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Nigeria Oil Subsidies Are Partially Reinstated

by Lorys Charalambous,, Cyprus

17 January 2012

Following growing protests and strikes in the country, Nigeria’s President Goodluck Jonathan has had to agree to a partial retraction of the complete withdrawal of petrol fuel subsidies that had been announced from January 1, 2012.

President Jonathan, during his announcement last month of the Federal Government’s 2012 Budget proposals, had made no provision for the petrol subsidies, even though they were reportedly costing the government the equivalent of more than USD8bn per year; and their formal removal was announced by the Petroleum Products Pricing Regulatory Agency (PPPRA).

It was said that the downstream oil sector was to procure and sell petroleum products, without subsidy, in accordance with an indicative benchmark price to be published fortnightly and posted on the PPPRA website. The initial open market benchmark price quoted on that website for the period from January 1 to January 15, 2012, was NGN141 (USD0.85) per litre, more than double the petrol retail prices of NGN65 per litre seen before the announcement.

Despite being a major oil producer, Nigeria still has to import refined products due to its lack of refinery capacity. The government had promised to spend, over time, a major proportion of the funds saved from the withdrawal of subsidies to rectify that situation, but such an immediate increase to fuel prices was seen internally as too substantial for the country’s consumers to bear.

In the event, the President has now approved a reduction in petrol prices from the free market NGN141 level to NGN97 per litre. However, the agreement of the country’s trade unions, who have been leading the protests, has not yet been obtained to that new price level, while Jonathan himself has reconfirmed the government’s policy to deregulate the downstream oil sector, which will still mean the eventual removal of all subsidies.

In the meantime, the government is also reported to have promised to investigate the loss of public funds due to corruption in the oil sector, and to a passage through parliament, as soon as possible, of the much-delayed Petroleum Industry Bill. The latter should regulate activities in the downstream sector while providing a new legal and regulatory framework for the industry as a whole.

Jonathan announced in last month's budget that contributions by the oil sector continue to improve as average daily oil production rose to 2.45m barrels per day in the second quarter of 2011, compared to 2.35m barrels per day in the corresponding period in 2010. Oil revenue receipts by the government last year were therefore likely to achieve targeted levels as a result of relatively higher oil prices and production levels than benchmarked.

With regard to revenues, Jonathan said that “we have initiated steps to increase revenues by blocking leakages from various sources, improve corporate tax collection, and boost internally generated revenue. We also believe that we should be able to earn a lot more revenue from the maritime sector. As part of the on-going port reforms, government will work vigorously to increase our revenue from maritime and related activities.”

TAGS: tax | economics | business | Niger | Nigeria | fiscal policy | oil and gas | tax rates

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