Amidst current subsidy trajectory and  the economic implications of the Russian invasion of Ukraine, the Centre for Promotion of Private Enterprises (CPPE)  has projected that Nigeria’s subsidy cost may hit N4 trillion by the end of the year,  depending on how long the sanctions and invasion last.

The Centre noted that this has serious implications for the country’s budget and governments’ finances.  

Chief Executive Officer (CEO) of the Centre, Dr Muda Yusuf, who made the remark yesterday at its first quarter press conference on the Nigerian economy, stated that if crude oil price remains at current levels and the PMS price remains fixed, the country may be teetering on the brink of bankruptcy, as the current subsidy payment regime is simply not sustainable.

Yusuf argued that the  deregulation dialogue needs to urgently resume to save the economy from further deterioration, adding that stringent  steps need to be taken to consummate the reform process in the petroleum sector with the full activation of the Petroleum Industry Act (PIA).  

Commending the renewed efforts by government to tackle the challenge of insecurity in the oil producing areas, he noted that the area has witnessed unbridled pipeline vandalism, illegal refineries, oil theft, attacks on oil installations among others. Yusuf advised that at the meantime, all charges, import duty, levies and taxes on importation should be suspended to moderate the cost of fuel as an interim measure, saying the ultimate solution is to revisit the deregulation engagement with stakeholders to pave way for a market driven, private sector led investment framework, with the government playing a regulatory role.  “This is the option we have as a country to stop the bleeding, the distortions, the smuggling and loss of investment that our petroleum downstream sector had suffered over the years.”

“With current subsidy trajectory, subsidy cost would not be less than N4 trillion by the end of this year.  This is clearly a major source of disruption and dislocation for the finances of government at all levels.”

Reeling out some headwinds to economic growth and business performance in recent months to include the worsening security situation, the escalating energy cost, exchange rate depreciation, liquidity crisis in the foreign exchange market and the spiking inflationary pressures, the economist proffered a private sector led oil and gas sector that will bring benefits to the economy.

The benefits he said include free resources for investment in critical infrastructures such as power, roads, the rail systems, health sector, education sector; will unlock the huge private investment potential in the downstream oil sector especially in petroleum product refining; will eliminate the patronage mentality, rent seeking activities and corruption that currently characterise the downstream oil sector; will create more jobs for the teeming youths in the downstream oil sector as investment in the sector improves; would reduce smuggling of petroleum products outside the country.

The Russia Ukraine war, which has disrupted global oil and gas supplies and resulted in sharp increases in energy prices globally, he said was  taking a toll on cost of production, cost of business operations, haulage costs and consequently on profit margin.

“The cost of the major energy products had increased significantly – diesel, aviation fuel, natural gas and kerosene. The inflationary outcomes will affect affordability of some of many products, leading to further worsening of poverty.

“We will see an increase in subsidy payment as the landing cost of petrol increases. Regrettably, we remain a major importer of petroleum products.  Therefore, when oil prices increase, subsidy payment also surges. Only recently the estimate of subsidy was put at N3 trillion by the NNPC.  That was before the Russian invasion of Ukraine.  The story would have changed now.  We should expect subsidy payment exceed the N3 trillion by the end of the year, depending on how long the sanctions and invasion lasts. This of course has very serious implications for our budget and government finances.  

If crude oil price remains at current levels, and the PMS price remains fixed, the country may be teetering on the brink of bankruptcy. Current subsidy payment regime is simply not sustainable. The deregulation dialogue needs to urgently resume to save the economy from further deterioration.

Published on Sunnewsonline.com