Wednesday, 26 October 2011

Fuel subsidy removal: FG explores 3 options

President Goodlukc Jonathan might have
made up his mind to deregulate the
downstream sector of the oil and gas
industry, as it may not really matter what the
public hold against the policy which has the
removal of subsidies on petroleum product as a
fundamental element.
“The President has made up his mind on this
subject of fuel subsidy removal; to him it is
time a Nigerian leader makes the hard
decision on deregulating the downstream
industry and President Jonathan is prepared
to make that decision,” a source in the
Presidency told Daily Sun.
And to buttress the readiness of the Jonathan
administration to go ahead and implement
the policy, the source said the government is
tinkering with three options for the
actualization of the deregulation policy. The
there options are: once off deregulation,
phased deregulation or deregulation by
“The PPPRA is most likely to mid-wife the
deregulation policy on behalf of the federal
government,” said the source who preferred to
remain anonymous. “This government
agency will have to hold dialogue with all
stakeholders to aid the in the choice of the
appropriate modality,” he added.
A part of the draft of the modality obtained
by Daily Sun indicated that under the ‘Once
Off Deregulation’ option “government and
all stakeholders would meet and decide on the
appropriate period to commence the full
deregulation of the sector.”
But to ensure the smooth implementation of
this modality, it was suggested that
“appropriate measures should be put in place
which may include building of adequate Fuel
Reserve, securing and making the pipeline
network function optimally, providing various
cushioning measures as may be necessary and
agreed to by all stakeholders.”
The next option the government is tinkering
with is ‘Phased Deregulation’ and it was
suggested that “stakeholders in conjunction
with the government will progressively
determine in line with the trends in market
fundamentals the quantum of subsidy the
government will contribute for the pre-
determined periods.”
Phased deregulation, the government said
would obviously result in the “privatizing some
or all the refineries for improved and
sustained performance.”
Under this modality, the Federal Government
plans to implement other cushioning
measures that will mitigate the impact on the
masses, while monitored economic indices are
matched against the pre-determined periods
from time to time to ensure feasibility of the
The third modality is ‘Deregulation by
Appropriation.’“In this case, the projected
amount of annual subsidy required is
determined by the government, and the
empirically determined amount is then
appropriated by the National Assembly,” the
government proposal said.
The implementation during the year would be
reviewed and advised by the PPPRA.
Government defended its decision to
deregulate the industry based on the fact that
“the huge subsidy being paid by the
government on petroleum products has
constrained government spending on the
development of adequate infrastructural
facilities and depletion of national revenue
“It encourages inefficient utilization of
resources and product smuggling across the
borders,” the government said in the
document obtained by The SUN.
“The consumers of kerosene for instance do
not buy the product at a regulated/subsidized
price set by the government due to distribution
bottlenecks, multiple handling and
malpractices by Marketers. And fuel subsidy
does not encourage healthy competitions
among operators as the regulatory
environment is controlled by the
government,” the government added
justifying the need to hands-off fuel subsidy.

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