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.
One analyst who spoke to BusinessDay, called the subsidy a fraud, which has been covered up for years and wondered why no one has raised an eyebrow about the fact that in the past twelve years of civil rule, there has not been any appropriation for this expenditure.
“This is in spite of the fact that the Constitution provides that no money shall be spent from the public funds of the federation or of the state, except as appropriated by the National Assembly or the state house of assembly.”
He said rather than fully accounting for the oil revenues of the federation on the one hand, and presenting estimates of total expenditures, on the other hand in the annual budget, what the Federal Government has been doing, is to make direct deductions of the subsidy from the crude oil revenue, before crediting the Federation Account with the net revenue.
“In effect, instead of the total revenue being available for distribution to the three tiers of government, as required by the constitution, it is the total revenue, less petroleum product subsidy, that is made available, in flagrant breach of the constitution,” he told BusinessDay.
He argued that in seeking to resolve this argument, one would expect that the first step would be an insistence that further breaches of the constitution by the first line deduction, is halted forthwith. That way, there will be accurate accounting for the nation’s revenue, followed by a proper estimation of the subsidy in a transparent manner.
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.
Another chieftain of the downstream sector, told Business Day that by mid December or January, something must give way, if only to avoid crisis in the sector because the government may not have money to pay its bills.
He said the marketers were confused about the matter, but that the better alternative, would be that the government hands off and deregulate completely.
