister of Information and Culture, Alhaji Lai Mohammed says under the prevailing economic conditions it can no longer afford fuel subsidy and supplementing electricity tariff.

The Minister noted that the nation’s revenues and foreign exchange earnings have fallen by almost 60 per cent due to the downturn in the fortunes of the oil sector.

The media briefing was jointly addressed by the Minister of Power, Saleh Mamman and Minister of State Petroleum, Timipreye Sylvia.

Mohammed said that despite the economic situation, the government sustained expenditures, especially on salaries and capital projects and stopped unsustainable practices that were weighing the economy down.

“Government can no longer afford to subsidise petrol prices, because of its many negative consequences; these include a return to the costly subsidy regime.

“The second danger is the potential return of fuel queues – which has, thankfully, become a thing of the past under this Administration.

“The days in which Nigerians queue for hours and days just to buy petrol, often at very high prices, are gone for good.

“Of course, there is also no provision for fuel subsidy in the revised 2020 budget, because we just cannot afford it,” he said.

The Minister disclosed that from 2006 to 2019, fuel subsidy gulped N10.413 trillion, an average of N743.8 billion per annum.

He said from the figures provided by the NNPC, subsidy was N257 billion in 2006,  N272billion in 2007, N631 billion in 2008, N469 billion in 2009, N667billion in 2010, N2.105 trillion in 2011 and N1.355 trillion in 2012.

He added  that fuel subsidy gulped N1.316 trillion in 2013, N1.217 trillion 2014, N654 billion in 2015, N144.3 billion in 2017 N730.86 billion in 2018 N595 billion in 2019 while the figure was not available in 2016.

Mohammed said the long-drawn fuel subsidy regime ended in March 2020, with the Petroleum Products Pricing Regulatory Agency (PPPRA) announcement.

He recalled the PPPRA announced that it begun fuel price modulation, in accordance with prevailing market dynamics, and would respond appropriately to any

further oil market development.

“Recall that the price of fuel then dropped from N145 to N125 per litre, and then to between N121.50 and N123.50 per litre in May.

“With the low price of crude oil then, the cost of petrol, which is a derivative of crude oil, fell, and the lower pump price was passed on to the consumers to enjoy.

“With the price of crude inching up, the price of petrol locally is also bound to increase, hence the latest price of N162 per litre.

“If, perchance, the price of crude drops again, the price of petrol will also drop, and the benefits will also be passed on to the consumers.

“The angry reactions that have greeted the latest prices of Premium Motor Spirit (PMS) are therefore unnecessary and totally mischievous,” he said.

The minister said that the Government is not unmindful of the pains associated with higher fuel prices and it will continue to seek ways to cushion the pains, especially for the most vulnerable Nigerians.

“The government is providing cheaper and more efficient fuel in form of auto gas. Also, Government, through the PPPRA, will ensure that marketers do not exploit citizens through arbitrarily hike in pump prices,” he said.

Mohammed also noted that in spite of the recent increase in the price of fuel to N162 per litre, petrol prices in Nigeria remain the lowest in the West/Central African sub-regions.

In a comparative analysis, the minister said a litre of petrol is N332 in Ghana, N359 in Benin Republic, N300 in Togo, N346 in Niger Republic,  N366 in Chad. N449 in Cameroon.

He added that the price of petrol per litre is N433 in Burkina Faso, N476 in Mali, N257 in Liberia, N281 in Sierra Leone, N363 in Guinea and N549 in Senegal.

Outside the sub-region, the minister said petrol sells for  N211 per litre in Egypt and N168 per litre in Saudi,  stressing that with the removal of subsidy, fuel price in Nigeria remains among the cheapest in Africa.

On the service-based electricity tariff adjustment by the Distribution Companies (DISCOS), Mohammed said the government has been supporting the largely-privatized electricity industry.

“To keep the industry going, the government has so far spent almost N1.7 trillion specially by way of supplementing tariffs shortfalls.

“The government does not have the resources to continue along this path.

“To borrow just to subsidize generation and distribution, which are both privatized, will be grossly irresponsible,” he said

The minister noted that in order to protect the large majority of Nigerians, the industry regulator approved that tariff adjustments had to be made only on the basis of guaranteed improvement in service.

“Under this new arrangement, only customers with guaranteed minimum of 12 hours of electricity can have their tariffs adjusted.

“Those who get less than 12 hours supply will experience no increase; This is the largest group of customers.

To address the challenge of arbitrary estimated billing, he said a mass metering programme is being undertaken to provide meters for over 5 million Nigerians.

He said the Programme is largely driven by preferred procurement from local manufacturers to create jobs.

Mohammed said the NERC will also strictly enforce stoppage of estimated billing to ensure that unmetered customers are not charged beyond the metered customers in their neighbourhood.

The minister also noted that despite the recent service-based tariff review, the cost of electricity in Nigeria is still cheaper or compares favourably with that of many countries in Africa.

According to him, while Nigeria pays N49.75 per kilowatt, Senegal  pays N71.17, Guinea pays N41.36, Sierra Leone  pays N106.02 and Liberia N206.01

He added that Niger Republic pays N59.28, Mali pays N88.28, Burkina Faso pays N85.09, while Togo pays N79.88.

The minister noted that “the timing of the two necessary adjustments, in the petroleum and power sectors” was a coincidence and not a deliberate attempt to inflict pains on Nigerians.

He urged the people to ignore the “opportunistic opposition and their allies” who are playing dirty politics with the issue of petrol pricing and electricity tariff.

“Please note that these naysayers did not complain when the price adjustment led to lower petrol prices on at least two occasions since March.

“Nigerians must therefore renounce those who have latched onto the issue of petrol pricing and electricity tariff review to throw the country into chaos,” he said.

Speaking in the same vein, Sylva said with the loss of 60 per cent of the nation’s national income due to COVID-19, fuel and electricity subsidies were no longer feasible.

He said due to the pandemic, demand for crude oil, the mainstay of the nation”s economy dropped, affecting earnings.

“OPEC said that the only way to increase crude oil prices is to reduce production and we shut down our production to 1.42 million barrel per day from 2 million barrel per day.

“Before COVID-19 crude oil prices was in the range of over 60 dollar per barrel, today, in spite of all the cut in production, we have not been able to achieve more than 45 dollar per barrel.

“You can see that there is a crisis at hand and the only way to adjust is to stop subsidy, which previous administrations have attempted to do.

“We have gotten to that point now,” he said.

The minister called for understanding and support of Nigerians, stressing that it is in the best interest of a sustainable national economy.

 

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